Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 4120 To Adopt a Modification in the Process for Initiating Trading of a Security That Is the Subject of a Trading Halt or Pause on NASDAQ, 29187-29190 [2013-11733]

Download as PDF Federal Register / Vol. 78, No. 96 / Friday, May 17, 2013 / Notices wreier-aviles on DSK5TPTVN1PROD with NOTICES will also be collected on a same-day basis and DTC is adding language to the Settlement Service Guide in this regard. In addition, DTC is adding language to the Settlement Service Guide to clarify that the relevant Guide provisions shall apply only to the calculation and collection of DTC Participants Fund deposits, as described in the Guide, and do not supersede or limit any provisions of the DTC Rules or any rights of DTC in accordance with applicable law and DTC’s Rules and Procedures, including but not limited to transactions in securities and money payments. Finally, DTC is making certain clarifying and technical changes to the language as set forth in the ‘‘Participants Fund’’ section of its Settlement Service Guide, including (i) updating the description of the purpose of the Participants Fund, (ii) updating the use of defined terms, such as ‘‘Participant,’’ and (iii) updating and adding subject headings. III. Discussion Section 19(b)(2)(C) of the Act directs the Commission to approve a proposed rule change of a self-regulatory organization if it finds that such proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to such organization.10 Section 17A(b)(3)(F) of the Act requires that, among other things, ‘‘[t]he rules of the clearing agency are designed to promote the prompt and accurate clearance and settlement of securities transactions and . . . to assure the safeguarding of securities and funds which are in the custody or control of the clearing agency or for which it is responsible.’’ 11 Furthermore, Commission Rule 17Ad–22(d)(11) regarding default procedures, adopted as part of the Clearing Agency Standards,12 requires that registered clearing agencies ‘‘establish, implement, maintain and enforce written policies and procedures reasonably designed to, as applicable: . . . establish default procedures that ensure that the clearing agency can take timely action to contain losses and liquidity pressures and to continue meeting its obligations in the event of a participant default.’’13 Here, as described above, DTC’s proposed rule change to accelerate collection of increases in Participants’ Required Participants Fund Deposits in certain circumstances from two business 10 15 U.S.C. 78(s)(b)(2)(C). U.S.C. 78q–1(b)(3)(F). 12 Release No. 34–68080 (Oct. 22, 2012), 77 FR 66219 (Nov. 2, 2012). 13 17 CFR 240.17Ad–22(d)(11). 11 15 VerDate Mar<15>2010 15:20 May 16, 2013 Jkt 229001 days to the same day that the Participant is notified of the increase should, generally, help further safeguard the securities and settlement process as a whole, as required by Section 17A(b)(3)(F) of the Act,14 since DTC will have access to the required funds, which are calculated by an established formula, more quickly. More specifically, this rule change should help improve DTC’s ability to take timely action to contain losses and liquidity pressures and to continue meeting its obligations in the event of a Participant default, as required by Commission Rule 17Ad–22(d)(11),15 by providing DTC with funds likely necessary to contain such losses and liquidity pressures in the event of a defaulting Participant. IV. Conclusion On the basis of the foregoing, the Commission finds the Proposed Rule Change is consistent with the requirements of the Act, particularly with the requirements of Section 17A of the Act,16 and the rules and regulations thereunder. It is therefore ordered, pursuant to Section 19(b)(2) of the Act,17 that the proposed rule change SR–DTC–2013–01 be and hereby is approved.18 For the Commission by the Division of Trading and Markets, pursuant to delegated authority.19 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–11758 Filed 5–16–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–69563; File No. SR– NASDAQ–2013–073] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 4120 To Adopt a Modification in the Process for Initiating Trading of a Security That Is the Subject of a Trading Halt or Pause on NASDAQ Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the 14 15 U.S.C. 78q–1(b)(3)(F). CFR 240.17Ad–22(d)(11). 16 15 U.S.C. 78q–1. 17 15 U.S.C. 78s(b)(2). 18 In approving the Proposed Rule Change, the Commission considered the proposal’s impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 19 17 CFR 200.30–3(a)(12). 15 17 Frm 00077 ‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on April 29, 2013, The NASDAQ Stock Market LLC (‘‘NASDAQ’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change NASDAQ proposes to amend Rule 4120 to adopt a modification in the process for initiating trading of a security that is the subject of a trading halt or pause on NASDAQ, and to make several additional modifications to Rule 4120 to clarify the conditions under which NASDAQ will conduct a halt cross. NASDAQ proposes to implement the proposed rule change on a date that is on, or shortly after, the 30th day following the date of the filing. The text of the proposed rule change is available on the Exchange’s Web site at https:// www.nasdaq.cchwallstreet.