Self-Regulatory Organizations; the NASDAQ Stock Market LLC; Notice of Filing of a Proposed Rule Change, and Amendment No. 2 Thereto, Relating to the Establishment of the Equity Value Indicator Cross, 46129-46132 [E8-18155]
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Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Notices
No. SR–DTC–2008–05 on the subject
line.
SECURITIES AND EXCHANGE
COMMISSION
Paper Comments
[Release No. 34–58275; File No. SR–
NASDAQ–2008–025]
• 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 No.
SR–DTC–2008–05. 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 (https://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 inspection and copying 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. to 3 p.m.
Copies of such filing also will be
available for inspection and copying at
DTC’s principal office and on DTC’s
Web site at https://www.dtcc.com/legal/
rule_filings/dtc/2008.php. 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 available publicly. All
submissions should refer to File No.
DTC–2008–05 and should be submitted
on or before August 28, 2008.
For the Commission by the Division of
Trading and Markets, pursuant to delegated
authority.3
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–18070 Filed 8–6–08; 8:45 am]
sroberts on PROD1PC70 with NOTICES
BILLING CODE 8010–01–P
Self-Regulatory Organizations; the
NASDAQ Stock Market LLC; Notice of
Filing of a Proposed Rule Change, and
Amendment No. 2 Thereto, Relating to
the Establishment of the Equity Value
Indicator Cross
July 31, 2008.
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 March 20,
2008, 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, II, and
III below, which Items have been
substantially prepared by the Exchange.
On July 23, 2008, Nasdaq filed
Amendment No. 1 to the proposed rule
change. On July 30, 2008, Nasdaq
withdrew Amendment No. 1 and filed
Amendment No. 2 to the proposed rule
change. Amendment No. 2 replaces the
original filing in its entirety. The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as amended, from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Nasdaq is proposing to establish a
crossing mechanism for EVI securities,
which is designed to allow issuers of
employee stock options a market-based
way of measuring the cost of such
options. The text of the proposed rule
change is below. Proposed new
language is italicized; deletions are
bracketed.3
*
*
*
*
*
6300. [RESERVED] Nasdaq Equity
Value Indicator Cross
(a) Definitions. For the purposes of
this rule the term:
(1) ‘‘Imbalance’’ shall mean the
amount of Eligible Interest that may not
be matched with other orders at a
particular price at any given time.
(2) ‘‘Order Imbalance Indicator’’ shall
mean a message disseminated by
electronic means containing
information about Eligible Interest and
the price at which such interest would
execute at the time of dissemination.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Changes are marked to the rules of The
NASDAQ Stock Market LLC found at https://
nasdaq.complinet.com.
2 17
3 17
CFR 200.30–3(a)(12).
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46129
The Order Imbalance Indicator shall
disseminate the following information:
(A) ‘‘Current Reference Price’’ shall
mean the highest price at which the
maximum amount of Eligible Interest
can be paired.
(B) the amount of Eligible Interest that
is paired at the Current Reference Price;
(C) the size of any Imbalance at the
Current Reference Price; and
(D) the buy/sell direction of any
Imbalance.
(3) ‘‘Nasdaq EVI Cross’’ shall mean
the process for determining the price at
which Eligible Interest shall be
executed. All prices referred to in this
rule shall be in minimum increments of
one penny.
(4) ‘‘Eligible Interest’’ shall mean any
priced order that may be entered into
the system for the EVI Cross.
(5) ‘‘EVI’’ shall mean any Equity
Value Indicator Tracking Security which
is issued for the purpose of generating
a market-based value of employee stock
options for purposes of FASB Statement
of Financial Accounting Standards No.
123(R), Share-Based Payment. The
number of EVIs made available via the
EVI Cross, the limit price, if any, of the
EVIs, and the terms of the EVIs shall be
determined by the EVI issuer which
shall make that information available to
the public at the earliest time
practicable.
(b) Processing of Nasdaq EVI Cross.
(1) (A) No later than 4:00 p.m. EST on
the day of the scheduled EVI Cross, a
Nasdaq member authorized to act for
the EVI Issuer shall direct in writing that
Nasdaq enter into the System a single
sell order with the quantity and limit
price if any of EVI Eligible Interest. The
sell order may not be modified after 4
p.m. and may be cancelled after 4:00
p.m. only in connection with a
cancellation of the EVI Cross as set forth
in subsection (c) below.
(B) Beginning at 8 a.m. and
continuing until 4:59:59 p.m. Nasdaq
members may enter buy orders into the
System. Except as provided below, once
entered, buy orders may be cancelled
but may not be modified.
