Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing of a Proposed Rule Change, as Modified by Amendment No. 1, To Adopt Rule 4753(c) as a Six Month Pilot in 100 NASDAQ-Listed Securities, 41258-41262 [2010-17191]
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Federal Register / Vol. 75, No. 135 / Thursday, July 15, 2010 / Notices
additional information they seek to have
disclosed regarding registered and
formerly registered persons.63 The
Commission recognizes that the public’s
ability to access information, whether to
inquire about a registered person or a
formerly associated person, may serve to
protect investors, the integrity of the
marketplace, and the public interest.
The Commission urges FINRA to
consider expanding the information as
suggested by the commenters. This
information is available from the
individual States; however, it would be
more accessible through BrokerCheck.
The Commission urges the public to
utilize all sources of information,
particularly the databases of the State
regulators, as well as legal search
engines and records searches, in
conducting a thorough search of any
associated person’s activities.
The Commission notes that FINRA
stated it would continue to evaluate all
aspects of the BrokerCheck program to
determine whether future circumstances
should lead to greater disclosure
through BrokerCheck.64 FINRA has a
statutory obligation to make information
available to the public 65 and, as stated
in the past, the Commission believes
that FINRA should continuously strive
to improve BrokerCheck because it is a
valuable tool for the public in deciding
whether to work with an industry
member.66 The changes proposed in this
filing will enhance BrokerCheck by
including more information that should
prove useful to the general public and
by maintaining the accuracy of such
information. In addition, the disclosure
of this additional information may serve
as a deterrent to questionable and
fraudulent activity.
For the reasons discussed above, the
Commission finds that the rule change
is consistent with the Act.
V. Conclusion
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It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,67 that the
proposed rule change (SR–FINRA–
2010–012), be, and hereby is, approved.
63 See
page 4, which notes information in CRD
that will not be made available as a result of this
rule change.
64 See Response Letter at 9.
65 See Section 15A(i) of the Act.
66 See, e.g., Securities Exchange Act Release No.
61002 (November 13, 2009), 74 FR 61193
(November 23, 2009) (SR–FINRA–2009–050).
67 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.68
Florence E. Harmon,
Deputy Secretary.
Exhibit A
List of Comment Letters Received for
SR–FINRA–2010–012
1. Andrew Oster, President and CEO,
Oster Financial Group, LLC, dated
May 4, 2010 (‘‘Oster’’).
2. Pamela Fritz, CSCP, AIRC, FFSI, FIC,
Chief Compliance Officer, MWA
Financial Services, Inc., dated May
6, 2010 (‘‘MWA’’).
3. Lisa Roth, National Association of
Independent Brokers-Dealers, Inc.
Member Advocacy Committee
Chair, and CEO and COO, Keystone
Capital Corporation, dated May 6,
2010 (‘‘NAIBD’’).
4. Melanie Senter Lubin, Maryland
Securities Commissioner and Chair,
North American Securities
Administrators Association, Inc.
CRD/IARD Steering Committee,
dated May 11, 2010 (‘‘NASAA’’).
5. Scott R. Shewan, President, Public
Investors Arbitration Bar
Association, dated May 11, 2010
(‘‘PIABA’’).
6. Kelly R. Welker, Branch Manager,
LPL Financial, dated May 12, 2010
(‘‘LPL’’).
7. Deborah Castiglioni, CEO and CCO,
Cutter Company, Inc., dated May
12, 2010 (‘‘Cutter’’).
8. Lisa A. Catalano, Director, Associate
Professor of Clinical Legal
Education and Christine Lazaro,
Supervising Attorney, Securities
Arbitration Clinic, St. John’s
University School of Law, dated
May 13, 2010 (‘‘St. John’s’’).
9. William A. Jacobson, Esq., Associate
Clinical Professor of Law, Cornell
Law School, and Director, Cornell
Securities Law Clinic and Adisada
Dudic, Cornell Law School, 2011,
dated May 13, 2010 (‘‘Cornell’’).
10. E. John Moloney, President and
CEO, Moloney Securities Company,
Inc. and Chairman, Securities
Industry and Financial Markets
Association Small Firms
Committee, dated May 13, 2010
(‘‘SIFMA’’).
11. Joelle B. Franc, Student Attorney;
Jonathan P. Terracciano, Student
Attorney; and Birgitta K. Siegel,
Esq., Visiting Asst. Professor;
Securities Arbitration & Consumer
Law Clinic, Syracuse University
College of Law, dated May 13, 2010
(‘‘Syracuse’’).
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68 17
CFR 200.30–3(a)(12).
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12. John M. Ivan, Senior Vice President,
General Counsel, Janney
Montgomery Scott, LLC, dated May
14, 2010 (‘‘Janney’’).
13. Dale E. Brown, President and CEO,
F.inancial Services Institute, dated
May 19, 2010 (‘‘FSI’’).
14. Steven B. Caruso, Maddox Hargett
Caruso, P.C., dated May 25, 2010
(‘‘Caruso’’).
[FR Doc. 2010–17190 Filed 7–14–10; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–62468; File No. SR–
NASDAQ–2010–074]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing of a Proposed Rule Change, as
Modified by Amendment No. 1, To
Adopt Rule 4753(c) as a Six Month
Pilot in 100 NASDAQ-Listed Securities
July 7, 2010.
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 June 18,
2010, The NASDAQ Stock Market LLC
(‘‘Nasdaq’’ or the ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by Nasdaq. On June
25, 2010, Nasdaq filed Amendment No.
1 to the proposed rule change. 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 adopt Rule
4753(c) as an initial six month pilot in
100 NASDAQ-listed securities.
The text of the proposed rule change
is below. Proposed new language is in
italics; proposed deletions are in
brackets.3
*
*
*
*
*
4753. Nasdaq Halt and Imbalance
Crosses
(a)–(b) No change.
(c) Beginning August 1, 2010, for a
period of six months, [B]between 9:30
a.m. and 4 p.m. EST, the System will
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Changes are marked to the rule text that appears
in the electronic manual of NASDAQ found at
https://nasdaq.cchwallstreet.com.
2 17
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automatically monitor System
executions to determine whether the
market is trading in an orderly fashion
and whether to conduct an Imbalance
Cross in order to restore an orderly
market in a single Nasdaq Security.
(1) An Imbalance Cross shall occur if
the System executes a transaction in a
Nasdaq Security at a price that is
beyond the Threshold Range away from
the Triggering Price for that security.