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose May 13, 2013. PO 00000 29187 Fmt 4703 Sfmt 4703 In 2012, NASDAQ modified its process for commencing trading of a security that is the subject of an initial public offering (an ‘‘IPO’’) on NASDAQ by allowing market participants to enter orders to be held in an undisplayed state until the commencement of the Display-Only Period that occurs prior to 1 15 2 17 U.S.C. 78s(b)(1). CFR 240.19b–4. E:\FR\FM\17MYN1.SGM 17MYN1 wreier-aviles on DSK5TPTVN1PROD with NOTICES 29188 Federal Register / Vol. 78, No. 96 / Friday, May 17, 2013 / Notices the IPO.3 NASDAQ is now proposing a similar change with regard to entering orders prior to the end of other trading halts or pauses on NASDAQ. Rule 4120(a) describes the circumstances under which NASDAQ has the authority to initiate a trading halt. As detailed in Rule 4120(a), the specific bases for a halt include the following: • A halt to permit the dissemination of material news with respect to a NASDAQ-listed security (Rule 4120(a)(1)); • a halt when a security listed on another national securities exchange is halted to permit dissemination of news (Rule 4120(a)(2)) or due to an order imbalance or influx (Rule 4120(a)(3)); • a halt in an American Depository Receipt (‘‘ADR’’) or other security listed on Nasdaq, when the Nasdaq-listed security or the security underlying the ADR is listed on or registered with another national or foreign securities exchange or market, and the regulatory authority overseeing such exchange or market halts trading in such security for regulatory reasons (Rule 4120(a)(4)); • a halt when Nasdaq requests from the issuer information relating to material news or the issuer’s ability to meet Nasdaq listing qualification requirements, or any other information necessary to protect investors and the public interest (Rule 4120(a)(5)); • a halt trading in a security listed on NASDAQ when extraordinary market activity in the security is occurring, NASDAQ determines that the activity is likely to have a material effect on the market for the security, and NASDAQ believes that the activity is caused by the misuse or malfunction of an electronic quotation, communication, reporting, or execution system (Rule 4120(a)(6)); • a halt with respect to an index warrant when deemed appropriate in the interests of a fair and orderly market and to protect investors (Rule 4120(a)(8)); • a halt in a series of Portfolio Depository Receipts, Index Fund Shares or Managed Fund Shares listed on Nasdaq if the Intraday Indicative Value or the index value applicable to that series is not being disseminated as required (Rule 4120(a)(9)); • a halt in a Derivative Securities Product (as defined in Rule 4120(b)(4)(A)) for which a net asset value (‘‘NAV’’) or a Disclosed Portfolio is disseminated if Nasdaq becomes aware that the NAV or Disclosed Portfolio is not being disseminated to all 3 Securities Exchange Act Release No. 66652 (March 23, 2012), 77 FR 13129 (March 29, 2012) (SR–NASDAQ–2012–038). VerDate Mar<15>2010 15:20 May 16, 2013 Jkt 229001 market participants at the same time (Rule 4120(a)(10)); • a trading pause with respect to NASDAQ-listed stocks that are not subject to the Limit Up-Limit Down Plan 4 and that are experiencing certain large price movements, as defined by Rule 4120(a)(11), or with respect to a NASDAQ-listed stock that is subject to the Limit Up-Limit Down Plan and that is in a ‘‘straddle state,’’ as defined by Rule 4120(a)(12)(F); and • a trading halt in a Derivative Security Product traded pursuant to unlisted trading privileges for which a ‘‘Required Value,’’ such as an intraday indicative value or disclosed portfolio, is not being disseminated, under the conditions described in Rule 4120(b).5 Rule 4120(c)(7) provides that in the case of a halt under Rule 4120(a)(1), (4), (5), (6), (9), (10), or (11), or Rule 4120(b), prior to terminating the halt, there is a 5-minute Display-Only Period during which market participants may enter quotes and orders into the NASDAQ Market Center. At the conclusion of the Display-Only Period, trading commences through the halt cross process provided for in Rule 4753.6 However, if at the end of a Display-Only Period, NASDAQ detects an order imbalance in the security, the halt may be extended for an additional DisplayOnly Period of one minute. NASDAQ notes that the purpose of the halt cross is to establish a consensus price for the resumption of trading of securities for which NASDAQ is the primary listing market. Accordingly, NASDAQ does not believe that it is warranted to conduct a halt cross for securities listed on other exchanges. Accordingly, NASDAQ is removing the reference to Rule 4120(b) from Rule 4120(c)(7), since Rule 4120(b) pertains solely to halts of securities traded on an unlisted traded privileges (‘‘UTP’’) basis. In addition, since halts under Rule 4120(a)(10) may pertain either to securities listed on NASDAQ 4 Plan to Address Extraordinary Market Volatility Submitted to the Commission Pursuant to Rule 608 of Regulation NMS under the Act, Securities Exchange Act Release No. 67091 (May 31, 2012), 77 FR 33498 (June 6, 2012). 