(C) The EVI Cross shall occur at 5
p.m. EST. in the manner set forth below
unless the time of execution is
extended. The time of execution of the
EVI Cross shall be extended only if the
Current Reference Price of the EVI
security changes by 1 percent or more
between 4:59 p.m. and 5 p.m, in which
case the time of the EVI Cross will be
extended by 2 minutes. The time of
execution of the EVI Cross shall be
extended for an additional 2 minutes if
the Current Reference Price of the EVI
Security changes by 1 percent or more
in the final minute of a two-minute
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extension. The time of execution of the
EVI Cross shall be extended no more
than 30 times. If the time of execution
of the EVI Cross has been extended 10
times, order cancellation will be
prohibited.
(2) At 4 p.m. and continuing through
the execution of the EVI Cross, Nasdaq
shall disseminate by electronic means
an Order Imbalance Indicator every
minute for the first 45 minutes and
every 15 seconds thereafter.
(3) The Nasdaq EVI Cross shall occur
at the highest price that maximizes the
amount of Eligible Interest to be
executed.
(4) If the Nasdaq EVI Cross price is
selected and less than all Eligible
Interest that is available would be
executed, all Eligible Interest shall be
executed at the Nasdaq EVI Cross price
in price/time priority.
(5) All Eligible Interest executed in the
Nasdaq EVI Cross shall be executed at
the Nasdaq EVI Cross price, trade
reported to the National Securities
Clearing Corporation and disseminated
via a data feed.
(c) The EVI Cross shall be cancelled
if:
(i) The issuer determines prior to 4:45
p.m. on the date scheduled for the EVI
Cross to cancel its participation; or
(ii) The common stock of the issuer is
in a halted state at 4:45 p.m. on the date
scheduled for the EVI Cross.
(d) The issuer of an EVI Security shall
become eligible to participate in the
NASDAQ EVI Cross by paying a fee as
follows:
(i) Two percent of the total value of
the EVI offering up to a maximum of
$10,000,000 of total value, plus
(ii) One and one half percent of the
total value of the EVI offering above
$10,000,000 of total value, and
(iii) The maximum fee shall be
$1,500,000.
This fee shall be refunded if no EVI
Cross is executed. This fee shall include
all processing of the EVI Cross,
including order entry, order execution,
imbalance information dissemination,
and transmission to the appropriate
clearing agency. Nasdaq members not
issuing securities shall pay no fees to
participate in the NASDAQ EVI Cross.
*
*
*
*
*
The text of the proposed rule change is
also available at Nasdaq, the
Commission’s Public Reference Room,
and
www.nasdaqomx.cchwallstreet.com.
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
NASDAQ 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.
NASDAQ 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 establish a
crossing mechanism for EVI securities,
which is designed to allow issuers of
employee stock options a market-based
way of measuring the cost of such
options. In this filing, Nasdaq is seeking
Commission approval under Section
19(b) of the Act only for its proposed
rules relating to the EVI cross. The
registration of any particular EVI
securities with the Commission is the
responsibility of the issuer and would
be subject to separate review by the
Commission and its Division of
Corporation Finance.4 Similarly, the
extent to which an issuer may use a
price derived from a particular EVI
crossing auction to measure the cost of
employee stock options may be subject
to separate review by the Commission
and its staff.
The EVI Cross is a market pricing
mechanism modeled on Nasdaq’s
industry leading crossing technology
currently used for the Nasdaq Opening
and Closing Crosses, the Nasdaq
Crossing Network, and the Nasdaq IPO
and Halt Crosses, set forth in Nasdaq
Rules 4752, 4753, 4754, and 4770. As a
facility of Nasdaq,5 the EVI Cross will
4 Nasdaq anticipates that each EVI tracking
security will entitle the holder to specified
payments upon the exercise of stock options
comprising a reference pool of stock options that
have been previously granted to employees by the
issuer. The securities will represent a payment
obligation of the issuer, but will not represent any
direct ownership interest in the issuing company or
in any of the reference pool stock options. The
specific features of the securities, including how
payments are calculated, maturity dates and form
of payment, will be determined by each issuer. The
price and allocation of the securities for each
issuance will be determined by the results of the
auction. The issuer will make available to the
public the terms and features of its EVI tracking
security.
5 Nasdaq does not currently expect that EVI
securities will be listed on Nasdaq or any other
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utilize the existing technology network
that links more than 100,000 market
participants with NASDAQ and provide
broad access for investors to participate
in price discovery for EVI instruments.