The Triggering Price for each Nasdaq
Security shall be the price of any
execution by the System in that security
within the prior 30 seconds. The
Threshold Range shall be determined as
follows:
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
NASDAQ is proposing to adopt Rule
4753(c), a volatility-based pause in
trading in individual NASDAQ-listed
securities traded on NASDAQ
(‘‘NASDAQ Securities’’). NASDAQ is
proposing to adopt the rule initially as
a six-month pilot in 100 NASDAQ
Securities beginning August 1, 2010.
Background
NASDAQ’s efficient market structure
allows the price of a security to change
quickly in response to information and
Thresh[h]old
range away
market demand. Allowing trading to
Execution price
from triggering react quickly is generally beneficial to
price
investors. In some circumstances,
(percent)
however, abrupt and significant
$1.75 and under ...................
15 movements in the price at which a
Over $1.75 and up to $25 ....
10 security is traded can indicate aberrant
Over $25 and up to $50 .......
5 volatility, which is harmful to investors.
Over $50 ...............................
3 On August 19, 2008, the Commission
approved new Rule 4753(c), which
(2) If the System determines pursuant established a volatility-based halt
process on a one-year pilot basis for an
to subsection (1) above to conduct an
initial 100 NASDAQ-listed securities.4
Imbalance Cross in a Nasdaq Security,
Subsequent to the Commission’s
the System shall automatically cease
approval, NASDAQ implemented a
executing trades in that security for a
market order price collar to address
60-second Display Only Period. During
aberrant volatility in lieu of
that 60-second Display Only Period, the immediately implementing the Rule
System shall:
4753(c) pilot.5 Although these collars
are designed to address volatility by
(A) Maintain all current quotes and
reducing the risk that market orders will
orders and continue to accept quotes
execute at prices that are significantly
and orders in that System Security; and
worse than the national best bid and
(B) Disseminate by electronic means
offer, they had limited effect on May 6,
an Order Imbalance Indicator every 5
2010 because of the limited number of
seconds.
market orders involved in trading that
(3) At the conclusion of the 60-second day on NASDAQ.
Display Only Period, the System shall
In light of the unprecedented aberrant
re-open the market by executing the
volatility witnessed on May 6, 2010, and
Nasdaq Halt Cross as set forth in
the limited effect that NASDAQ’s
subsection (b)(2)–(4) above.
market collars had in dampening such
volatility, NASDAQ believes that the
(4) No change.
Rule 4753(c) halt process is needed to
*
*
*
*
*
protect its listed securities and market
II. Self-Regulatory Organization’s
participants from such volatility in the
Statement of the Purpose of, and
future. Accordingly, as described below,
Statutory Basis for, the Proposed Rule
NASDAQ is proposing to adopt Rule
Change
4753(c) again as a six-month pilot for
100 NASDAQ-listed securities.
In its filing with the Commission,
NASDAQ included statements
4 Securities Exchange Act Release No. 58386
concerning the purpose of, and basis for, (August 19, 2008), 73 FR 50380 (August 26, 2008)
(SR–NASDAQ–2007–067).
the proposed rule change. The text of
5 This process cancels any portion of most
these statements may be examined at
unpriced orders that would execute either on
the places specified in Item IV below,
NASDAQ or when routed to another market center
and is set forth in Sections A, B, and C
at a price that is the greater of $0.25 or 5 percent
worse than the NBBO at the time NASDAQ receives
below.
the order. See Securities Exchange Act Release No.
60371 (July 23, 2009), 74 FR 38075 (July 30, 2009)
(SR–NASDAQ–2009–070).
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NASDAQ’s Approach: Rule 4753(c)
NASDAQ originally adopted Rule
4753(c) to promote the protection of
investors by providing a meaningful
pause in NASDAQ Securities on
NASDAQ in the midst of abrupt and
significant price movements, while
permitting trading to move freely in
rapid and stable markets.6 As the events
of May 6, 2010 show, severe and rapid
price dislocation can occur in securities
with no connection to the fundamental
soundness of the underlying companies.
Such dislocation may be caused by
operational and structural factors
beyond the control of issuers and
individual markets. NASDAQ’s Rule
4753(c) process is designed to protect
NASDAQ securities and market
participants from aberrant volatility,
which can quickly spread like a
contagion from market to market, to
allow time to reestablish a rational
market in NASDAQ Securities.
NASDAQ’s proposed Rule 4753(c)
process automatically suspends trading
in individual NASDAQ Securities that
are the subject of abrupt and significant
intraday price movements between 9:30
a.m. and 4 p.m. Eastern Standard Time.
The Rule 4753(c) process is triggered
automatically when the execution price
of a NASDAQ Security moves more than
a fixed amount away from a preestablished ‘‘triggering price’’ for that
security. The Triggering Price for each
NASDAQ Security is the price of any
execution by the System 7 in that
security within the previous 30 seconds.
For each NASDAQ Security, the System
continually compares the price of each
execution in the System against the
prices of all System executions in that
security over the 30 seconds.
Proposed Rule 4753(c) has tiered
triggering price range percentages that
are based on the execution price of a
security. NASDAQ has observed that, on
a percentage basis, lower priced stocks
normally trade in a wider range than
stocks with higher prices. For example,
during the first quarter of 2010, a period
of relatively low market volatility,
stocks priced under $1.75 had an
average range (percent difference from
high to low over the course of the day)
of 9%, stocks priced $1.75 up to $24.99
had an average range of 4%. Stocks
priced $25 to $49.99 had an average
range of 3%. Stocks priced above $50
6 NASDAQ has other similar processes that serve
to protect investors during periods of abnormal
trading activity. NASDAQ Rule 4120 authorizes
NASDAQ Regulation to halt trading in a security
based upon news or an emergency in the market.
NASDAQ Regulation also has the ability under
NASDAQ Rule 11890 to break trades in order to
protect the integrity of the market.
7 As defined in Rule 4751(a).
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Federal Register / Vol. 75, No. 135 / Thursday, July 15, 2010 / Notices
had an average range of 2%. The
purpose of Rule 4753(c) is not to inhibit
trading within the normal range, but
rather to pause trading in instances of
aberrant volatility. As a consequence,
NASDAQ selected percentage tiers that
allow for a wider range in lower priced
securities, with decreasing ranges on a
percentage basis as price increases.
When the Rule 4753(c) process is
triggered, NASDAQ institutes a formal
trading halt during which time
NASDAQ systems are prohibited from
executing orders.8 Members, however,
may continue to enter quotes and
orders, which are queued during a 60second Display Only Period. At the
conclusion of the Display Only Period,
the queued orders are executed at a
single price, pursuant to Rule 4753.