5 Rule 4120 provides for a halt when a security is the subject of an IPO on NASDAQ (Rule 4120(a)(7)). Entry of orders during an IPO halt was addressed in a prior proposed rule change. See supra n.3. 6 Rule 4120 also provides for a Display-Only Period and a halt cross in the case of a halt under Rule 4120(b). Since that rule applies only to securities traded on an unlisted trading privileges (‘‘UTP’’) basis, NASDAQ believes that it is not necessary to conduct a halt cross prior to resumption of trading, consistent with other halts applicable to securities that are traded on a UTP basis. Accordingly, the rule is being amended to remove the reference to Rule 4120(b) from the provision of the rule that requires a cross for the resumption of trading. PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 or securities traded on a UTP basis, NASDAQ is further amending the rule to clarify that a halt cross is conducted only for securities listed on NASDAQ. Finally, since Rule 4120(a)(12)(F) contemplates a halt cross for a NASDAQ-listed security subject to the Limit Up-Limit Down Plan that is in a straddle state, NASDAQ is adding a reference to this provision to Rule 4120(c)(7). Halts for securities not listed on NASDAQ are terminated at the time specified by NASDAQ, and a halt cross is not performed prior to resumption of trading. Under the current process, quotes and orders in a halted security (with the exception of a security halted for an IPO) may not be entered until the commencement of the Display-Only Period, in the instance of a security for which a halt cross will occur, or until the resumption of trading in other instances. However, NASDAQ believes that the quality of its process for commencing trading in the halted security would be enhanced by allowing market participants to enter orders to be held but not displayed until the beginning of the Display-Only Period, in the instances of a security for which a halt cross will occur, or until the resumption of trading in other instances.7 Specifically, NASDAQ believes that this change will provide for a greater number of orders being entered prior to commencement of trading, resulting in a higher level of order interaction in the cross or at the resumption of trading.8 Orders entered in this manner will be held in a suspended state until the beginning of the Display-Only Period or the resumption of trading, as applicable, at which time they will be entered into the system. Market participants may cancel orders entered in this manner in the same way they would cancel any other order. Orders entered prior to the Display-Only Period or the resumption of trading, as applicable, will be rejected unless they are designated for holding. 7 Because the orders would be held in an undisplayed state, the change would not implicate NASDAQ Rule 3340 or FINRA Rule 5260, which prohibit transactions, publication of quotations, or publication of indications of interest during a trading halt. 8 NASDAQ notes that in the case of a trading pause under Rule 4120(a)(11) or (12), the DisplayOnly Period commences at the same time as the trading pause. Accordingly, the proposed rule change does not alter the status quo with respect to such trading pauses. Rather, the proposed rule change provides that ‘‘in instances where a trading halt is in effect prior to the commencement of the Display Only Period, market participants may enter orders in a security that is the subject of the trading halt on Nasdaq and designate such orders to be held until the beginning of the Display Only Period.’’ E:\FR\FM\17MYN1.SGM 17MYN1 Federal Register / Vol. 78, No. 96 / Friday, May 17, 2013 / Notices With respect to halts for which a halt cross will not occur, the orders will be entered into the continuous market once trading resumes.9 With respect to halts for which a cross will occur, the orders will be processed in the manner provided for in Rule 4753. 2. Statutory Basis wreier-aviles on DSK5TPTVN1PROD with NOTICES NASDAQ believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,10 in general, and with Section 6(b)(5) of the Act,11 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. Specifically, NASDAQ believes that the change to allow entry of quotes and orders for holding during a trading halt will provide for a greater number of orders being entered prior to commencement of trading, resulting in a higher level of order interaction in the re-opening process. Thus, NASDAQ believes that the change will remove impediments to and perfect the mechanism of a free and open market. NASDAQ further believes that the proposed change to clarify that halt crosses will not be conducted for the resumption of trading in securities traded on a UTP basis is consistent with the halt cross’s purpose of establishing a consensus price for the resumption of trading of securities for which NASDAQ is the primary listing market. Because this price is established by the listing market for securities that NASDAQ trades on a UTP basis, NASDAQ believes that conducting a halt cross for such securities is not necessary to remove impediments to and perfect the mechanism of a free and open market and a national market system. 