The EVI Cross will provide price
discovery, equal access, and fair
executions at a single price that is fully
reflective of market demand for EVI
instruments. The EVI Cross will be the
appropriate mechanism to determine a
fair market price for EVI instruments
which issuers may utilize to determine
their options expense.
Like Nasdaq’s current crosses, the EVI
Cross will have three elements: (1) A
defined order entry period, (2)
information dissemination, and (3) a
single price execution according to a
fixed algorithm. For the EVI Cross, order
entry will begin at 8 a.m. and end at 5
p.m. EST on date of issuance, typically
the first trading day following an
options grant date. Nasdaq members
will access the EVI Cross system
through existing interfaces for order
entry, although the EVI Cross system
will be entirely separate from the
Nasdaq Market Center execution system
(the Single Book). The EVIs available for
sale in the EVI Cross will be entered
into the System in a single sell order. A
Nasdaq member authorized to act on
behalf of the EVI Issuer shall direct
Nasdaq to enter the single sell order into
the System, including the quantity of
EVIs and the limit price, if any. Once
entered, the sell order cannot be
modified after 4 p.m. and my [sic] be
cancelled after 4 p.m. only in
connection with a cancellation of the
EVI Cross as set forth in subsection (c)
of Rule 6300. All buy orders must be for
a fixed price and size; all EVIs will be
offered by the issuer for sale on
identical terms to individual bidders.
Entered buy orders can be cancelled
until 5 p.m, and no executions will
occur prior to the auction close.
As with Nasdaq’s current crosses,
Nasdaq will facilitate price discovery for
the EVI Cross. First, Nasdaq will
facilitate price discovery prior to the
start of the EVI Cross. As set forth in the
proposed rule, Nasdaq will require
issuers to make available to the public
at the earliest possible time information
regarding the number of EVIs made
available via the EVI Cross, the reserve
price, if any, of the EVIs, and the terms
and conditions of the EVIs. This
national securities exchange. In the event an EVI
issuer desires to list its EVIs on Nasdaq or another
exchange, the issuer will be required to meet
applicable listing requirements. In the event no
such requirements exist, the exchange would be
required to file a proposed rule change under
Section 19(b) seeking approval of appropriate
listing requirements.
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requirement will reinforce the issuers’
inherent interest in attracting the
maximum number of bidders to the EVI
Cross by providing potential bidders
with the information they need to
determine their willingness to
participate and the price and size of
their orders.
In addition, Nasdaq will facilitate
price discovery by disseminating
indicative auction price information via
the Order Imbalance Indicator which is
available on NASDAQTrader.com and
as a data feed. Indicative price
information includes: (1) The Current
Reference Price, an indicative auction
price at which all EVI instruments
would be sold based on current bids; (2)
paired units, the number of units
matched for execution at the Current
Reference Price; and (3) the Imbalance,
the total imbalance and the size of
executable units at the Current
Reference Price. Indicative information
will be disseminated starting at 4 p.m.
once per minute for the first 45 minutes,
and every 15 seconds thereafter.
Disseminating indicative information
will help both issuers and purchasers. It
will assist issuers by informing them
whether the EVI Cross is likely to
culminate in a successful auction.
Indicative information will enable the
issuer to determine that the EVI Cross is
unlikely to succeed due to, for example,
insufficient buying interest, market
volatility, or buying interest below the
issuer’s reserve price. Thus, issuers can
use the indicative information to
exercise their option under the
proposed rule to cancel the EVI Cross
any time prior to 4:45 p.m. Indicative
information assists buyers by enabling
them to gauge the level of buying
interest and the likely outcome of the
EVI Cross. Thus, buyers can use
indicative information to exercise their
options under the rule to enter or cancel
orders in the EVI Cross. Nasdaq
understands that the transparency
created by the dissemination of
indicative information has been a major
factor in the success of Nasdaq’s
Opening, Closing, and Intra-Day
Crosses.
To protect against volatility, Nasdaq
will extend the quote-only period if a
price change greater than one percent
occurs between 4:59 p.m. and 5 p.m. In
that case, Nasdaq will extend the quoteonly period by two minutes. If during
the final minute of a two-minute
extension, a price change greater than
one percent occurs, the quote-only
period will be extended for an
additional two minutes. If the quoteonly period is extended more than 10
times, members will be prohibited from
canceling orders. There will be no more
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than 30 extensions of the quote-only
period.
The EVI Cross will occur at 5 p.m.