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Current Environment
In light of the events of May 6, 2010,
NASDAQ believes that circumstances
warrant the implementation of Rule
4753(c), in addition to the market collar
protections currently in place.9
NASDAQ believes that implementing
Rule 4753(c) will serve to protect market
participants from aberrant volatility
such as that which occurred on May 6,
2010. NASDAQ also believes that Rule
4753(c) will serve as a complement to
the recently-approved cross-market
single stock pause to be adopted by the
U.S. national securities exchanges.10
NASDAQ notes that there are several
differences between the cross-market
approach and Rule 4753(c). Specifically,
Rule 4753(c) uses tiered threshold range
percentages that are based on a
security’s execution price in
determining the price at which a halt
would be initiated, whereas the cross
market approach does not. Rule 4753(c)
also has a shorter time threshold used
8 A halt pursuant to Rule 4753(c) is not
considered a regulatory halt and, therefore, it does
not trigger a market-wide trading halt under Section
X of the NASDAQ UTP Plan. As a result, other
markets are permitted to continue trading a
NASDAQ stock that is undergoing a Market ReOpening on NASDAQ. During the Rule 4753(c)
process, NASDAQ’s quotations are marked ‘‘closed,’’
signaling to other markets that quotes and orders
routed to NASDAQ will not be executed. A Rule
4753(c) trade is reported to the network processor
as a single-price re-opening that is exempt from
trade through restrictions pursuant to Rule
611(b)(3).
9 NASDAQ notes that, while the market collar
protections were in place during the events of May
6, 2010, only approximately five percent of the
volume on NASDAQ was attributable to market
orders.
10 Securities Exchange Act Release No. 62252
(June 10, 2010), 75 FR 34186 (June 16, 2010) (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; SR–CBOE–2010–
047).
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in determining that a pause in trading
should be initiated, and a shorter time
during which a security is paused, as
compared to the cross-market approach.
Rule 4753(c) is applied throughout the
trading day, whereas the cross-market
approach does [sic] not. Last, while the
cross-market approach will help to
prevent aberrant volatility, it applies
only to S&P 500 Index securities, thus
it will not address aberrant volatility in
the majority of NASDAQ-listed
securities. Adoption of Rule 4753(c) will
allow NASDAQ to extend the rule’s
protections to its listed securities
trading on NASDAQ, with such
protections initially applying to the 100
pilot securities 11 but with the goal of
applying the rule to all NASDAQ-listed
securities.
The following examples illustrate
how Rule 4753(c) would operate in
relation to the new cross-market single
stock pause. In this sequence of events,
the Rule 4753(c) pause is triggered prior
to the cross-market trading pause
process:
WXYZ is NASDAQ-listed and
included in the S&P 500 Index.
• 2:00:00 p.m., WXYZ trades at $300 on
NASDAQ, which is also the
consolidated last sale price
Æ 2:00:30 p.m., WXYZ trades below
$291 on NASDAQ
Æ WXYZ is paused pursuant to Rule
4753(c)
Æ WXYZ continues to trade elsewhere
• 2:01:30 p.m., WXYZ resumes trading
on NASDAQ at $295
• 2:02:00 p.m., WXYZ trades below
286.15 on NASDAQ
Æ WXYZ is again paused pursuant to
Rule 4753(c)
Æ WXYZ continues to trade elsewhere
• 2:03:00 p.m., WXYZ resumes trading
on NASDAQ at $288;
• 2:03:30 p.m., WXYZ trades below
279.36 on NASDAQ;
Æ WXYZ is again paused pursuant to
Rule 4753(c)
Æ WXYZ continues to trade elsewhere
• 2:04:00 p.m., WXYZ consolidated last
sale price reaches $270
Æ The cross-market trading pause
process is triggered
Æ NASDAQ abandons the Rule
4753(c) and now follows the crossmarket trading pause process
The following sequence of events
illustrates a situation whereby a
NASDAQ-listed security that is also
covered by the cross-market trading
pause process triggers both processes
simultaneously:
WXYZ is NASDAQ-listed and
included in the S&P 500 Index.
11 Amendment No. 1 indicates that the pilot
securities will be the NASDAQ 100 securities.
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Sfmt 4703
• 2:00:00 p.m., WXYZ trades at $20 on
NASDAQ, which is also the
consolidated last sale price;
• 2:00:30 p.m., WXYZ trades at $17 on
NASDAQ;
Æ Because the execution price
exceeds both the 10 percent tiers of
the cross-market pause process and
Rule 4753(c), the cross-market
process is followed
Æ WXYZ is paused on all markets
The following sequence of events
illustrates a situation whereby a
NASDAQ-listed security may fall greater
than 15 percent, yet does not trigger the
cross-market trading pause process:
WXYZ is NASDAQ-listed, but not
included in the S&P 500 Index.
• 2:00:00 p.m., WXYZ trades at $1.50
on NASDAQ, which is also the
consolidated last sale price;
• 2:00:30 p.m., WXYZ trades below
$1.275 on NASDAQ;
Æ Although the security dropped
more than 10 percent, the crossmarket trading pause process would
not triggered, since the security is
not included in the S&P 500 Index
Æ WXYZ is paused pursuant to Rule
4753(c) because the security
dropped greater than 15 percent in
the prior 30 seconds
Æ WXYZ continues to trade elsewhere
The examples above show that,
although Rule 4753(c) operates
independently from the cross-market
trading pause process, both trade pause
processes work efficiently along side of
each other to dampen aberrant
volatility.
Other Market’s Approach
NASDAQ notes that another market
has adopted a similar process whereby
the market’s listed securities each may
be temporarily removed from automatic
trading when the trading exceeds
certain average daily volume-, price-,
and volatility-based criteria.12 Although
dissimilar in process due to the differing
nature of the markets, the pause under
Rule 4753(c) is designed to achieve the
same goal, namely, to apply quantitative
criteria to pause trading in a listed
security during times of aberrant
volatility so that a more representative
market may develop. NASDAQ’s
process differs from the other market’s
process in that it uses completely
transparent criteria and timeframes,
which serve to eliminate uncertainty
from the trade pause process. For
example and as noted above, the Rule
4753(c) process is triggered by execution
prices that are clear and available to all
market participants, and the pause in
trading has a fixed 60 second Display
12 NYSE
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Rule 1000(a)(iv).
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Only period process that cannot be
extended.13 In addition, the pause will
be followed by a ‘‘cross’’ that is
predictable and well defined. As a
consequence, application of the Rule
4753(c) process is automatic and
precise, allowing no place for
uncertainty. This will make the
transition to this rule predictable and
understandable. Most importantly, it
will allow NASDAQ to insulate its
issuers from volatility injected in the
market from exchange halt programs
with subjective criteria. Primary markets
with responsibility to listed companies
have an obligation and right to take
actions to provide additional levels of
protection from volatility to companies
that list with it [sic].
