Notice2022-03876
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order Approving Proposed Rule Change To Amend Equity 4, Rule 4754 Relating to Certain Order Handling in the Limit Up-Limit Down Closing Cross
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
February 24, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 37 (Thursday, February 24, 2022)</title>
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[Federal Register Volume 87, Number 37 (Thursday, February 24, 2022)]
[Notices]
[Pages 10418-10419]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-03876]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94277; File No. SR-NASDAQ-2021-101]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order
Approving Proposed Rule Change To Amend Equity 4, Rule 4754 Relating to
Certain Order Handling in the Limit Up-Limit Down Closing Cross
February 17, 2022.
I. Introduction
On December 22, 2021, The Nasdaq Stock Market LLC (``Exchange'' or
``Nasdaq'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend Equity 4, Rule (``Rule'') 4754 relating
to certain order handling in the Limit Up-Limit Down (``LULD'') closing
cross. The proposed rule change was published for comment in the
Federal Register on January 5, 2022.\3\ The Commission has not received
any comment letters on the proposed rule change. This order approves
the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 93876 (December 29,
2021), 87 FR 501 (``Notice'').
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II. Description of the Proposed Rule Change
The Nasdaq closing cross is the Exchange's process for determining
the price at which orders will be executed at the close and for
executing those orders.\4\ In advance of the closing cross, the
Exchange disseminates an early order imbalance indicator (``EOII'')
every 10 seconds, beginning at 3:50 p.m.\5\ until the order imbalance
indicator (``NOII'') begins to disseminate.\6\ The Exchange
disseminates the NOII every second, beginning at 3:55 p.m. until market
close.\7\ Both the EOII and the NOII include, among other things, the
current reference price for a security, which is the single price that
is at or within the current Nasdaq best bid and offer at which the
maximum number of shares of market on close, limit on close (``LOC''),
and imbalance only orders can be paired.\8\
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\4\ See Rule 4754(a)(6).
\5\ All times referenced are in Eastern Time.
\6\ See Rule 4754(b)(1)(A).
\7\ See Rule 4754(b)(1)(B).
\8\ See Rule 4754(a)(7)(A) (also setting forth various tie
breakers if more than one price meets this definition) and Rule
4754(a)(10).
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Currently, Exchange participants may enter LOC orders between 4
a.m. and immediately prior to 3:55 p.m. for participation in the
closing cross.\9\ Exchange participants may also enter LOC orders
between 3:55 p.m. and immediately prior to 3:58 p.m. (``Late LOC
orders''), provided that there is a First Reference Price (i.e., the
current reference price disseminated in the EOII at 3:50 p.m.) \10\ or
a Second Reference Price (i.e., the current reference price
disseminated in the NOII at 3:55 p.m.) \11\ for the security.\12\ A
Late LOC order to buy (sell) is accepted at its limit price, unless its
limit price is higher (lower) than the higher (lower) of the First
Reference Price and the Second Reference Price, in which case the Late
LOC order will be handled consistent with the participant's instruction
that order is to be either rejected or re-priced to the higher (lower)
of the First Reference Price and the Second Reference Price.\13\
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\9\ See Rule 4702(b)(12).
\10\ See Rule 4754(a)(9).
\11\ See Rule 4754(a)(11).
\12\ See Rule 4702(b)(12).
\13\ See id. (also describing the rounding methodology if the
First Reference Price or Second Reference Price is not at a
permissible minimum increment).
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The LULD closing cross is the Exchange's process for executing
closing trades in Nasdaq-listed securities when an LULD trading pause
exists at or after 3:50 p.m. and before 4:00 p.m.\14\ In May 2021, the
Commission approved SR-NASDAQ-2021-009, which included certain changes
to the Exchange's LULD closing cross process.\15\ As approved,
consistent with the regular closing cross, the Exchange would
disseminate the EOII for the LULD closing cross every 10 seconds
beginning at 3:50 p.m. until the Exchange begins to disseminate the
NOII, and the NOII would be disseminated every second beginning at 3:55
p.m. until market close.\16\ Unlike the regular closing cross, the
reference price contained in such EOII and NOII represents the price at
which the LULD closing cross would execute should the cross conclude at
that time, and that price is bound by benchmarks that are calculated
using either the LULD price bands or the auction collars for reopening
following an LULD trading pause, depending on the time the trading
pause was initiated and whether the trading pause was extended.\17\
Also as approved in SR-NASDAQ-2021-009, consistent with the regular
closing cross, LOC orders (including Late LOC orders) for the LULD
closing cross may be entered, modified, and cancelled pursuant to Rule
4702(b)(12).\18\ In accordance with Rule 4702(b)(12), the Exchange
would determine whether Late LOC orders may be entered, rejected, or
re-priced using the reference prices disseminated in the EOII and NOII.