Eastern Time or at such time that the
quote-only period ends, as described
above. The EVI Cross will occur at the
highest price that maximizes the
amount of Eligible Interest to be
executed. Final auction information
disseminated to all participants and all
executions will clear through National
Securities Clearing Corporation.
Nasdaq has unique technology and
expertise in creating liquid markets and
efficient price discovery. The EVI Cross
will utilize the existing technology
network that links more than 100,000
market participants with NASDAQ and
provides broad access for investors to
participate in price discovery of an
options valuation security. Market data
vendors and participants will have
access to imbalance information for the
EVI Cross by purchasing the Net Order
Imbalance Indicator data feed which is
available on the Nasdaq TotalView data
feed and also through the Nasdaq
Workstation and Nasdaq Data Store at
the current filed fee.6 As with other
NASDAQ trading platforms, the EVI
Cross will provide an open process in
which all investors have the ability to
enter orders and participate in price
discovery. The EVI Cross mechanism
will be regulated by FINRA and
NASDAQ.
Fees Applicable to the EVI Cross
Nasdaq will assess a single fee for the
EVI Cross equal to a percentage of the
total value of the issuance of the EVI
Security up to a maximum of
$1,500,000. This cost will be borne by
the issuer of the EVI instrument and
will cover the entire cost of the
processing of the EVI Cross, including
the entry and execution of orders, the
dissemination of indicative information,
and the transmission of execution
information to cross participants and to
NSCC. The fee will be based upon the
total value of the EVI offering, regardless
of whether all EVIs in the offering are
executed in the EVI Cross, except that
the fee shall be refunded if no EVI Cross
occurs.
Nasdaq members will pay no fees to
participate in the EVI Cross by entering
orders and having them executed.
Although members will be required to
establish a new port for connectivity to
access the EVI Cross, there will be no
fee assessed for that port.
2. Statutory Basis
Nasdaq believes that the proposed
rule change is consistent with the
provisions of Section 6 of the Act,7 in
general, and with Section 6(b)(5) of the
Act,8 in particular, in that the proposal
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 this
proposal supports the goals of the
Exchange Act by creating a new,
efficient, liquid, and transparent market
for interested investors. The proposed
functionality is completely voluntary
with respect to all potential
participants, including issuers,
members, and customers. Nasdaq
believes that the proposed fee is fair,
reasonable and non-discriminatory, in
that it must remain responsive to
competitive market forces.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
Nasdaq 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.
To the contrary, by offering an
innovative new product, Nasdaq is
demonstrating the proper functioning of
the competitive framework established
under the Exchange Act and
administered by the Commission.
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 35 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 such proposed
rule change, or
7 15
6 See
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Nasdaq Rule 7023.
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U.S.C. 78f.
U.S.C. 78f(b)(5).
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(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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.9
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–18155 Filed 8–6–08; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NASDAQ–2008–025 on the
subject line.
[Release No. 34–58279; File No. SR–
NASDAQ–2008–066]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing of a Proposed Rule Change To
Modify Rule 7050 Governing Pricing
for Nasdaq Members Using the
NASDAQ Options Market (‘‘NOM’’)
July 31, 2008.
Paper Comments
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 July 24,
2008, The NASDAQ Stock Market LLC
All submissions should refer to File
(‘‘Nasdaq’’) filed with the Securities and
Number SR–NASDAQ–2008–025. This
Exchange Commission (‘‘Commission’’)
file number should be included on the
the proposed rule change as described
subject line if e-mail is used. To help the in Items I, II, and III below, which Items
Commission process and review your
have been prepared by Nasdaq. Nasdaq
comments more efficiently, please use
has filed this proposal pursuant to
only one method. The Commission will Section 19(b)(3)(A)(ii) of the Act 3 and
post all comments on the Commission’s Rule 19b–4(f)(2) thereunder,4 Nasdaq
Internet Web site (https://www.sec.gov/
has designated this proposal as
rules/sro.shtml). Copies of the
establishing or changing a due, fee, or
submission, all subsequent
other charge applicable only to
amendments, all written statements
members, which renders the proposed
with respect to the proposed rule
rule change effective upon filing. The
change that are filed with the
Commission is publishing this notice
Commission, and all written
and order to solicit comments on the
communications relating to the
proposed rule change from interested
proposed rule change between the
Commission and any person, other than persons.