9 Orders entered and held during the halt period will be entered into the continuous market in the order in which they were received. However, such orders will be entered contemporaneously with any orders received through order entry ports after the halt is terminated. Thus, the relative priority of orders received during the halt and orders received through order entry ports after the halt is terminated will be a function of the duration of system processing associated with each particular order. As a result, orders received during the halt will not automatically have priority over orders received at the conclusion of the halt. 10 15 U.S.C. 78f. 11 15 U.S.C. 78f(b)(5). VerDate Mar<15>2010 15:20 May 16, 2013 Jkt 229001 29189 B. Self-Regulatory Organization’s Statement on Burden on Competition investors, or otherwise in furtherance of the purposes of the Act. 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. Specifically, NASDAQ believes that this change will provide for a greater number of orders being entered prior to commencement of trading, resulting in a higher level of order interaction. NASDAQ believes that this change will promote competition by enhancing the attractiveness of NASDAQ as a trading venue through higher order fill rates and more complete price discovery. Moreover, because the change will not affect the availability or price of goods or services offered by NASDAQ or others, it will not impose any burden on competition. IV. Solicitation of Comments C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 12 and Rule 19b–4(f)(6) thereunder.13 Because the proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative prior to 30 days from the date on which it was filed, or such shorter time as the Commission may designate, if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b–4(f)(6)(iii) thereunder. At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of 12 15 U.S.C. 78s(b)(3)(A)(iii). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires the Exchange to give the Commission written notice of the Exchange’s intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 13 17 PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 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 email to rulecomments@sec.gov. Please include File Number SR–NASDAQ–2013–073 on the subject line. Paper Comments All submissions should refer to File Number SR–NASDAQ–2013–073. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet 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 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make publicly available. All submissions should refer to File Number SR– NASDAQ–2013–073 and should be submitted on or before June 7, 2013. E:\FR\FM\17MYN1.SGM 17MYN1 29190 Federal Register / Vol. 78, No. 96 / Friday, May 17, 2013 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14 Lynn M. Powalski, Deputy Secretary. responded to the comment letters and filed Amendment No. 1 to the proposed rule change.6 This order approves the proposed rule change, as modified by Amendment No. 1. [FR Doc. 2013–11733 Filed 5–16–13; 8:45 am] II. Description of the Proposal FINRA trade reporting rules currently require that members report OTC transactions in NMS stocks and OTC Equity Securities that are executed during the hours that the FINRA Facilities are open within 30 seconds of execution.7 In addition, members must report the cancellation of a trade within 30 seconds of the time of cancellation if the trade is both executed and cancelled on the same day during normal market hours.8 Under current FINRA guidance, members are expected to report transactions as soon as practicable and would violate the rule if they withhold trade reports, e.g., by programming their systems to delay reporting until the last permissible second.9 FINRA proposed to amend its trade reporting rules to require members to report OTC transactions in NMS stocks and OTC Equity Securities as soon as practicable, but no later than 10 seconds, following execution and to report trade cancellations as soon as practicable, but no later than 10 seconds, after the time of cancellation.10 BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–69561; File No. SR–FINRA– 2013–013] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving the Proposed Rule Change, as Modified by Amendment No. 1, To Require Members To Report OTC Equity Transactions as Soon as Practicable, But No Later Than 10 Seconds, Following Execution May 13, 2013. I. Introduction On February 1, 2013, Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to require that members report over-the-counter (‘‘OTC’’) transactions in NMS stocks and OTC Equity Securities,3 and cancellations of such transactions, to FINRA as soon as practicable, but no later than 10 seconds, following execution (or cancellation, as applicable). The proposed rule change was published for comment in the Federal Register on February 12, 2013.4 The Commission received five comment letters in response to the proposed rule change.5 On May 7, 2013 FINRA 14 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 OTC transactions in NMS stocks, as defined in SEC Rule 600(b) of Regulation NMS, are reported through the Alternative Display Facility (‘‘ADF’’) or a Trade Reporting Facility (‘‘TRF’’), and transactions in ‘‘OTC Equity Securities,’’ as defined in FINRA Rule 6420 (i.e., non-NMS stocks such as OTC Bulletin Board and OTC Market securities), are reported through the OTC Reporting Facility (‘‘ORF’’). The ADF, TRFs and ORF are collectively referred to herein as the ‘‘FINRA Facilities.’’ 