Document ID: SEC-2011-0660-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2011-05-12T04:00Z

[Federal Register Volume 76, Number 92 (Thursday, May 12, 2011)]
[Notices]
[Pages 27678-27680]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-11615]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64426; File No. SR-NASDAQ-2011-067]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Amend Rule 4120(a)(11) To 
Include Additional Securities in the Pilot by Which Such Rule Operates 
and Amend Rule 4613(a) To Simplify Certain Aspects of the Text While 
Also Conforming Certain of the Percentages Thereunder to the Proposed 
Changes to Rule 4120(a)(11)

May 6, 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 May 4, 2011, The NASDAQ Stock Market LLC (``Exchange''), filed with 
the Securities

[[Page 27679]]

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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend NASDAQ Rule 4120(a)(11) to include 
additional securities in the pilot by which such rule operates and 
amend Rule 4613(a) to simplify certain aspects of the text while also 
conforming certain of the percentages thereunder to the proposed 
changes to Rule 4120(a)(11).

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
    The Exchange proposes to amend Rule 4120(a)(11) to include 
additional securities in the pilot by which such rule operates and 
amend Rule 4613(a) to simplify certain aspects of the text while also 
conforming certain of the percentages thereunder to the proposed 
changes to Rule 4120(a)(11).
    The Commission approved Rule 4120(a)(11) on a pilot basis on June 
10, 2010 to provide for trading pauses in individual securities due to 
extraordinary market volatility (``Trading Pause'') in all securities 
included within the S&P 500[supreg] Index (``S&P 500'') (``Trading 
Pause Pilot'' or ``Pilot'').\3\ The Exchange noted in its filing to 
adopt Rule 4120(a)(11) that during the Pilot period it would continue 
to assess whether additional securities need to be added and whether 
the parameters of Rule 4120(a)(11) would need to be modified to 
accommodate trading characteristics of different securities. The 
Exchange subsequently received approval to add to the Pilot the 
securities included in the Russell 1000[supreg] Index (``Russell 
1000'') and a specified list of Exchange Traded Products (``ETPs'').\4\
---------------------------------------------------------------------------

    \3\ The Commission approved the Trading Pause Pilot for all 
equities exchanges and FINRA. See Securities Exchange Act Release 
No. 62252 (June 10, 2010), 75 FR 34186 (June 16, 2010) (File Nos. 
SR-BATS-2010-014; SR-EDGA-2010-01; SR-EDGX-2010-01; SR-BX-2010-037; 
SR-ISE-2010-48; SR-NYSE-2010-39; SR-NYSEAmex-2010-46; SR-NYSEArca-
2010-41; SR-NASDAQ-2010-061; SR-CHX-2010-10; SR-NSX-2010-05; and SR-
CBOE-2010-047) and Securities Exchange Act Release No. 62251 (June 
10, 2010), 75 FR 34183 (June 16, 2010) (SR-FINRA-2010-025).
    \4\ The Commission approved the addition to the Trading Pause 
Pilot of the securities included in the Russell 1000 and ETPs, where 
applicable, for all equities exchanges and FINRA. See Securities 
Exchange Act Release No. 62884 (September 10, 2010), 75 FR 56618 
(September 16, 2010) (File Nos. SR-BATS-2010-018; SR-BX-2010-044; 
SR-CBOE-2010-065; SR-CHX-2010-14; SR-EDGA-2010-05; SR-EDGX-2010-05; 
SR-ISE-2010-66; SR-NASDAQ-2010-079; SR-NYSE-2010-49; SR-NYSEAmex-
2010-63; SR-NYSEArca-2010-61; and SR-NSX-2010-08 and Securities 
Exchange Act Release No. 62883 (September 10, 2010), 75 FR 56608 
(September 16, 2010) (SR-FINRA-2010-033). The Exchange submitted a 
proposed rule change shortly after the addition of the Russell 1000 
securities and ETPs to extend the operation of the Pilot, which was 
set to expire on December 10, 2010, until April 11, 2011. See 
Securities Exchange Act Release No. 63505 (December 9, 2010), 75 FR 
78302 (December 15, 2010) (SR-NASDAQ-2010-162). On March 31, 2011, 
the Exchange submitted a proposed rule change to further extend the 
pilot program until the earlier of August 11, 2011 or the date on 
which a limit up/limit down mechanism to address extraordinary 
market volatility, if adopted, applies. See Securities Exchange Act 
Release No. 64174 (April 4, 2011), 76 FR 19819 (April 8, 2011) (SR-
NASDAQ-2011-042).
---------------------------------------------------------------------------