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\14\ See Rule 4754(b)(6).
\15\ See Securities Exchange Act Release No. 92068 (May 28,
2021), 86 FR 29864 (June 3, 2021). The Exchange has not yet
implemented the changes made in SR-NASDAQ-2021-009. See Notice,
supra note 3, at 501.
\16\ See Rule 4754(b)(6)(C).
\17\ See id. and Rule 4754(b)(6)(E).
\18\ See Rule 4754(b)(6)(F)(ii).
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The Exchange now proposes to amend the handling of Late LOC orders
in an LULD closing cross. Specifically, for purposes of determining
whether to accept, reject, or re-price a Late LOC order, the Exchange
would use the First Reference Price and the Second Reference Price, if
any, that was disseminated in the regular closing cross EOII and NOII,
instead of any First Reference Price and Second Reference Price that
was disseminated in the LULD closing cross EOII and NOII.
[[Page 10419]]
Accordingly, as proposed, if a security entered an LULD trading
pause prior and up to 3:50 p.m., the Exchange would not accept Late LOC
orders in that security,\19\ because that security would not have a
regular closing cross First Reference Price or Second Reference
Price.\20\ In addition, if a security entered an LULD trading pause
after 3:50 p.m. and up to 3:55 p.m., the Exchange would accept Late LOC
orders in that security, provided that there is a regular closing cross
First Reference Price.\21\ A security that entered an LULD trading
pause after 3:50 p.m. and up to 3:55 p.m. could have a regular closing
cross First Reference Price, but would not have a regular closing cross
Second Reference Price.\22\ Finally, if a security entered an LULD
trading pause after 3:55 p.m., the Exchange would accept Late LOC
orders in that security, provided that there is a regular closing cross
First Reference Price or Second Reference Price.\23\ A security that
entered an LULD trading pause after 3:55 p.m. could have both a regular
closing cross First Reference Price and a regular closing cross Second
Reference Price.\24\
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\19\ See proposed Rule 4754(b)(6)(F)(ii)(a).
\20\ See Notice, supra note 3, at 503 n.15. A security that
entered an LULD trading pause prior and up to 3:50 p.m. would
instead have an LULD closing cross First Reference Price and Second
Reference Price. See id. at 503.
\21\ Such orders may then be rejected or subject to re-pricing
in accordance with Rule 4702(b)(12), in either case consistent with
the participant's instructions. See proposed Rule
4754(b)(6)(F)(ii)(b).
\22\ See Notice, supra note 3, at 503 n.16. A security that
entered an LULD trading pause after 3:50 p.m. and up to 3:55 p.m.
would instead have an LULD closing cross Second Reference Price. See
id. at 503.
\23\ Such orders may then be rejected or subject to re-pricing
in accordance with Rule 4702(b)(12), in either case consistent with
the participant's instructions. See proposed Rule
4754(b)(6)(F)(ii)(c).
\24\ See Notice, supra note 3, at 503 n.17.
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III. Discussion and Commission Findings
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange.\25\ In
particular, the Commission finds that the proposed rule change is
consistent with Section 6(b)(5) of the Act,\26\ which requires, among
other things, that the rules of a national securities exchange be
designed to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in 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.
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\25\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\26\ 15 U.S.C. 78f(b)(5).
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As described above, the Exchange proposes to use the First
Reference Price and the Second Reference Price, if any, that was
disseminated in the regular closing cross EOII and NOII, for purposes
of determining whether to accept, reject, or re-price a Late LOC order
in the LULD closing cross. The Commission believes that the Exchange's
proposal would allow consistent handling of Late LOC orders in the LULD
closing cross and the regular closing cross. The Commission also
believes that the proposal would allow the Exchange to consistently use
reference prices that are bound by the Nasdaq best bid and offer (i.e.,
the First Reference Price and Second Reference Price, if any,
disseminated for the regular closing cross) for purposes of determining
whether to accept, reject, or re-price Late LOC orders, regardless of
whether a security entered an LULD trading pause prior and up to 3:50
p.m., after 3:50 p.m. and up to 3:55 p.m., or after 3:55 p.m.\27\
Accordingly, the Commission believes that the proposal would promote a
more consistent experience for Exchange participants that choose to
submit Late LOC orders to participate in the Exchange's closing
crosses.
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\27\ See supra notes 20, 22, and 24 and accompanying text
(describing the different First and Second Reference Prices that are
calculated for a security, depending on whether the security entered
an LULD trading pause prior and up to 3:50 p.m., after 3:50 p.m. and
up to 3:55 p.m., or after 3:55 p.m.).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\28\ that the proposed rule change (SR-NASDAQ-2021-101), be, and
hereby is, approved.
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\28\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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\29\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-03876 Filed 2-23-22; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on February 24, 2022.
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