those that may be withheld from the
I. Self-Regulatory Organization’s
public in accordance with the
Statement of the Terms of Substance of
provisions of 5 U.S.C. 552, will be
the Proposed Rule Change
available for inspection and copying in
the Commission’s Public Reference
Nasdaq has filed a proposed rule
Room, 100 F Street, NE., Washington,
change to modify Rule 7050 governing
DC 20549, on official business days
pricing for Nasdaq members using the
between the hours of 10 a.m. and 3 p.m. NASDAQ Options Market (‘‘NOM’’),
Copies of the filing also will be available Nasdaq’s facility for executing and
for inspection and copying at the
routing standardized equity and index
principal office of the Exchange. All
options. The text of the proposed rule
comments received will be posted
change is available at https://
without change; the Commission does
nasdaqomx.cchwallstreet.com, the
not edit personal identifying
principal offices of Nasdaq, and the
information from submissions. You
Commission’s Public Reference Room.
should submit only information that
you wish to make available publicly. All
9 17 CFR 200.30–3(a)(12).
submissions should refer to File
1 15 U.S.C. 78s(b)(1).
Number SR–NASDAQ–2008–025 and
2 17 CFR 240.19b–4.
should be submitted on or before
3 15 U.S.C. 78s(b)(3)(A)(ii).
August 28, 2008.
4 17 CFR 240.19b–4(f)(2).
sroberts on PROD1PC70 with NOTICES
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street, NE.,
Washington, DC 20549–1090.
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
Nasdaq included statements concerning
the purpose of, and basis for, the
proposed rule change. The text of these
statements may be examined at the
places specified in Item III below, and
is set forth in Sections A, B, and C
below.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Nasdaq is proposing to modify Rule
7050 governing the fees assessed for
execution of options orders entered into
NOM but routed to away markets. When
Nasdaq began trading standardized
option on March 31, 2008, it assessed a
routing fee based upon an
approximation of the cost to Nasdaq of
executing such orders at those markets.
Nasdaq later determined that the
superior approach for executions on
away markets is to pass-through to
exchange members the actual fees
assessed by away markets plus the
clearing fees for the execution of orders
routed from Nasdaq. To support that
approach, Nasdaq collected and
organized in chart format the fees to be
assessed for executions at each
destination exchange.
Nasdaq has determined that it is
impractical to reflect and maintain in its
rule manual the chart of fees assessed by
each of the six away markets. Nasdaq
filed two proposed rule changes to make
changes to the chart of fees for
executions on away markets during the
month of July.5 Nasdaq expects that the
current rule convention would require
Nasdaq to file up to six changes each
month in order to accurately reflect the
changing fees for all six markets.
Accordingly, under Nasdaq’s current
proposed rule change, Nasdaq will
preserve the pass-through approach to
fees for executions on away markets but
modify the way those fees appear in
Nasdaq’s rule manual. Rather than
reflect the actual fees in its rule manual,
Nasdaq will cross-reference a location
on its primary website for members,
NasdaqTrader.com, where it will
maintain a fee schedule applicable to
options executions at away markets.
Nasdaq will maintain a current fee
schedule as well as an historical record
5 See SR–NASDAQ–2008–058 (filed June 30,
2008), and SR–NASDAQ–2008–059 (filed July 1,
2008).
E:\FR\FM\07AUN1.SGM
07AUN1
]]>Agencies
[Federal Register Volume 73, Number 153 (Thursday, August 7, 2008)]
[Notices]
[Pages 46129-46132]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-18155]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-58275; File No. SR-NASDAQ-2008-025]
Self-Regulatory Organizations; the NASDAQ Stock Market LLC;
Notice of Filing of a Proposed Rule Change, and Amendment No. 2
Thereto, Relating to the Establishment of the Equity Value Indicator
Cross
July 31, 2008.
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 March 20, 2008, 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, II,
and III below, which Items have been substantially prepared by the
Exchange. On July 23, 2008, Nasdaq filed Amendment No. 1 to the
proposed rule change. On July 30, 2008, Nasdaq withdrew Amendment No. 1
and filed Amendment No. 2 to the proposed rule change. Amendment No. 2
replaces the original filing in its entirety. The Commission is
publishing this notice to solicit comments on the proposed rule change,
as amended, 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
Nasdaq is proposing to establish a crossing mechanism for EVI
securities, which is designed to allow issuers of employee stock
options a market-based way of measuring the cost of such options. The
text of the proposed rule change is below. Proposed new language is
italicized; deletions are bracketed.\3\
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\3\ Changes are marked to the rules of The NASDAQ Stock Market
LLC found at https://nasdaq.complinet.com.
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* * * * *
6300. [RESERVED] Nasdaq Equity Value Indicator Cross
(a) Definitions. For the purposes of this rule the term:
(1) ``Imbalance'' shall mean the amount of Eligible Interest that
may not be matched with other orders at a particular price at any given
time.