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Summary
In approving Rule 4753(c), the
Commission stated that systematically
suspending trading in NASDAQ-listed
securities that are the subject of abrupt
and significant intra-day price
movements promotes fair and orderly
markets and the protection of
investors.14 NASDAQ believes that
adopting Rule 4753(c) is more
appropriate now than it was at the time
the Commission originally approved
Rule 4753(c) given the need to protect
investors from aberrant volatility, such
as the volatility witnessed on May 6,
2010. Accordingly, NASDAQ is
proposing to adopt Rule 4753(c) in
identical form as originally approved by
the Commission, but as a six month
pilot for an initial 100 Nasdaq-listed
securities. During this pilot period,
NASDAQ will study the impact of the
rule on the pilot securities and will
provide the Commission with monthly
reports detailing its ongoing review of
the pilot. These reports will inform the
Commission of the number of times
Rule 4753(c) is triggered and the
security or securities involved, and will
describe any patterns that emerge
during the pilot period. NASDAQ is also
making a technical correction to the
table found in Rule 4753(c)(1).
2. Statutory Basis
NASDAQ believes the proposed rule
change is consistent with the provisions
of Section 6 of the Act,15 in general and
with Section 6(b)(5) of the Act,16 in
particular, which requires that the rules
of an exchange be designed to prevent
fraudulent and manipulative acts and
13 NYSE’s LRP process has an indeterminate
length, but can last several minutes during which
the NYSE is not transmitting a protected quote in
the affected security.
14 Supra note 4 at 50381.
15 15 U.S.C. 78f.
16 15 U.S.C. 78f(b)(5).
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practices, promote just and equitable
principles of trade, foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general, protect
investors and the public interest. The
proposed rule change is consistent with
these requirements in that it will reduce
the negative impacts of sudden,
unanticipated volatility in individual
NASDAQ Securities, and serve to
restore an orderly market in a
transparent and uniform manner,
enhance the price-discovery process,
increase overall market confidence, and
promote fair and orderly markets and
the protection of investors.
NASDAQ notes that the proposed rule
change is identical to the rule change
approved by the Commission when it
approved Rule 4753(c) in August 2008,
except that NASDAQ plans to
implement the pilot on a shorter, six
month basis. In approving Rule 4753(c),
the Commission acknowledged that
Rule 4753(c), which systematically
suspends trading in NASDAQ-listed
securities that are the subject of abrupt
and significant intra-day price
movements, promotes fair and orderly
markets and the protection of
investors.17 NASDAQ notes that the
Commission received no comments on
the proposed rule change that adopted
Rule 4753(c) originally. NASDAQ
believes that the lack of comment
signaled that market participants
considered the proposed new rule to be
non-controversial. NASDAQ believes
that, given the events of May 6, 2010,
adopting Rule 4753(c) as a new pilot
will ensure that covered NASDAQ
Securities, and market participants
trading therein on NASDAQ, are
provided the needed protections of the
rule.
NASDAQ notes that the proposed rule
change supplements the cross-market
single stock pause to be adopted by the
national securities exchanges, which
was approved by the Commission on
June 10, 2010.18 NASDAQ applauds the
Commission’s leadership in bringing the
national securities exchanges together to
achieve a cross-market solution to help
address the issues that may have caused
the events of May 6, 2010. NASDAQ is
continuously assessing actions it can
take to further strengthen its market. In
this regard, NASDAQ believes that
quickly implementing Rule 4753(c) will
PO 00000
complement the cross-market single
stock pause by serving to better protect
all of NASDAQ’s listed securities
covered by the pilot trading on
NASDAQ during times of aberrant
volatility, such as the volatility
witnessed on May 6, 2010. NASDAQ
notes that Rule 4753(c) in no way
conflicts with the new cross-market
single stock pause, but rather applies, in
some cases, more stringent criteria to
pause a broader range of securities on
NASDAQ only. In addition, should a
cross-market single stock pause be
initiated in a NASDAQ Security during
a Rule 4753(c) pause, the security would
be subject to the cross-market single
stock pause process.
NASDAQ has an obligation to adopt
rules that protect investors and the
public interest, which include rules that
protect its listed securities and those
that trade in them. Instituting Rule
4753(c) will serve to protect market
participants within the scope of
NASDAQ’s authority under the Act.
NASDAQ notes that market participants
would be able to trade in securities
subject to a Rule 4753(c) pause at other
market venues, should they so choose.19
Last, NASDAQ notes that, in
approving another market’s approach to
dealing with abnormal volatility in its
listed securities, the Commission stated
that precluding automatic executions
under certain circumstances is
warranted.20 Like that market’s process,
the proposed change to NASDAQ Rule
4753(c) will extend the rule’s halt
process to all listed securities traded on
NASDAQ and will likewise serve to
dampen volatility, thus providing
market participants with time to react to
achieve a more natural trading pattern
of a particular security.
NASDAQ will keep the Commission
apprised of the use of Rule 4753(c) as
part of NASDAQ’s ongoing review of the
pilot. In this regard, during the pilot
period NASDAQ will provide the
Commission with monthly reports
detailing the use of Rule 4753(c) and
describing any patterns that may
develop. As such, NASDAQ believes
that the proposed rule change is
consistent with the protection of
investors and the public interest, and
does not raise any novel regulatory
issues.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
NASDAQ does not believe that the
proposed rule change will result in any
19 Supra
note 8.
Exchange Act Release No. 53539
(March 22, 2006), 71 FR 16353, 16377–78 (March
31, 2006) (SR–NYSE–2004–05).
20 Securities
17 Supra
18 Supra
note 4 at 50381.
note 10.
Frm 00123
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Sfmt 4703
41261
E:\FR\FM\15JYN1.SGM
15JYN1
41262
Federal Register / Vol. 75, No. 135 / Thursday, July 15, 2010 / Notices
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.
srobinson on DSKHWCL6B1PROD with NOTICES
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
(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 all aspects of the
foregoing, including whether the
proposed rule change is consistent with
the Act. A stated purpose of the
proposal is to protect Nasdaq-listed
securities and market participants from
‘‘aberrant’’ volatility, such as that which
occurred on May 6, 2010 and may be
caused by operational or structural
factors beyond the control of issuers and
individual markets. To what extent do
the price changes that would trigger a
trading halt under the proposal indicate
the potential existence of ‘‘aberrant’’
volatility, as opposed to the normal
operation of the markets? If these price
changes indicate potentially ‘‘aberrant’’
volatility, to what extent will the
proposal address such volatility in a
manner appropriate and consistent with
the purposes of the Act? Will a trading
halt at Nasdaq under the proposal
restrict liquidity or increase volatility in
the affected stock, since other markets
can continue to trade the stock and may
not have comparable volatility halts? In
what respects are the consequences of
this proposal likely to be similar to, or
different from, the effects of other
exchange-specific mechanisms that
currently restrict trading on the relevant
exchange under certain circumstances?
