Document ID: SEC-2011-0525-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2011-04-13T04:00Z

[Federal Register Volume 76, Number 71 (Wednesday, April 13, 2011)]
[Notices]
[Pages 20742-20744]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-8917]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64268; File No. SR-NASDAQ-2011-051]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Modify the Effective Hours of Rule 4753(c)

April 8, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on April 7, 2011, The NASDAQ Stock Market LLC (``NASDAQ'' or the 
``Exchange''), filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    NASDAQ is proposing to amend Rule 4753(c) to change the effective 
time of the rule from 9:30 a.m. to 4 p.m., to 9:45 a.m. to 3:35 p.m.
    The text of the proposed rule change is below. Proposed new 
language is italicized; proposed deletions are in brackets.
* * * * *

4753. Nasdaq Halt and Imbalance Crosses

    (a)-(b) No change.
    (c) For a pilot period ending six months after the date of 
Commission approval of SR-NASDAQ-2010-074, between 9:45[30] a.m. and 
3:35[4:00] p.m. EST, the System will automatically monitor System 
executions to determine whether the market is trading in an orderly 
fashion and whether to conduct an Imbalance Cross in order to restore 
an orderly market in a single Nasdaq Security.
    (1) An Imbalance Cross shall occur if the System executes a 
transaction in a Nasdaq Security at a price that is beyond the 
Threshold Range away from the Triggering Price for that security. The 
Triggering Price for each Nasdaq Security shall be the price of any 
execution by the System in that security within the prior 30 seconds. 
The Threshold Range shall be determined as follows:

------------------------------------------------------------------------
                                                             Threshold
                                                            range away
                                                               from
                     Execution price                        triggering
                                                               price
                                                             (percent)
------------------------------------------------------------------------
$1.75 and under.........................................              15
Over $1.75 and up to $25................................              10
Over $25 and up to $50..................................               5
Over $50................................................               3
------------------------------------------------------------------------

    (2) If the System determines pursuant to subsection (1) above to 
conduct an Imbalance Cross in a Nasdaq Security, the System shall 
automatically cease executing trades in that security for a 60-second 
Display Only Period. During that 60-second Display Only Period, the 
System shall:
    (A) maintain all current quotes and orders and continue to accept 
quotes and orders in that System Security; and
    (B) Disseminate by electronic means an Order Imbalance Indicator 
every 5 seconds.
    (3) At the conclusion of the 60-second Display Only Period, the 
System shall re-open the market by executing the Nasdaq Halt Cross as 
set forth in subsection (b)(2)-(4) above.
    (4) If the opening price established by the Nasdaq Halt Cross 
pursuant to subsection (b)(2)(A)-(D) above is outside the benchmarks 
established by Nasdaq by a threshold amount, the Nasdaq Halt Cross will 
occur at the price within the threshold amounts that best satisfies the 
conditions of subparagraphs (b)(2)(A) through (D) above. Nasdaq 
management shall set and modify such benchmarks and thresholds from 
time to time upon prior notice to market participants.
    (d) No change.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    NASDAQ is proposing to amend Rule 4753(c) to change the effective 
time of the rule from 9:30 a.m. to 4 p.m., to 9:45 a.m. to 3:35 p.m. On 
March 11, 2011, the Commission approved Rule 4753(c) (the ``Volatility 
Guard''), a volatility-based pause in trading in individual NASDAQ-
listed securities traded on NASDAQ (``NASDAQ Securities''), as a six 
month pilot applied to the NASDAQ 100 Index securities.\3\ The 
Volatility Guard automatically suspends trading in individual NASDAQ 
Securities that are the subject of abrupt and significant intraday 
price movements between 9:30 a.m. and 4 p.m. Eastern Standard Time 
(``EST''). Volatility Guard is triggered automatically when the 
execution price of a pilot security moves more than a fixed amount away 
from a pre-established ``triggering price'' for that security. The 
triggering price for each pilot security is the price of any execution 
by the system in that security within the previous 30 seconds. For each 
pilot security, the system continually compares the price of each 
execution in the system against the prices of all system executions in 
that security over the 30 seconds. Once triggered, NASDAQ institutes a 
formal trading halt during which time NASDAQ systems are prohibited 
from executing orders. Members, however, may continue to enter quotes 
and orders, which are queued during a 60-second Display Only Period. At 
the conclusion of the Display Only Period, the queued orders are 
executed at a single price, pursuant to NASDAQ's Halt Cross 
mechanism.\4\
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    \3\ See Securities Exchange Act Release No. 64071 (March 11, 
2011), 76 FR 14699 (March 17, 2011) (SR-NASDAQ-2010-074). Amendment 
1 to SR-NASDAQ-2010-074 designated the NASDAQ 100 Index as the 100 
pilot securities.
    \4\ The Nasdaq Halt Cross is ``the process for determining the 
price at which Eligible Interest shall be executed at the open of 
trading for a halted security and for executing that Eligible 
Interest.'' See Nasdaq Rule 4753(a)(3).
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    NASDAQ is preparing to implement the Volatility Guard in the second 
quarter of 2011, and through these preparations NASDAQ identified a 
possible concern with the effective time