(2) ``Order Imbalance Indicator'' shall mean a message disseminated
by electronic means containing information about Eligible Interest and
the price at which such interest would execute at the time of
dissemination. The Order Imbalance Indicator shall disseminate the
following information:
(A) ``Current Reference Price'' shall mean the highest price at
which the maximum amount of Eligible Interest can be paired.
(B) the amount of Eligible Interest that is paired at the Current
Reference Price;
(C) the size of any Imbalance at the Current Reference Price; and
(D) the buy/sell direction of any Imbalance.
(3) ``Nasdaq EVI Cross'' shall mean the process for determining the
price at which Eligible Interest shall be executed. All prices referred
to in this rule shall be in minimum increments of one penny.
(4) ``Eligible Interest'' shall mean any priced order that may be
entered into the system for the EVI Cross.
(5) ``EVI'' shall mean any Equity Value Indicator Tracking Security
which is issued for the purpose of generating a market-based value of
employee stock options for purposes of FASB Statement of Financial
Accounting Standards No. 123(R), Share-Based Payment. The number of
EVIs made available via the EVI Cross, the limit price, if any, of the
EVIs, and the terms of the EVIs shall be determined by the EVI issuer
which shall make that information available to the public at the
earliest time practicable.
(b) Processing of Nasdaq EVI Cross.
(1) (A) No later than 4:00 p.m. EST on the day of the scheduled EVI
Cross, a Nasdaq member authorized to act for the EVI Issuer shall
direct in writing that Nasdaq enter into the System a single sell order
with the quantity and limit price if any of EVI Eligible Interest. The
sell order may not be modified after 4 p.m. and may be cancelled after
4:00 p.m. only in connection with a cancellation of the EVI Cross as
set forth in subsection (c) below.
(B) Beginning at 8 a.m. and continuing until 4:59:59 p.m. Nasdaq
members may enter buy orders into the System. Except as provided below,
once entered, buy orders may be cancelled but may not be modified.
(C) The EVI Cross shall occur at 5 p.m. EST. in the manner set
forth below unless the time of execution is extended. The time of
execution of the EVI Cross shall be extended only if the Current
Reference Price of the EVI security changes by 1 percent or more
between 4:59 p.m. and 5 p.m, in which case the time of the EVI Cross
will be extended by 2 minutes. The time of execution of the EVI Cross
shall be extended for an additional 2 minutes if the Current Reference
Price of the EVI Security changes by 1 percent or more in the final
minute of a two-minute
[[Page 46130]]
extension. The time of execution of the EVI Cross shall be extended no
more than 30 times. If the time of execution of the EVI Cross has been
extended 10 times, order cancellation will be prohibited.
(2) At 4 p.m. and continuing through the execution of the EVI
Cross, Nasdaq shall disseminate by electronic means an Order Imbalance
Indicator every minute for the first 45 minutes and every 15 seconds
thereafter.
(3) The Nasdaq EVI Cross shall occur at the highest price that
maximizes the amount of Eligible Interest to be executed.
(4) If the Nasdaq EVI Cross price is selected and less than all
Eligible Interest that is available would be executed, all Eligible
Interest shall be executed at the Nasdaq EVI Cross price in price/time
priority.
(5) All Eligible Interest executed in the Nasdaq EVI Cross shall be
executed at the Nasdaq EVI Cross price, trade reported to the National
Securities Clearing Corporation and disseminated via a data feed.
(c) The EVI Cross shall be cancelled if:
(i) The issuer determines prior to 4:45 p.m. on the date scheduled
for the EVI Cross to cancel its participation; or
(ii) The common stock of the issuer is in a halted state at 4:45
p.m. on the date scheduled for the EVI Cross.
(d) The issuer of an EVI Security shall become eligible to
participate in the NASDAQ EVI Cross by paying a fee as follows:
(i) Two percent of the total value of the EVI offering up to a
maximum of $10,000,000 of total value, plus
(ii) One and one half percent of the total value of the EVI
offering above $10,000,000 of total value, and
(iii) The maximum fee shall be $1,500,000.
This fee shall be refunded if no EVI Cross is executed. This fee
shall include all processing of the EVI Cross, including order entry,
order execution, imbalance information dissemination, and transmission
to the appropriate clearing agency. Nasdaq members not issuing
securities shall pay no fees to participate in the NASDAQ EVI Cross.