More generally, to what extent is it
appropriate for different exchanges to
adopt different and potentially
inconsistent approaches to trading
VerDate Mar<15>2010
16:53 Jul 14, 2010
Jkt 220001
pauses or restrictions that might affect
the same stock? To what extent does the
answer change based on whether the
affected stock is already subject to a
market-wide single-stock circuit breaker
that applies consistently across all
trading venues?
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 rulecomments@sec.gov. Please include File
Number SR–Nasdaq–2010–074 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
Station Place, 100 F Street, NE.,
Washington, DC 20549–1090.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–17191 Filed 7–14–10; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–62480; File No. SR–FINRA–
2010–022]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Order Approving
Proposed Rule Change Relating To
Amending the Codes of Arbitration
Procedure To Increase the Number of
Arbitrators on Lists Generated by the
Neutral List Selection System
July 9, 2010.
On April 29, 2010, the Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’) filed with the Securities and
Exchange Commission (‘‘SEC’’ or
All submissions should refer to File
Number SR–Nasdaq–2010–074. This file ‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
number should be included on the
subject line if e-mail is used. To help the of 1934 (‘‘Exchange Act’’ or ‘‘Act’’) 1 and
Rule 19b–4 thereunder,2 a proposed rule
Commission process and review your
change. The proposed rule change was
comments more efficiently, please use
only one method. The Commission will published for comment in the Federal
post all comments on the Commission’s Register on May 26, 2010.3 The
Commission received six comments on
Internet Web site (https://www.sec.gov/
the rule proposal.4
rules/sro.shtml). Copies of the
submission, all subsequent
I. Description of the Proposed Rule
amendments, all written statements
Change
with respect to the proposed rule
FINRA proposed to amend Rules
change that are filed with the
12403 and 12404 of the Code of
Commission, and all written
Arbitration Procedure for Customer
communications relating to the
Disputes (‘‘Customer Code’’) and Rules
proposed rule change between the
Commission and any person, other than 13403 and 13404 of the Code of
Arbitration Procedure for Industry
those that may be withheld from the
Disputes (‘‘Industry Code’’) to increase
public in accordance with the
provisions of 5 U.S.C. 552, will be
1 15 U.S.C. 78s(b)(1).
available for Web site viewing and
2 17 CFR 240.19b–4.
printing in the Commission’s Public
3 See Securities Exchange Act Rel. No. 62134
Reference Room, 100 F Street, NE.,
(May 19, 2010), 75 FR 29594 (May 26, 2010) (File
No. SR–FINRA–2010–022).
Washington, DC 20549, on official
4 See Submission via SEC WebForm from A. M.
business days between the hours of 10
Miller, dated May 6, 2010 (‘‘Miller comments’’);
a.m. and 3 p.m. Copies of such filing
Submission via SEC WebForm from Steven B.
also will be available for inspection and Caruso, Maddox Hargett Caruso, P.C., dated May 27,
copying at the principal office of
2010 (‘‘Caruso comments’’); Letter to Elizabeth M.
Murphy, Secretary, Commission from Patricia
Nasdaq. All comments received will be
posted without change; the Commission Cowart, Chair, Arbitration Committee, Securities
Industry and Financial Markets Association, dated
does not edit personal identifying
May 27, 2010 (‘‘SIFMA letter’’); Submission via SEC
information from submissions. You
WebForm from Leonard Steiner, Steiner & Libo,
P.C., dated May 27, 2010 (‘‘Steiner comments’’);
should submit only information that
you wish to make publicly available. All Letter to Elizabeth M. Murphy, Secretary,
Commission from Scott R. Shewan, President,
submissions should refer to File
Public Investors Arbitration Bar Association, dated
Number SR–Nasdaq–2010–074 and
June 14, 2010 (‘‘PIABA letter’’); and Letter to
Elizabeth M. Murphy, Secretary, Commission from
should be submitted on or before
Jill I. Gross, Director, Ed Pekarek, Clinical Law
August 5, 2010.
PO 00000
21 17
CFR 200.30–3(a)(12).
Frm 00124
Fmt 4703
Sfmt 4703
Fellow, and Jeffrey Gorenstein, Student Intern, Pace
Law School Investor Rights Clinic, dated June 16,
2010 (‘‘PIRC letter’’).
E:\FR\FM\15JYN1.SGM
15JYN1
]]>Agencies
[Federal Register Volume 75, Number 135 (Thursday, July 15, 2010)]
[Notices]
[Pages 41258-41262]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-17191]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62468; File No. SR-NASDAQ-2010-074]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing of a Proposed Rule Change, as Modified by Amendment
No. 1, To Adopt Rule 4753(c) as a Six Month Pilot in 100 NASDAQ-Listed
Securities
July 7, 2010.
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 June 18, 2010, The NASDAQ Stock Market LLC (``Nasdaq'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by Nasdaq. On June 25,
2010, Nasdaq filed Amendment No. 1 to the proposed rule change. The
Commission is publishing this notice to solicit comments on the
proposed rule change, as amended, 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
NASDAQ is proposing to adopt Rule 4753(c) as an initial six month
pilot in 100 NASDAQ-listed securities.
The text of the proposed rule change is below. Proposed new
language is in italics; proposed deletions are in brackets.\3\
---------------------------------------------------------------------------
\3\ Changes are marked to the rule text that appears in the
electronic manual of NASDAQ found at https://nasdaq.cchwallstreet.com.
---------------------------------------------------------------------------
* * * * *
4753. Nasdaq Halt and Imbalance Crosses
(a)-(b) No change.
(c) Beginning August 1, 2010, for a period of six months,
[B]between 9:30 a.m. and 4 p.m. EST, the System will
[[Page 41259]]
automatically monitor System executions to determine whether the market
is trading in an orderly fashion and whether to conduct an Imbalance
Cross in order to restore an orderly market in a single Nasdaq
Security.
(1) An Imbalance Cross shall occur if the System executes a
transaction in a Nasdaq Security at a price that is beyond the
Threshold Range away from the Triggering Price for that security. The
Triggering Price for each Nasdaq Security shall be the price of any
execution by the System in that security within the prior 30 seconds.