[[Page 20743]]

of the Volatility Guard. As currently proposed, the Volatility Guard 
could interfere with the effective hours of NASDAQ's opening and 
closing crosses should a Volatility Guard halt occur during a cross 
process. The NASDAQ opening and closing crosses are price discovery 
facilities that cross orders at a single price. The crosses enable 
market participants to execute on-open and on-close interest.\5\ NASDAQ 
is proposing to change the effective time of the pilot to 9:45 a.m. 
until 3:35 p.m. EST to avoid potential interference with the crosses, 
and the orderly opening and closing of the market.
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    \5\ The crosses generate opening and closing prices that are 
widely used by industry professionals including Russell Investments, 
Standard & Poor's and Dow Jones.
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    NASDAQ notes that the proposed effective time is identical to the 
effective time of the single-stock trading pause pilot adopted by 
multiple U.S. markets, including NASDAQ, (the ``Circuit Breaker 
Pilot'').\6\ In approving the Circuit Breaker Pilot, the Commission 
noted that limiting the effective time of the pilot to 9:45 a.m. until 
3:35 p.m. EST would ensure that existing procedures designed to 
facilitate orderly openings and closings would not be interfered with. 
As a consequence, NASDAQ believes that adopting the identical effective 
time as the Circuit Breaker Pilot will reasonably ensure that the 
orderly opening and closing of the markets is not interfered with by 
the Volatility Guard.
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    \6\ On June 10, 2010, the Commission approved the Circuit 
Breaker Pilot, which instituted new circuit breaker rules that pause 
trading for five minutes in a security included in the S&P 500 Index 
if its price moves ten percent or more over a five-minute period. 
See Securities Exchange Act Release Nos. 62251 (June 10, 2010), 75 
FR 34183 (June 16, 2010) (SR-FINRA-2010-025); 62252 (June 10, 2010), 
75 FR 34186 (June 16, 2010) (SR-NASDAQ-2010-061, et al.). On 
September 10, 2010, the Circuit Breaker Pilot was expanded to 
include securities in the Russell 1000 Index and certain exchange-
traded products. See Securities Exchange Act Release Nos. 62883 
(September 10, 2010), 75 FR 56608 (September 16, 2010) (SR-FINRA-
2010-033); 62884 (September 10, 2010), 75 FR 56618 (September 16, 
2010) (SR-NASDAQ-2010-079, et al.). The Circuit Breaker Pilot is 
scheduled to expire on April 11, 2011, however, the Exchanges are 
filing proposals with the Commission to extend the pilot to August 
11, 2011. See e.g., Securities Exchange Act Release No. 63505 
(December 9, 2010), 75 FR 78302 (December 15, 2010) (SR-NASDAQ-2010-
162).
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    NASDAQ also believes that, as a complement to the Circuit Breaker 
Pilot, it is important that Volatility Guard's effective time mirror 
that of the Circuit Breaker Pilot. The Circuit Breaker Pilot applies to 
the securities of the S&P 500 Index, Russell 1000 Index and certain 
exchange-traded products. As such, there is certain overlap between the 
securities covered by the Circuit Breaker Pilot and Volatility 
Guard.\7\ Such a consistent approach to the effective time will lessen 
the potential for investor confusion surrounding the timing and 
operation of the two processes. Accordingly, NASDAQ believes 
harmonizing the intra-day effective time of the Volatility Guard with 
that of the Circuit Breaker Pilot will better serve the goal of working 
seamlessly with the cross-market pause and will avoid potential 
interference with the orderly opening and closing of the markets.
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    \7\ See Securities Exchange Act Release No. 62468 (July 7, 
2010), 75 FR 41258 (July 15, 2010) (SR-NASDAQ-2010-074) (discussing 
how Volatility Guard operates in relation to the Circuit Breaker 
Pilot).
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2. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\8\ in general and with Sections 
6(b)(5) of the Act,\9\ in particular in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest. NASDAQ believes that the 
proposed rule meets these requirements in that it promotes transparency 
and uniformity among the Circuit Breaker Pilot and the Volatility 
Guard. Further, the proposed changes will ensure that the opening and 
closing processes of the markets are not interfered with by the 
Volatility Guard.
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    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended.

C. Self-Regulatory Organization's Statement on Comments Regarding the 
Proposed Rule Change Received From Members, Participants or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms does not become operative for 30 days after the 
date of this filing, or such shorter time as the Commission may 
designate if consistent with the protection of investors and the public 
interest, the proposed rule change has become effective pursuant to 
Section 19(b)(3)(A) \10\ of the Act and Rule 19b-4(f)(6) 
thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under 19b-4(f)(6) normally may not 
become operative prior to 30 days after the date of filing.\12\ 
However, Rule 19b-4(f)(6)(iii) \13\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest. NASDAQ has requested that the 
Commission waive the 30-day operative delay. The Commission believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest. This proposed rule 
change will reduce the effective time of the Volatility Guard as the 
current effective time of the Volatility Guard could interfere with the 
NASDAQ opening and closing processes. This proposed rule change will 
also make the effective time of the Volatility Guard consistent with 
the Circuit Breaker Pilot. Waiving the operative delay will ensure that 
the proposed change in the effective time of the Volatility Guard is 
both effective and operative by the date on which NASDAQ implements the 
Volatility Guard. For this reason, the Commission designates the 
proposed rule change to be operative upon filing with the 
Commission.\14\
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    \12\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Commission notes that the Exchange has met this requirement.
    \13\ Id.
    \14\ For the purposes only of waiving the 30-day operative 
delay, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

[[Page 20744]]

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2011-051 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2011-051. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for Web site 
viewing and printing in the Commission's Public Reference Room, 100 F 
Street, NE., Washington, DC 20549, on official business days between 
the hours of 10 a.m. and 3 p.m. Copies of such filing also will be 
available for inspection and copying at the principal office of the 
Exchange. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
publicly available. All submissions should refer to File Number SR-
NASDAQ-2011-051 and should be submitted on or before May 4, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Cathy Ahn,
Deputy Secretary.
[FR Doc. 2011-8917 Filed 4-12-11; 8:45 am]
BILLING CODE 8011-01-P