* * * * *
The text of the proposed rule change is also available at Nasdaq, the
Commission's Public Reference Room, and
www.nasdaqomx.cchwallstreet.com.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, NASDAQ 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. NASDAQ 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 establish a crossing mechanism for EVI
securities, which is designed to allow issuers of employee stock
options a market-based way of measuring the cost of such options. In
this filing, Nasdaq is seeking Commission approval under Section 19(b)
of the Act only for its proposed rules relating to the EVI cross. The
registration of any particular EVI securities with the Commission is
the responsibility of the issuer and would be subject to separate
review by the Commission and its Division of Corporation Finance.\4\
Similarly, the extent to which an issuer may use a price derived from a
particular EVI crossing auction to measure the cost of employee stock
options may be subject to separate review by the Commission and its
staff.
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\4\ Nasdaq anticipates that each EVI tracking security will
entitle the holder to specified payments upon the exercise of stock
options comprising a reference pool of stock options that have been
previously granted to employees by the issuer. The securities will
represent a payment obligation of the issuer, but will not represent
any direct ownership interest in the issuing company or in any of
the reference pool stock options. The specific features of the
securities, including how payments are calculated, maturity dates
and form of payment, will be determined by each issuer. The price
and allocation of the securities for each issuance will be
determined by the results of the auction. The issuer will make
available to the public the terms and features of its EVI tracking
security.
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The EVI Cross is a market pricing mechanism modeled on Nasdaq's
industry leading crossing technology currently used for the Nasdaq
Opening and Closing Crosses, the Nasdaq Crossing Network, and the
Nasdaq IPO and Halt Crosses, set forth in Nasdaq Rules 4752, 4753,
4754, and 4770. As a facility of Nasdaq,\5\ the EVI Cross will utilize
the existing technology network that links more than 100,000 market
participants with NASDAQ and provide broad access for investors to
participate in price discovery for EVI instruments. The EVI Cross will
provide price discovery, equal access, and fair executions at a single
price that is fully reflective of market demand for EVI instruments.
The EVI Cross will be the appropriate mechanism to determine a fair
market price for EVI instruments which issuers may utilize to determine
their options expense.
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\5\ Nasdaq does not currently expect that EVI securities will be
listed on Nasdaq or any other national securities exchange. In the
event an EVI issuer desires to list its EVIs on Nasdaq or another
exchange, the issuer will be required to meet applicable listing
requirements. In the event no such requirements exist, the exchange
would be required to file a proposed rule change under Section 19(b)
seeking approval of appropriate listing requirements.
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Like Nasdaq's current crosses, the EVI Cross will have three
elements: (1) A defined order entry period, (2) information
dissemination, and (3) a single price execution according to a fixed
algorithm. For the EVI Cross, order entry will begin at 8 a.m. and end
at 5 p.m. EST on date of issuance, typically the first trading day
following an options grant date. Nasdaq members will access the EVI
Cross system through existing interfaces for order entry, although the
EVI Cross system will be entirely separate from the Nasdaq Market
Center execution system (the Single Book). The EVIs available for sale
in the EVI Cross will be entered into the System in a single sell
order. A Nasdaq member authorized to act on behalf of the EVI Issuer
shall direct Nasdaq to enter the single sell order into the System,
including the quantity of EVIs and the limit price, if any. Once
entered, the sell order cannot be modified after 4 p.m. and my [sic] be
cancelled after 4 p.m. only in connection with a cancellation of the
EVI Cross as set forth in subsection (c) of Rule 6300. All buy orders
must be for a fixed price and size; all EVIs will be offered by the
issuer for sale on identical terms to individual bidders. Entered buy
orders can be cancelled until 5 p.m, and no executions will occur prior
to the auction close.
As with Nasdaq's current crosses, Nasdaq will facilitate price
discovery for the EVI Cross. First, Nasdaq will facilitate price
discovery prior to the start of the EVI Cross. As set forth in the
proposed rule, Nasdaq will require issuers to make available to the
public at the earliest possible time information regarding the number
of EVIs made available via the EVI Cross, the reserve price, if any, of
the EVIs, and the terms and conditions of the EVIs. This
[[Page 46131]]
requirement will reinforce the issuers' inherent interest in attracting
the maximum number of bidders to the EVI Cross by providing potential
bidders with the information they need to determine their willingness
to participate and the price and size of their orders.
In addition, Nasdaq will facilitate price discovery by
disseminating indicative auction price information via the Order
Imbalance Indicator which is available on NASDAQTrader.com and as a
data feed. Indicative price information includes: (1) The Current
Reference Price, an indicative auction price at which all EVI
instruments would be sold based on current bids; (2) paired units, the
number of units matched for execution at the Current Reference Price;
and (3) the Imbalance, the total imbalance and the size of executable
units at the Current Reference Price. Indicative information will be
disseminated starting at 4 p.m. once per minute for the first 45
minutes, and every 15 seconds thereafter.