The Threshold Range shall be determined as follows:
------------------------------------------------------------------------
Thresh[h]old
range away
from
Execution price triggering
price
(percent)
------------------------------------------------------------------------
$1.75 and under......................................... 15
Over $1.75 and up to $25................................ 10
Over $25 and up to $50.................................. 5
Over $50................................................ 3
------------------------------------------------------------------------
(2) If the System determines pursuant to subsection (1) above to
conduct an Imbalance Cross in a Nasdaq Security, the System shall
automatically cease executing trades in that security for a 60-second
Display Only Period. During that 60-second Display Only Period, the
System shall:
(A) Maintain all current quotes and orders and continue to accept
quotes and orders in that System Security; and
(B) Disseminate by electronic means an Order Imbalance Indicator
every 5 seconds.
(3) At the conclusion of the 60-second Display Only Period, the
System shall re-open the market by executing the Nasdaq Halt Cross as
set forth in subsection (b)(2)-(4) above.
(4) No change.
* * * * *
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, 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 IV 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 adopt Rule 4753(c), a volatility-based pause
in trading in individual NASDAQ-listed securities traded on NASDAQ
(``NASDAQ Securities''). NASDAQ is proposing to adopt the rule
initially as a six-month pilot in 100 NASDAQ Securities beginning
August 1, 2010.
Background
NASDAQ's efficient market structure allows the price of a security
to change quickly in response to information and market demand.
Allowing trading to react quickly is generally beneficial to investors.
In some circumstances, however, abrupt and significant movements in the
price at which a security is traded can indicate aberrant volatility,
which is harmful to investors. On August 19, 2008, the Commission
approved new Rule 4753(c), which established a volatility-based halt
process on a one-year pilot basis for an initial 100 NASDAQ-listed
securities.\4\ Subsequent to the Commission's approval, NASDAQ
implemented a market order price collar to address aberrant volatility
in lieu of immediately implementing the Rule 4753(c) pilot.\5\ Although
these collars are designed to address volatility by reducing the risk
that market orders will execute at prices that are significantly worse
than the national best bid and offer, they had limited effect on May 6,
2010 because of the limited number of market orders involved in trading
that day on NASDAQ.
---------------------------------------------------------------------------
\4\ Securities Exchange Act Release No. 58386 (August 19, 2008),
73 FR 50380 (August 26, 2008) (SR-NASDAQ-2007-067).
\5\ This process cancels any portion of most unpriced orders
that would execute either on NASDAQ or when routed to another market
center at a price that is the greater of $0.25 or 5 percent worse
than the NBBO at the time NASDAQ receives the order. See Securities
Exchange Act Release No. 60371 (July 23, 2009), 74 FR 38075 (July
30, 2009) (SR-NASDAQ-2009-070).
---------------------------------------------------------------------------
In light of the unprecedented aberrant volatility witnessed on May
6, 2010, and the limited effect that NASDAQ's market collars had in
dampening such volatility, NASDAQ believes that the Rule 4753(c) halt
process is needed to protect its listed securities and market
participants from such volatility in the future. Accordingly, as
described below, NASDAQ is proposing to adopt Rule 4753(c) again as a
six-month pilot for 100 NASDAQ-listed securities.
NASDAQ's Approach: Rule 4753(c)
NASDAQ originally adopted Rule 4753(c) to promote the protection of
investors by providing a meaningful pause in NASDAQ Securities on
NASDAQ in the midst of abrupt and significant price movements, while
permitting trading to move freely in rapid and stable markets.\6\ As
the events of May 6, 2010 show, severe and rapid price dislocation can
occur in securities with no connection to the fundamental soundness of
the underlying companies. Such dislocation may be caused by operational
and structural factors beyond the control of issuers and individual
markets. NASDAQ's Rule 4753(c) process is designed to protect NASDAQ
securities and market participants from aberrant volatility, which can
quickly spread like a contagion from market to market, to allow time to
reestablish a rational market in NASDAQ Securities.
---------------------------------------------------------------------------
\6\ NASDAQ has other similar processes that serve to protect
investors during periods of abnormal trading activity. NASDAQ Rule
4120 authorizes NASDAQ Regulation to halt trading in a security
based upon news or an emergency in the market. NASDAQ Regulation
also has the ability under NASDAQ Rule 11890 to break trades in
order to protect the integrity of the market.
---------------------------------------------------------------------------
NASDAQ's proposed Rule 4753(c) process automatically suspends
trading in individual NASDAQ Securities that are the subject of abrupt
and significant intraday price movements between 9:30 a.m. and 4 p.m.
Eastern Standard Time. The Rule 4753(c) process is triggered
automatically when the execution price of a NASDAQ Security moves more
than a fixed amount away from a pre-established ``triggering price''
for that security. The Triggering Price for each NASDAQ Security is the
price of any execution by the System \7\ in that security within the
previous 30 seconds. For each NASDAQ Security, the System continually
compares the price of each execution in the System against the prices
of all System executions in that security over the 30 seconds.
---------------------------------------------------------------------------
\7\ As defined in Rule 4751(a).
---------------------------------------------------------------------------
Proposed Rule 4753(c) has tiered triggering price range percentages
that are based on the execution price of a security. NASDAQ has
observed that, on a percentage basis, lower priced stocks normally
trade in a wider range than stocks with higher prices. For example,
during the first quarter of 2010, a period of relatively low market
volatility, stocks priced under $1.75 had an average range (percent
difference from high to low over the course of the day) of 9%, stocks
priced $1.75 up to $24.99 had an average range of 4%. Stocks priced $25
to $49.99 had an average range of 3%. Stocks priced above $50
[[Page 41260]]
had an average range of 2%. The purpose of Rule 4753(c) is not to
inhibit trading within the normal range, but rather to pause trading in
instances of aberrant volatility. As a consequence, NASDAQ selected
percentage tiers that allow for a wider range in lower priced
securities, with decreasing ranges on a percentage basis as price
increases.
When the Rule 4753(c) process is triggered, NASDAQ institutes a
formal trading halt during which time NASDAQ systems are prohibited
from executing orders.\8\ Members, however, may continue to enter
quotes and orders, which are queued during a 60-second Display Only
Period. At the conclusion of the Display Only Period, the queued orders
are executed at a single price, pursuant to Rule 4753.
---------------------------------------------------------------------------
\8\ A halt pursuant to Rule 4753(c) is not considered a
regulatory halt and, therefore, it does not trigger a market-wide
trading halt under Section X of the NASDAQ UTP Plan. As a result,
other markets are permitted to continue trading a NASDAQ stock that
is undergoing a Market Re-Opening on NASDAQ. During the Rule 4753(c)
process, NASDAQ's quotations are marked ``closed,'' signaling to
other markets that quotes and orders routed to NASDAQ will not be
executed. A Rule 4753(c) trade is reported to the network processor
as a single-price re-opening that is exempt from trade through
restrictions pursuant to Rule 611(b)(3).