4 See Securities Exchange Act Release No. 68842 (February 6, 2013), 78 FR 9963 (‘‘Notice’’). 5 See Letter from Christopher Nagy, President, KOR Trading LLC to Elizabeth M. Murphy, Secretary, Commission, dated March 5, 2013 (‘‘KOR Letter’’); Letter from David J. Amster, Chief Compliance Officer, CRT Capital Group to the Commission, dated March 5, 2013 (‘‘CRT Letter’’); Letter from David S. Sieradzki, Partner, Bracewell & Giuliani LLP on behalf of GFI Securities LLC to Elizabeth M. Murphy, Secretary, Commission, dated wreier-aviles on DSK5TPTVN1PROD with NOTICES 1 15 VerDate Mar<15>2010 15:20 May 16, 2013 Jkt 229001 March 5, 2013 (‘‘GFI Letter’’); Letter from Manisha Kimmel, Executive Director, Financial Information Forum to Elizabeth M. Murphy, Secretary, Commission, dated March 6, 2013 (‘‘FIF Letter’’); and Letter from Theodore R. Lazo, Managing Director and Associate General Counsel, Securities Industry and Financial Markets Association to Elizabeth M. Murphy, Secretary, Commission, dated March 18, 2013 (‘‘SIFMA Letter’’). 6 See Letter from Stephanie Dumont, Senior Vice President and Director of Capital Markets Policy, FINRA to the Commission dated May 7, 2013 (‘‘FINRA Response’’). See also Amendment No. 1 dated May 7, 2013 (FINRA proposed to adopt Supplementary Material to provide it will take such factors as the complexity and manual nature of the execution and reporting of the trade into consideration in determining whether ‘‘reasonable justification’’ exists to excuse what otherwise may be deemed to be a pattern or practice of late trade reporting). (‘‘Amendment No. 1’’). Because Amendment No. 1 is technical in nature, it is not subject to notice and comment. 7 See, e.g., FINRA Rules 6282(a), 6380A(a), 6380B(a) and 6622(a). The TRFs and ORF are open between 8:00 a.m. and 8:00 p.m., and the ADF is open between 8:00 a.m. and 6:30 p.m. 8 See, e.g., FINRA Rules 6282(j)(2)(A), 6380A(g)(2)(A), 6380B(f)(2)(A) and 6622(f)(2)(A). Members must report all cancellations of previously reported trades to FINRA; however, where the trade is executed or canceled outside of normal market hours, the 30-second requirement does not apply to the reporting of the cancellation. 9 See FINRA Regulatory Notice 10–24 (April 2010). 10 FINRA also is proposing conforming changes to replace the reference to 30 seconds with 10 seconds in the rules relating to the reporting of stop stock and ‘‘prior reference price’’ transactions. See FINRA PO 00000 Frm 00080 Fmt 4703 Sfmt 4703 Under the proposed rule change, all transactions not reported within 10 seconds will be marked late (unless expressly subject to a different reporting requirement 11 or excluded from the trade reporting rules altogether). In the filing, FINRA stated that it understands that there will be isolated instances where a member is unable to report trades within the time period prescribed by rule, and FINRA will continue to look for a pattern or practice 12 of unexcused late trade reporting before taking action against a member. Pursuant to FINRA Rules 6181 and 6623, unexcused late reporting occurs when there are ‘‘repeated reports of executions submitted after the required time period without reasonable justification or exceptional circumstances.’’ The rules also provide that ‘‘[e]xceptional circumstances will be determined on a case-by-case basis and may include instances of system failure by a member or service bureau, or unusual market conditions, such as extreme volatility in a security, or in the market as a whole.’’ FINRA also proposed to adopt Supplementary Material to clarify the requirement that members report trades and trade cancellations ‘‘as soon as practicable.’’ Specifically, the proposed Supplementary Material provides that members must adopt policies and procedures reasonably designed to achieve compliance with this requirement and must program systems to commence the trade reporting process without delay upon execution (or cancellation, as applicable). Where a member has such reasonably designed policies, procedures and systems in place, the member will not be viewed as violating the ‘‘as soon as practicable’’ requirement because of delays in trade reporting that are due to external factors so long as the member does not purposely delay the reporting of the trade. The proposed Supplementary Material also expressly prohibits members from purposely withholding trade reports, e.g., by programming their systems to delay reporting until the last permissible second. FINRA notes that members that engage in a pattern and practice 13 of unexcused late reporting (i.e., reporting later than 10 seconds Rules 6282(a)(4), 6380A(a)(5), 6380B(a)(5) and 6622(a)(5). 11 For example, the proposed rule change will not amend the reporting requirements applicable to transactions in Restricted Equity Securities, as defined in Rule 6420, effected under Securities Act Rule 144A, which transactions currently are not subject to the 30-second reporting requirement. See Rule 6622(a)(3). 12 See, e.g., FINRA Rule 6282. See also Amendment No. 1. 13 Id. E:\FR\FM\17MYN1.SGM 17MYN1

