Notice2022-28079
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Equity 4, Rule 4754 Regarding Close Eligible Interest
Primary source
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Published
December 27, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 247 (Tuesday, December 27, 2022)</title>
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[Federal Register Volume 87, Number 247 (Tuesday, December 27, 2022)]
[Notices]
[Pages 79385-79388]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-28079]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96542; File No. SR-NASDAQ-2022-076]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Equity 4, Rule 4754 Regarding Close Eligible Interest
December 20, 2022.
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 December 12, 2022, The Nasdaq Stock Market LLC (``Nasdaq'' or
``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 Substance
of the Proposed Rule Change
The Exchange proposes to amend Equity 4, Rule 4754. The text of the
proposed rule change is available on the Exchange's website at <a href="https://listingcenter.nasdaq.com/rulebook/nasdaq/rules">https://listingcenter.nasdaq.com/rulebook/nasdaq/rules</a>, at the principal office
of the Exchange, and at the Commission's Public Reference Room.
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
[[Page 79386]]
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 purpose of the proposed rule change is to amend Equity 4, Rule
4754 \3\ as it relates to Close Eligible Interest.\4\ Specifically, the
Exchange proposes to amend (a)(1) of Rule 4754 to specify that: (1) the
System will delay processing any full cancellation request \5\ for
Close Eligible Interest made during the Nasdaq Closing Cross until such
time as the Nasdaq Closing Cross concludes, except for securities in a
halt or pause; and (2) during a halt or pause, the System will process
any cancellation request for Close Eligible Interest made for such
halted or paused security during the Nasdaq Closing Cross.
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\3\ Hereinafter, references to the Rule 4000 Series shall mean
the Rule Series set forth in Equity 4 of the Exchange's Rulebook.
\4\ ``Close Eligible Interest'' means any quotation or any order
that may be entered into the system and designated with a time-in-
force of SDAY, SGTC, MDAY, MGTC, SHEX, or GTMC. See Rule 4754(a)(1).
\5\ Partial cancellation requests for Close Eligible Interest
would continue to be processed during the Nasdaq Closing Cross.
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The Nasdaq Closing Cross is a transparent auction process that
determines a single price for the close. Members can submit Limit on
Close (``LOC'') Orders,\6\ Market on Close (``MOC'') Orders,\7\ and
Imbalance Only (``IO'') Orders \8\ that are available to participate in
the Nasdaq Closing Cross along with Close Eligible Interest. LOC
Orders, MOC Orders, and IO Orders cannot be cancelled or modified at or
after 3:58 p.m. ET (or at or after two minutes prior to the early
closing time on a day when Nasdaq closes early).\9\ In contrast,
currently, Close Eligible Interest on the continuous book is eligible
for cancellation during the Nasdaq Closing Cross.
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\6\ A ``Limit On Close Order'' or ``LOC Order'' is an Order Type
entered with a price that may be executed only in the Nasdaq Closing
Cross or the LULD Closing Cross, and only if the price determined by
the Nasdaq Closing Cross or the LULD Closing Cross is equal to or
better than the price at which the LOC Order was entered. See Rule
4702(b)(12).
\7\ A ``Market On Close Order'' or ``MOC Order'' is an Order
Type entered without a price that may be executed only during the
Nasdaq Closing Cross. See Rule 4702(b)(11).
\8\ An ``Imbalance Only Order'' or ``IO Order'' is an Order
entered with a price that may be executed only in the Nasdaq Closing
Cross and only against MOC Orders or LOC Orders. See Rule
4702(b)(13).
\9\ See Rule 4702(b)(11)-(13).
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At 4:00 p.m. ET (or at the early closing time on a day when Nasdaq
closes early), the Exchange executes the Nasdaq Closing Cross at a
price determined in accordance with Rule 4754(b)(2). The cross in each
security is performed sequentially in a random order each day and in
total takes approximately 700 milliseconds on average. Therefore, the
time between the commencement and conclusion of the Nasdaq Closing
Cross for a particular security can range from less than one
millisecond up to 700 milliseconds or greater. During this gap,
currently, cancellations of Close Eligible Interest on the continuous
book can continue to take place, which can affect the closing price of
a security.
In addition to impacting the closing price of the security,
allowing cancellations of Close Eligible Interest during the Nasdaq
Closing Cross has another negative impact in that it causes divergence
between the closing price and the Order Imbalance Indicator. The Order
Imbalance Indicator disseminates information about MOC Orders, LOC
Orders, IO Orders, and Close Eligible Interest and the price at which
those orders would execute at the time of dissemination. The Exchange
disseminates an Order Imbalance Indicator every second until market
close beginning at 3:55 p.m. ET (or five minutes prior to the early
closing time on a day when Nasdaq closes early). The Order Imbalance
Indicator is intended to facilitate participation in the close.
Therefore, full cancellations of Close Eligible Interest during the
Nasdaq Closing Cross that cause divergences between the Order Imbalance
Indicator and the closing price are undesirable.\10\
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\10\ Although partial cancellations of Close Eligible Interest
during the Nasdaq Closing Cross could also impact the closing price
of the security and cause a divergence between the closing price and
the Order Imbalance Indicator, in practice, partial cancellations of
Close Eligible Interest during the Nasdaq Closing Cross occur less
frequently and have less impact on the closing price than full
cancellations.