---------------------------------------------------------------------------
Current Environment
In light of the events of May 6, 2010, NASDAQ believes that
circumstances warrant the implementation of Rule 4753(c), in addition
to the market collar protections currently in place.\9\ NASDAQ believes
that implementing Rule 4753(c) will serve to protect market
participants from aberrant volatility such as that which occurred on
May 6, 2010. NASDAQ also believes that Rule 4753(c) will serve as a
complement to the recently-approved cross-market single stock pause to
be adopted by the U.S. national securities exchanges.\10\ NASDAQ notes
that there are several differences between the cross-market approach
and Rule 4753(c). Specifically, Rule 4753(c) uses tiered threshold
range percentages that are based on a security's execution price in
determining the price at which a halt would be initiated, whereas the
cross market approach does not. Rule 4753(c) also has a shorter time
threshold used in determining that a pause in trading should be
initiated, and a shorter time during which a security is paused, as
compared to the cross-market approach. Rule 4753(c) is applied
throughout the trading day, whereas the cross-market approach does
[sic] not. Last, while the cross-market approach will help to prevent
aberrant volatility, it applies only to S&P 500 Index securities, thus
it will not address aberrant volatility in the majority of NASDAQ-
listed securities. Adoption of Rule 4753(c) will allow NASDAQ to extend
the rule's protections to its listed securities trading on NASDAQ, with
such protections initially applying to the 100 pilot securities \11\
but with the goal of applying the rule to all NASDAQ-listed securities.
---------------------------------------------------------------------------
\9\ NASDAQ notes that, while the market collar protections were
in place during the events of May 6, 2010, only approximately five
percent of the volume on NASDAQ was attributable to market orders.
\10\ Securities Exchange Act Release No. 62252 (June 10, 2010),
75 FR 34186 (June 16, 2010) (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; SR-CBOE-2010-047).
\11\ Amendment No. 1 indicates that the pilot securities will be
the NASDAQ 100 securities.
---------------------------------------------------------------------------
The following examples illustrate how Rule 4753(c) would operate in
relation to the new cross-market single stock pause. In this sequence
of events, the Rule 4753(c) pause is triggered prior to the cross-
market trading pause process:
WXYZ is NASDAQ-listed and included in the S&P 500 Index.
2:00:00 p.m., WXYZ trades at $300 on NASDAQ, which is also the
consolidated last sale price
[cir] 2:00:30 p.m., WXYZ trades below $291 on NASDAQ
[cir] WXYZ is paused pursuant to Rule 4753(c)
[cir] WXYZ continues to trade elsewhere
2:01:30 p.m., WXYZ resumes trading on NASDAQ at $295
2:02:00 p.m., WXYZ trades below 286.15 on NASDAQ
[cir] WXYZ is again paused pursuant to Rule 4753(c)
[cir] WXYZ continues to trade elsewhere
2:03:00 p.m., WXYZ resumes trading on NASDAQ at $288;
2:03:30 p.m., WXYZ trades below 279.36 on NASDAQ;
[cir] WXYZ is again paused pursuant to Rule 4753(c)
[cir] WXYZ continues to trade elsewhere
2:04:00 p.m., WXYZ consolidated last sale price reaches $270
[cir] The cross-market trading pause process is triggered
[cir] NASDAQ abandons the Rule 4753(c) and now follows the cross-
market trading pause process
The following sequence of events illustrates a situation whereby a
NASDAQ-listed security that is also covered by the cross-market trading
pause process triggers both processes simultaneously:
WXYZ is NASDAQ-listed and included in the S&P 500 Index.
2:00:00 p.m., WXYZ trades at $20 on NASDAQ, which is also the
consolidated last sale price;
2:00:30 p.m., WXYZ trades at $17 on NASDAQ;
[cir] Because the execution price exceeds both the 10 percent tiers
of the cross-market pause process and Rule 4753(c), the cross-market
process is followed
[cir] WXYZ is paused on all markets
The following sequence of events illustrates a situation whereby a
NASDAQ-listed security may fall greater than 15 percent, yet does not
trigger the cross-market trading pause process:
WXYZ is NASDAQ-listed, but not included in the S&P 500 Index.
2:00:00 p.m., WXYZ trades at $1.50 on NASDAQ, which is also
the consolidated last sale price;
2:00:30 p.m., WXYZ trades below $1.275 on NASDAQ;
[cir] Although the security dropped more than 10 percent, the
cross-market trading pause process would not triggered, since the
security is not included in the S&P 500 Index
[cir] WXYZ is paused pursuant to Rule 4753(c) because the security
dropped greater than 15 percent in the prior 30 seconds
[cir] WXYZ continues to trade elsewhere
The examples above show that, although Rule 4753(c) operates
independently from the cross-market trading pause process, both trade
pause processes work efficiently along side of each other to dampen
aberrant volatility.
Other Market's Approach
NASDAQ notes that another market has adopted a similar process
whereby the market's listed securities each may be temporarily removed
from automatic trading when the trading exceeds certain average daily
volume-, price-, and volatility-based criteria.\12\ Although dissimilar
in process due to the differing nature of the markets, the pause under
Rule 4753(c) is designed to achieve the same goal, namely, to apply
quantitative criteria to pause trading in a listed security during
times of aberrant volatility so that a more representative market may
develop. NASDAQ's process differs from the other market's process in
that it uses completely transparent criteria and timeframes, which
serve to eliminate uncertainty from the trade pause process. For
example and as noted above, the Rule 4753(c) process is triggered by
execution prices that are clear and available to all market
participants, and the pause in trading has a fixed 60 second Display
[[Page 41261]]
Only period process that cannot be extended.\13\ In addition, the pause
will be followed by a ``cross'' that is predictable and well defined.
As a consequence, application of the Rule 4753(c) process is automatic
and precise, allowing no place for uncertainty. This will make the
transition to this rule predictable and understandable. Most
importantly, it will allow NASDAQ to insulate its issuers from
volatility injected in the market from exchange halt programs with
subjective criteria. Primary markets with responsibility to listed
companies have an obligation and right to take actions to provide
additional levels of protection from volatility to companies that list
with it [sic].
---------------------------------------------------------------------------
\12\ NYSE Rule 1000(a)(iv).
\13\ NYSE's LRP process has an indeterminate length, but can
last several minutes during which the NYSE is not transmitting a
protected quote in the affected security.