Agencies

[Federal Register Volume 78, Number 96 (Friday, May 17, 2013)]
[Notices]
[Pages 29187-29190]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-11733]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69563; File No. SR-NASDAQ-2013-073]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Rule 4120 To Adopt a Modification in the Process for Initiating 
Trading of a Security That Is the Subject of a Trading Halt or Pause on 
NASDAQ

May 13, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on April 29, 2013, The NASDAQ Stock Market LLC (``NASDAQ'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \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 proposes to amend Rule 4120 to adopt a modification in the 
process for initiating trading of a security that is the subject of a 
trading halt or pause on NASDAQ, and to make several additional 
modifications to Rule 4120 to clarify the conditions under which NASDAQ 
will conduct a halt cross. NASDAQ proposes to implement the proposed 
rule change on a date that is on, or shortly after, the 30th day 
following the date of the filing. The text of the proposed rule change 
is available on the Exchange's Web site at https://www.nasdaq.cchwallstreet.com, at the principal office of the Exchange, 
and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    In 2012, NASDAQ modified its process for commencing trading of a 
security that is the subject of an initial public offering (an ``IPO'') 
on NASDAQ by allowing market participants to enter orders to be held in 
an undisplayed state until the commencement of the Display-Only Period 
that occurs prior to

[[Page 29188]]

the IPO.\3\ NASDAQ is now proposing a similar change with regard to 
entering orders prior to the end of other trading halts or pauses on 
NASDAQ. Rule 4120(a) describes the circumstances under which NASDAQ has 
the authority to initiate a trading halt. As detailed in Rule 4120(a), 
the specific bases for a halt include the following:
---------------------------------------------------------------------------

    \3\ Securities Exchange Act Release No. 66652 (March 23, 2012), 
77 FR 13129 (March 29, 2012) (SR-NASDAQ-2012-038).
---------------------------------------------------------------------------

     A halt to permit the dissemination of material news with 
respect to a NASDAQ-listed security (Rule 4120(a)(1));
     a halt when a security listed on another national 
securities exchange is halted to permit dissemination of news (Rule 
4120(a)(2)) or due to an order imbalance or influx (Rule 4120(a)(3));
     a halt in an American Depository Receipt (``ADR'') or 
other security listed on Nasdaq, when the Nasdaq-listed security or the 
security underlying the ADR is listed on or registered with another 
national or foreign securities exchange or market, and the regulatory 
authority overseeing such exchange or market halts trading in such 
security for regulatory reasons (Rule 4120(a)(4));
     a halt when Nasdaq requests from the issuer information 
relating to material news or the issuer's ability to meet Nasdaq 
listing qualification requirements, or any other information necessary 
to protect investors and the public interest (Rule 4120(a)(5));
     a halt trading in a security listed on NASDAQ when 
extraordinary market activity in the security is occurring, NASDAQ 
determines that the activity is likely to have a material effect on the 
market for the security, and NASDAQ believes that the activity is 
caused by the misuse or malfunction of an electronic quotation, 
communication, reporting, or execution system (Rule 4120(a)(6));
     a halt with respect to an index warrant when deemed 
appropriate in the interests of a fair and orderly market and to 
protect investors (Rule 4120(a)(8));
     a halt in a series of Portfolio Depository Receipts, Index 
Fund Shares or Managed Fund Shares listed on Nasdaq if the Intraday 
Indicative Value or the index value applicable to that series is not 
being disseminated as required (Rule 4120(a)(9));
     a halt in a Derivative Securities Product (as defined in 
Rule 4120(b)(4)(A)) for which a net asset value (``NAV'') or a 
Disclosed Portfolio is disseminated if Nasdaq becomes aware that the 
NAV or Disclosed Portfolio is not being disseminated to all market 
participants at the same time (Rule 4120(a)(10));
     a trading pause with respect to NASDAQ-listed stocks that 
are not subject to the Limit Up-Limit Down Plan \4\ and that are 
experiencing certain large price movements, as defined by Rule 
4120(a)(11), or with respect to a NASDAQ-listed stock that is subject 
to the Limit Up-Limit Down Plan and that is in a ``straddle state,'' as 
defined by Rule 4120(a)(12)(F); and
---------------------------------------------------------------------------