    The Exchange has continued to assess whether additional securities 
need to be added to the Pilot and whether the parameters of Rule 
4120(a)(11) need to be modified to accommodate trading characteristics 
of different securities. In consultation with other markets and the 
staff of the Commission, the Exchange proposes to include all NMS 
stocks within the Pilot that are not already included therein, but to 
apply a wider price move percentage to the newly added securities. 
Accordingly, the Exchange proposes to delete language concerning the 
limited application of Rule 4120(a)(11) from the rule's text, as the 
text therein would no longer be necessary. The Exchange proposes that 
the price move required to trigger a trading pause for the proposed new 
securities be 30% or more for such securities priced at $1 or higher 
and 50% or more for such securities priced less than $1.\5\ The 
Exchange believes that applying a broader percentage to securities 
priced less than $1 compared to those priced above $1 is appropriate 
given that lower-priced securities tend to be more volatile, and price 
movements of lower-priced securities equate to a higher percentage move 
than a similar price change for a higher-priced stock. The Exchange 
also believes that these percentages are commensurate with the 
characteristics shared by the proposed new securities within these 
price ranges and would promote the objectives of the Trading Pause 
Pilot to reduce the negative impacts of unanticipated price movements 
in a security. In particular, the proposed additional stocks are those 
not currently included in the S&P 500 Index, Russell 1000 Index, or 
specified ETPs, and therefore are more likely to be less liquid 
securities or securities with lower trading volumes. Accordingly, the 
Exchange believes that broader price move percentages would be 
appropriate. Similarly, because leveraged ETPs trade at a ratio against 
the associated index, a broader price move percentage would also be 
appropriate for leveraged ETPs. The Exchange proposes to include new 
subsections 4120(a)(11)(A), (B) and (C) to reflect the distinction 
between the applicable price move percentages for current Pilot 
securities and the proposed new securities to be included within the 
Pilot.\6\ The Exchange is not proposing any other changes to the text 
of Rule 4120(a)(11) or the operation of the Pilot, and will continue to 
assess whether the parameters for invoking a Trading Pause continue to 
be appropriate and whether the parameters should be modified.
---------------------------------------------------------------------------

    \5\ Under the proposed rule change, the price of a security 
would be based on the closing price on the previous trading day, or, 
if no closing price exists, the last sale reported to the 
Consolidated Tape on the previous trading day.
    \6\ The Exchange is not proposing a change to the price move 
percentage applicable to securities currently included within the 
current Pilot. However, the changes proposed herein would require 
that certain rule text pertaining to the price move for the existing 
Pilot securities be reorganized within Rule 4120(a)(11).
---------------------------------------------------------------------------

    The proposed changes to the Pilot, if approved, would require that 
the text of Rule 4613(a), which pertains to the pricing obligations 
that Market Makers are required to adhere to, be amended to correct the 
cross-references therein to Rule 4120(a)(11) and the price move 
thereunder. Specifically, the Exchange proposes to remove any text from 
Rule 4613(a) addressing NMS stocks that are not subject to the Pilot 
because no such securities would exist and such text would therefore be 
unnecessary. The Exchange also proposes to simplify Rule 4613(a) by 
explicitly stating the percentages that are applicable thereunder and 
the times during the trading day when Rule 4120(a)(11) is not in 
effect. The Exchange notes that part of this proposed change would be

[[Page 27680]]

substantive, in that the percentages under Rule 4613(a) would decrease 
slightly for the proposed new securities priced at $1 or greater. The 
Exchange believes that this proposed substantive change would not have 
a significant impact on Market Maker pricing obligations and is 
reasonable because it would ensure that the designated quoting 
percentages in Rule 4613(a) are within a narrower range than the 
percentages necessary to trigger a Trading Pause.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\7\ in general, and furthers the objectives of Section 
6(b)(5),\8\ 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 facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system. The proposed rule change also is 
designed to support the principles of Section 11A(a)(1) \9\ of the Act 
in that it seeks to ensure fair competition among brokers and dealers 
and among exchange markets. The Exchange believes that the proposed 
rule meets these requirements because it expands the scope of the Pilot 
to cover all NMS stocks while adjusting the parameters of the rule for 
different securities in a manner that will promote uniformity across 
markets concerning decisions to pause trading in a security when there 
are significant price movements. Additionally, the proposed changes 
would ensure that the designated quoting percentages in Rule 4613(a) 
are within a narrower range than the percentages necessary to trigger a 
Trading Pause.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ 15 U.S.C. 78k-1(a)(1).
---------------------------------------------------------------------------

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 on 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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) As the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-2011-067 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-2011-067. 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-2011-067 and should be submitted on or before June 2, 2011.
---------------------------------------------------------------------------

    \10\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-11615 Filed 5-11-11; 8:45 am]
BILLING CODE 8011-01-P