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The proposed rule change to delay processing of any full
cancellation request for Close Eligible Interest made during the Nasdaq
Closing Cross until the Nasdaq Closing Cross concludes (except for
securities in a halt or pause) would better align with the practice to
not allow cancellations of other orders available to participate in the
Nasdaq Closing Cross (i.e., LOC Orders, MOC Orders, and IO Orders)
during the Nasdaq Closing Cross. In addition, this change would provide
for a more stable closing price that is more in line with the Order
Imbalance Indicator and participants' expectations. The proposed rule
change would also clarify that, during a halt or pause, the System
would process any cancellation request for Close Eligible Interest made
for such halted or paused security during the Nasdaq Closing Cross,
consistent with current practice.
Implementation Date
The Exchange will issue an Equities Trader Alert to provide
notification of the change and relevant date of implementation prior to
introducing the new functionality.\11\
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\11\ The proposed functionality herein was recently produced and
taken out of production, pending filing with the Commission.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\12\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\13\ in particular, in that it is designed to
promote just and equitable principles of trade, 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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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that its proposal will promote just and
equitable principles of trade because it will create a more
standardized process that does not allow for full cancellation of Close
Eligible Interest during the Nasdaq Closing Cross. As explained above,
the Exchange currently allows for cancellation of Close Eligible
Interest during the Nasdaq Closing Cross yet does not allow for full or
partial cancellation of other orders during the Nasdaq Closing Cross.
The Exchange believes that the proposed change to no longer allow for
full cancellation of Close Eligible Interest during the Nasdaq Closing
Cross (unless the securities are in a halt or pause) will benefit
investors by providing a more consistent experience for members and
investors, and reducing any potential confusion regarding Nasdaq's
closing processes.
Furthermore, the current process of allowing for cancellations of
Close Eligible Interest during the Nasdaq Closing Cross can impact the
closing price of the security and cause divergence from the Order
Imbalance Indicator. The Exchange believes that delaying full
cancellations until the end of the Nasdaq Closing Cross (unless the
securities are in a halt or pause) would facilitate fair and orderly
pricing at the Nasdaq Closing Cross, consistent with participants'
expectations, thereby removing impediments to and
[[Page 79387]]
perfecting the mechanism of a free and open market and a national
market system. The Exchange's proposal to clarify that, during a halt
or pause, the System will process any cancellation request for Close
Eligible Interest made for such halted or paused security during the
Nasdaq Closing Cross, will provide increased clarity and help limit any
potential confusion in the future, protecting investors and the public
interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The proposed rule change is
designed to create a more standardized process and improve the Nasdaq
Closing Cross process by delaying the processing of any full
cancellation request for Close Eligible Interest made for any
securities not halted or paused during the Nasdaq Closing Cross until
such time as the Nasdaq Closing Cross concludes. The change would apply
to all full cancellation requests in Close Eligible Interest (except
for securities in a halt or pause) and would benefit participants by
providing for a more stable closing price that is more in line with the
Order Imbalance Indicator, consistent with expectations. The proposed
rule change would also clarify that, during a halt or pause, the System
will process any cancellation request for Close Eligible Interest made
for such halted or paused security during the Nasdaq Closing Cross,
benefiting participants by providing increased clarity and helping to
limit any potential confusion in the future.
The Exchange does not believe that the proposed change to (a) delay
the processing of any full cancellation request for Close Eligible
Interest made during the Nasdaq Closing Cross until the Nasdaq Closing
Cross ends (except for securities in a halt or pause) and (b) clarify
that, during a halt or pause, the System will process any cancellation
request for Close Eligible Interest made for such halted or paused
security during the Nasdaq Closing Cross, will have any significant
impact on competition. The Exchange operates in a highly competitive
market in which market participants can easily direct their Orders to
competing venues, including off-exchange venues. In such an
environment, the Exchange must continually review and consider
adjusting the services it offers and the requirements it imposes to
remain competitive with other venues. Therefore, the Exchange believes
that the proposed change in interpretation reflects this competitive
environment.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \14\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\15\
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\14\ 15 U.S.C. 78s(b)(3)(A)(iii).
\15\ 17 CFR 240.19b-4(f)(6). 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, along
with a brief description and text of 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 Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative prior to 30 days after the date of filing. Rule
19b-4(f)(6)(iii), however, permits the Commission to designate a
shorter time if such action is consistent with the protection of
investors and the public interest. The Exchange has requested that the
Commission waive the operative delay so that the proposal may become
operative immediately upon filing. The proposed rule will permit Nasdaq
to delay processing full cancellation requests for Close Eligible
Interest during the Nasdaq Closing Cross until conclusion of the Nasdaq
Closing Cross (except for securities in a halt or pause). Nasdaq
represents that the proposal will help prevent divergence from the
Order Imbalance Indicator and facilitate fair and orderly pricing at
the Nasdaq Closing Cross, consistent with participants' expectations.
The Commission thus believes that waiver of the operative delay is
consistent with the protection of investors and the public interest.
Accordingly, the Commission hereby waives the operative delay and
designates the proposal operative upon filing. \16\
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\16\ For 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 the 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.
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
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#3c4e495059115f5351515952484f7c4f595f125b534a"><span class="__cf_email__" data-cfemail="740601181159171b1919111a0007340711175a131b02">[email protected]</span></a>. Please include
File Number SR-NASDAQ-2022-076 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2022-076. This
file number should be included on the subject line if email 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 website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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 website 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 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from
[[Page 79388]]
comment submissions. You should submit only information that you wish
to make available publicly. All submissions should refer to File Number
SR-NASDAQ-2022-076, and should be submitted on or before January 17,
2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12), (59).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-28079 Filed 12-23-22; 8:45 am]
BILLING CODE 8011-01-P
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