    \4\ Plan to Address Extraordinary Market Volatility Submitted to 
the Commission Pursuant to Rule 608 of Regulation NMS under the Act, 
Securities Exchange Act Release No. 67091 (May 31, 2012), 77 FR 
33498 (June 6, 2012).
---------------------------------------------------------------------------

     a trading halt in a Derivative Security Product traded 
pursuant to unlisted trading privileges for which a ``Required Value,'' 
such as an intraday indicative value or disclosed portfolio, is not 
being disseminated, under the conditions described in Rule 4120(b).\5\
---------------------------------------------------------------------------

    \5\ Rule 4120 provides for a halt when a security is the subject 
of an IPO on NASDAQ (Rule 4120(a)(7)). Entry of orders during an IPO 
halt was addressed in a prior proposed rule change. See supra n.3.
---------------------------------------------------------------------------

    Rule 4120(c)(7) provides that in the case of a halt under Rule 
4120(a)(1), (4), (5), (6), (9), (10), or (11), or Rule 4120(b), prior 
to terminating the halt, there is a 5-minute Display-Only Period during 
which market participants may enter quotes and orders into the NASDAQ 
Market Center. At the conclusion of the Display-Only Period, trading 
commences through the halt cross process provided for in Rule 4753.\6\ 
However, if at the end of a Display-Only Period, NASDAQ detects an 
order imbalance in the security, the halt may be extended for an 
additional Display-Only Period of one minute. NASDAQ notes that the 
purpose of the halt cross is to establish a consensus price for the 
resumption of trading of securities for which NASDAQ is the primary 
listing market. Accordingly, NASDAQ does not believe that it is 
warranted to conduct a halt cross for securities listed on other 
exchanges. Accordingly, NASDAQ is removing the reference to Rule 
4120(b) from Rule 4120(c)(7), since Rule 4120(b) pertains solely to 
halts of securities traded on an unlisted traded privileges (``UTP'') 
basis. In addition, since halts under Rule 4120(a)(10) may pertain 
either to securities listed on NASDAQ or securities traded on a UTP 
basis, NASDAQ is further amending the rule to clarify that a halt cross 
is conducted only for securities listed on NASDAQ. Finally, since Rule 
4120(a)(12)(F) contemplates a halt cross for a NASDAQ-listed security 
subject to the Limit Up-Limit Down Plan that is in a straddle state, 
NASDAQ is adding a reference to this provision to Rule 4120(c)(7).
---------------------------------------------------------------------------

    \6\ Rule 4120 also provides for a Display-Only Period and a halt 
cross in the case of a halt under Rule 4120(b). Since that rule 
applies only to securities traded on an unlisted trading privileges 
(``UTP'') basis, NASDAQ believes that it is not necessary to conduct 
a halt cross prior to resumption of trading, consistent with other 
halts applicable to securities that are traded on a UTP basis. 
Accordingly, the rule is being amended to remove the reference to 
Rule 4120(b) from the provision of the rule that requires a cross 
for the resumption of trading.
---------------------------------------------------------------------------