---------------------------------------------------------------------------
Summary
In approving Rule 4753(c), the Commission stated that
systematically suspending trading in NASDAQ-listed securities that are
the subject of abrupt and significant intra-day price movements
promotes fair and orderly markets and the protection of investors.\14\
NASDAQ believes that adopting Rule 4753(c) is more appropriate now than
it was at the time the Commission originally approved Rule 4753(c)
given the need to protect investors from aberrant volatility, such as
the volatility witnessed on May 6, 2010. Accordingly, NASDAQ is
proposing to adopt Rule 4753(c) in identical form as originally
approved by the Commission, but as a six month pilot for an initial 100
Nasdaq-listed securities. During this pilot period, NASDAQ will study
the impact of the rule on the pilot securities and will provide the
Commission with monthly reports detailing its ongoing review of the
pilot. These reports will inform the Commission of the number of times
Rule 4753(c) is triggered and the security or securities involved, and
will describe any patterns that emerge during the pilot period. NASDAQ
is also making a technical correction to the table found in Rule
4753(c)(1).
---------------------------------------------------------------------------
\14\ Supra note 4 at 50381.
---------------------------------------------------------------------------
2. Statutory Basis
NASDAQ believes the proposed rule change is consistent with the
provisions of Section 6 of the Act,\15\ in general and with Section
6(b)(5) of the Act,\16\ in particular, which requires that the rules of
an exchange be designed to prevent fraudulent and manipulative acts and
practices, promote just and equitable principles of trade, foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, protect investors and the public interest. The
proposed rule change is consistent with these requirements in that it
will reduce the negative impacts of sudden, unanticipated volatility in
individual NASDAQ Securities, and serve to restore an orderly market in
a transparent and uniform manner, enhance the price-discovery process,
increase overall market confidence, and promote fair and orderly
markets and the protection of investors.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78f.
\16\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
NASDAQ notes that the proposed rule change is identical to the rule
change approved by the Commission when it approved Rule 4753(c) in
August 2008, except that NASDAQ plans to implement the pilot on a
shorter, six month basis. In approving Rule 4753(c), the Commission
acknowledged that Rule 4753(c), which systematically suspends trading
in NASDAQ-listed securities that are the subject of abrupt and
significant intra-day price movements, promotes fair and orderly
markets and the protection of investors.\17\ NASDAQ notes that the
Commission received no comments on the proposed rule change that
adopted Rule 4753(c) originally. NASDAQ believes that the lack of
comment signaled that market participants considered the proposed new
rule to be non-controversial. NASDAQ believes that, given the events of
May 6, 2010, adopting Rule 4753(c) as a new pilot will ensure that
covered NASDAQ Securities, and market participants trading therein on
NASDAQ, are provided the needed protections of the rule.
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\17\ Supra note 4 at 50381.
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NASDAQ notes that the proposed rule change supplements the cross-
market single stock pause to be adopted by the national securities
exchanges, which was approved by the Commission on June 10, 2010.\18\
NASDAQ applauds the Commission's leadership in bringing the national
securities exchanges together to achieve a cross-market solution to
help address the issues that may have caused the events of May 6, 2010.
NASDAQ is continuously assessing actions it can take to further
strengthen its market. In this regard, NASDAQ believes that quickly
implementing Rule 4753(c) will complement the cross-market single stock
pause by serving to better protect all of NASDAQ's listed securities
covered by the pilot trading on NASDAQ during times of aberrant
volatility, such as the volatility witnessed on May 6, 2010. NASDAQ
notes that Rule 4753(c) in no way conflicts with the new cross-market
single stock pause, but rather applies, in some cases, more stringent
criteria to pause a broader range of securities on NASDAQ only. In
addition, should a cross-market single stock pause be initiated in a
NASDAQ Security during a Rule 4753(c) pause, the security would be
subject to the cross-market single stock pause process.
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\18\ Supra note 10.
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NASDAQ has an obligation to adopt rules that protect investors and
the public interest, which include rules that protect its listed
securities and those that trade in them. Instituting Rule 4753(c) will
serve to protect market participants within the scope of NASDAQ's
authority under the Act. NASDAQ notes that market participants would be
able to trade in securities subject to a Rule 4753(c) pause at other
market venues, should they so choose.\19\
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\19\ Supra note 8.
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Last, NASDAQ notes that, in approving another market's approach to
dealing with abnormal volatility in its listed securities, the
Commission stated that precluding automatic executions under certain
circumstances is warranted.\20\ Like that market's process, the
proposed change to NASDAQ Rule 4753(c) will extend the rule's halt
process to all listed securities traded on NASDAQ and will likewise
serve to dampen volatility, thus providing market participants with
time to react to achieve a more natural trading pattern of a particular
security.
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\20\ Securities Exchange Act Release No. 53539 (March 22, 2006),
71 FR 16353, 16377-78 (March 31, 2006) (SR-NYSE-2004-05).
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NASDAQ will keep the Commission apprised of the use of Rule 4753(c)
as part of NASDAQ's ongoing review of the pilot. In this regard, during
the pilot period NASDAQ will provide the Commission with monthly
reports detailing the use of Rule 4753(c) and describing any patterns
that may develop. As such, NASDAQ believes that the proposed rule
change is consistent with the protection of investors and the public
interest, and does not raise any novel regulatory issues.
B. Self-Regulatory Organization's Statement on Burden on Competition
NASDAQ does not believe that the proposed rule change will result
in any
[[Page 41262]]
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 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
(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 all aspects of the foregoing, including whether
the proposed rule change is consistent with the Act. A stated purpose
of the proposal is to protect Nasdaq-listed securities and market
participants from ``aberrant'' volatility, such as that which occurred
on May 6, 2010 and may be caused by operational or structural factors
beyond the control of issuers and individual markets. To what extent do
the price changes that would trigger a trading halt under the proposal
indicate the potential existence of ``aberrant'' volatility, as opposed
to the normal operation of the markets? If these price changes indicate
potentially ``aberrant'' volatility, to what extent will the proposal
address such volatility in a manner appropriate and consistent with the
purposes of the Act? Will a trading halt at Nasdaq under the proposal
restrict liquidity or increase volatility in the affected stock, since
other markets can continue to trade the stock and may not have
comparable volatility halts? In what respects are the consequences of
this proposal likely to be similar to, or different from, the effects
of other exchange-specific mechanisms that currently restrict trading
on the relevant exchange under certain circumstances? More generally,
to what extent is it appropriate for different exchanges to adopt
different and potentially inconsistent approaches to trading pauses or
restrictions that might affect the same stock? To what extent does the
answer change based on whether the affected stock is already subject to
a market-wide single-stock circuit breaker that applies consistently
across all trading venues?
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-2010-074 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-Nasdaq-2010-074. 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 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 Nasdaq.
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-2010-
074 and should be submitted on or before August 5, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-17191 Filed 7-14-10; 8:45 am]
BILLING CODE 8010-01-P