Disseminating indicative information will help both issuers and
purchasers. It will assist issuers by informing them whether the EVI
Cross is likely to culminate in a successful auction. Indicative
information will enable the issuer to determine that the EVI Cross is
unlikely to succeed due to, for example, insufficient buying interest,
market volatility, or buying interest below the issuer's reserve price.
Thus, issuers can use the indicative information to exercise their
option under the proposed rule to cancel the EVI Cross any time prior
to 4:45 p.m. Indicative information assists buyers by enabling them to
gauge the level of buying interest and the likely outcome of the EVI
Cross. Thus, buyers can use indicative information to exercise their
options under the rule to enter or cancel orders in the EVI Cross.
Nasdaq understands that the transparency created by the dissemination
of indicative information has been a major factor in the success of
Nasdaq's Opening, Closing, and Intra-Day Crosses.
To protect against volatility, Nasdaq will extend the quote-only
period if a price change greater than one percent occurs between 4:59
p.m. and 5 p.m. In that case, Nasdaq will extend the quote-only period
by two minutes. If during the final minute of a two-minute extension, a
price change greater than one percent occurs, the quote-only period
will be extended for an additional two minutes. If the quote-only
period is extended more than 10 times, members will be prohibited from
canceling orders. There will be no more than 30 extensions of the
quote-only period.
The EVI Cross will occur at 5 p.m. Eastern Time or at such time
that the quote-only period ends, as described above. The EVI Cross will
occur at the highest price that maximizes the amount of Eligible
Interest to be executed. Final auction information disseminated to all
participants and all executions will clear through National Securities
Clearing Corporation.
Nasdaq has unique technology and expertise in creating liquid
markets and efficient price discovery. The EVI Cross will utilize the
existing technology network that links more than 100,000 market
participants with NASDAQ and provides broad access for investors to
participate in price discovery of an options valuation security. Market
data vendors and participants will have access to imbalance information
for the EVI Cross by purchasing the Net Order Imbalance Indicator data
feed which is available on the Nasdaq TotalView data feed and also
through the Nasdaq Workstation and Nasdaq Data Store at the current
filed fee.\6\ As with other NASDAQ trading platforms, the EVI Cross
will provide an open process in which all investors have the ability to
enter orders and participate in price discovery. The EVI Cross
mechanism will be regulated by FINRA and NASDAQ.
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\6\ See Nasdaq Rule 7023.
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Fees Applicable to the EVI Cross
Nasdaq will assess a single fee for the EVI Cross equal to a
percentage of the total value of the issuance of the EVI Security up to
a maximum of $1,500,000. This cost will be borne by the issuer of the
EVI instrument and will cover the entire cost of the processing of the
EVI Cross, including the entry and execution of orders, the
dissemination of indicative information, and the transmission of
execution information to cross participants and to NSCC. The fee will
be based upon the total value of the EVI offering, regardless of
whether all EVIs in the offering are executed in the EVI Cross, except
that the fee shall be refunded if no EVI Cross occurs.
Nasdaq members will pay no fees to participate in the EVI Cross by
entering orders and having them executed. Although members will be
required to establish a new port for connectivity to access the EVI
Cross, there will be no fee assessed for that port.
2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
the provisions of Section 6 of the Act,\7\ in general, and with Section
6(b)(5) of the Act,\8\ in particular, in that the proposal 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 this
proposal supports the goals of the Exchange Act by creating a new,
efficient, liquid, and transparent market for interested investors. The
proposed functionality is completely voluntary with respect to all
potential participants, including issuers, members, and customers.
Nasdaq believes that the proposed fee is fair, reasonable and non-
discriminatory, in that it must remain responsive to competitive market
forces.
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\7\ 15 U.S.C. 78f.
\8\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
Nasdaq 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. To the contrary, by
offering an innovative new product, Nasdaq is demonstrating the proper
functioning of the competitive framework established under the Exchange
Act and administered by the Commission.
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 35 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 such proposed rule change, or
[[Page 46132]]
(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 (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2008-025 on the subject line.
Paper Comments
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-2008-025. 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 (https://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 inspection
and copying 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 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; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NASDAQ-2008-025 and should
be submitted on or before August 28, 2008.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-18155 Filed 8-6-08; 8:45 am]
BILLING CODE 8010-01-P