    Halts for securities not listed on NASDAQ are terminated at the 
time specified by NASDAQ, and a halt cross is not performed prior to 
resumption of trading.
    Under the current process, quotes and orders in a halted security 
(with the exception of a security halted for an IPO) may not be entered 
until the commencement of the Display-Only Period, in the instance of a 
security for which a halt cross will occur, or until the resumption of 
trading in other instances. However, NASDAQ believes that the quality 
of its process for commencing trading in the halted security would be 
enhanced by allowing market participants to enter orders to be held but 
not displayed until the beginning of the Display-Only Period, in the 
instances of a security for which a halt cross will occur, or until the 
resumption of trading in other instances.\7\ Specifically, NASDAQ 
believes that this change will provide for a greater number of orders 
being entered prior to commencement of trading, resulting in a higher 
level of order interaction in the cross or at the resumption of 
trading.\8\
---------------------------------------------------------------------------

    \7\ Because the orders would be held in an undisplayed state, 
the change would not implicate NASDAQ Rule 3340 or FINRA Rule 5260, 
which prohibit transactions, publication of quotations, or 
publication of indications of interest during a trading halt.
    \8\ NASDAQ notes that in the case of a trading pause under Rule 
4120(a)(11) or (12), the Display-Only Period commences at the same 
time as the trading pause. Accordingly, the proposed rule change 
does not alter the status quo with respect to such trading pauses. 
Rather, the proposed rule change provides that ``in instances where 
a trading halt is in effect prior to the commencement of the Display 
Only Period, market participants may enter orders in a security that 
is the subject of the trading halt on Nasdaq and designate such 
orders to be held until the beginning of the Display Only Period.''
---------------------------------------------------------------------------

    Orders entered in this manner will be held in a suspended state 
until the beginning of the Display-Only Period or the resumption of 
trading, as applicable, at which time they will be entered into the 
system. Market participants may cancel orders entered in this manner in 
the same way they would cancel any other order. Orders entered prior to 
the Display-Only Period or the resumption of trading, as applicable, 
will be rejected unless they are designated for holding.

[[Page 29189]]

With respect to halts for which a halt cross will not occur, the orders 
will be entered into the continuous market once trading resumes.\9\ 
With respect to halts for which a cross will occur, the orders will be 
processed in the manner provided for in Rule 4753.
---------------------------------------------------------------------------

    \9\ Orders entered and held during the halt period will be 
entered into the continuous market in the order in which they were 
received. However, such orders will be entered contemporaneously 
with any orders received through order entry ports after the halt is 
terminated. Thus, the relative priority of orders received during 
the halt and orders received through order entry ports after the 
halt is terminated will be a function of the duration of system 
processing associated with each particular order. As a result, 
orders received during the halt will not automatically have priority 
over orders received at the conclusion of the halt.
---------------------------------------------------------------------------

2. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\10\ in general, and with 
Section 6(b)(5) of the Act,\11\ 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. Specifically, 
NASDAQ believes that the change to allow entry of quotes and orders for 
holding during a trading halt will provide for a greater number of 
orders being entered prior to commencement of trading, resulting in a 
higher level of order interaction in the re-opening process. Thus, 
NASDAQ believes that the change will remove impediments to and perfect 
the mechanism of a free and open market. NASDAQ further believes that 
the proposed change to clarify that halt crosses will not be conducted 
for the resumption of trading in securities traded on a UTP basis is 
consistent with the halt cross's purpose of establishing a consensus 
price for the resumption of trading of securities for which NASDAQ is 
the primary listing market. Because this price is established by the 
listing market for securities that NASDAQ trades on a UTP basis, NASDAQ 
believes that conducting a halt cross for such securities is not 
necessary to remove impediments to and perfect the mechanism of a free 
and open market and a national market system.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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. Specifically, 
NASDAQ believes that this change will provide for a greater number of 
orders being entered prior to commencement of trading, resulting in a 
higher level of order interaction. NASDAQ believes that this change 
will promote competition by enhancing the attractiveness of NASDAQ as a 
trading venue through higher order fill rates and more complete price 
discovery. Moreover, because the change will not affect the 
availability or price of goods or services offered by NASDAQ or others, 
it will not impose any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \12\ and Rule 19b-4(f)(6) thereunder.\13\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2013-073 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2013-073. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet 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 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make publicly available. All 
submissions should refer to File Number SR-NASDAQ-2013-073 and should 
be submitted on or before June 7, 2013.


[[Page 29190]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Lynn M. Powalski,
Deputy Secretary.
[FR Doc. 2013-11733 Filed 5-16-13; 8:45 am]
BILLING CODE 8011-01-P