Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order Approving a Proposed Rule Change Relating to the NASDAQ Opening and Halt Cross, 4008-4011 [2015-01249]

Download as PDF 4008 Federal Register / Vol. 80, No. 16 / Monday, January 26, 2015 / Notices to Rule 19b–4(f)(6)(iii),17 the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. 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. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B) 18 of the Act to determine whether the proposed rule change should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: 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 available publicly. All submissions should refer to File Number SR– NYSEMKT–2015–05 and should be submitted on or before February 17, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.19 Brent J. Fields, Secretary. [FR Doc. 2015–01247 Filed 1–23–15; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION emcdonald on DSK67QTVN1PROD with NOTICES 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– NYSEMKT–2015–05 on the subject line. [Release No. 34–74096; File No. SR– NASDAQ–2014–116] Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSEMKT–2015–05. 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 January 20, 2015. 17 17 18 15 CFR 240.19b–4(f)(6)(iii). U.S.C. 78s(b)(2)(B). VerDate Sep<11>2014 18:48 Jan 23, 2015 Jkt 235001 Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order Approving a Proposed Rule Change Relating to the NASDAQ Opening and Halt Cross I. Introduction On November 21, 2014, The NASDAQ Stock Market LLC (‘‘Nasdaq’’ or the ‘‘Exchange’’) 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 relating to its process for opening trading on Nasdaq Options Market, LLC (‘‘NOM’’) at the beginning of the trading day and following a trading halt. The proposed rule change was published for comment in the Federal Register on December 10, 2014.3 The Commission received no comments on the proposal. This order approves the proposed rule change. II. Description of the Proposal The Exchange proposes to modify its process for opening option trading on NOM at the beginning of the trading day 19 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 73739 (November 12, 2014), 79 FR 73382 (‘‘Notice’’). 1 15 PO 00000 Frm 00069 Fmt 4703 Sfmt 4703 and following a trading halt. The Exchange proposes to accomplish this by revising definitional terms set forth in Chapter VI, Sections 1 and 8(a) of its rules, and by revising the description of the processing of the Nasdaq Opening Cross 4 set forth in Chapter VI, Section 8(b) of its rules. The Exchange also proposes to revise the language set forth in Chapter VI, Section 8(c) describing what occurs in the absence of an opening cross.5 Definitions—Sections 1 and 8(a) The Exchange proposes to add an ‘‘On the Open Order’’ or ‘‘OPG’’ as a new order type and time-in-force condition defined in Section 1. As proposed, any order designated as such would be executable only during the Nasdaq Opening Cross, with any portion not so executed cancelled back to the entering participant.6 In addition, the Exchange proposes to make the following definitional changes to Section 8(a): • ‘‘Order Imbalance Indicator’’ is currently defined as a message disseminated by electronic means containing information about ‘‘Eligible Interest’’ 7 and the price in penny increments at which such interest would execute at the time of dissemination.8 The ‘‘Current Reference Price’’ is one piece of information disseminated as part of the Order Imbalance Indicator and, as currently defined, is determined based on three price parameters.9 The Exchange proposes to delete these price parameters and to simplify the definition of ‘‘Current Reference Price’’ to be: An indication of what the opening cross would be at a particular point in time.10 Additionally, the indicative prices at which the Nasdaq Opening 4 The term ‘‘Nasdaq Opening Cross’’ is defined in Chapter VI, Section 8(a)(3) of the Exchange’s rules. As is discussed infra, this definition is among those that the Exchange has proposed to revise. 5 Unless otherwise noted, all citations herein to Sections of the Exchange’s rules are citations to Sections of Chapter VI of its rules. 6 See proposed Sections 1(e)(7) and 1(g)(1). 7 The term ‘‘Eligible Interest’’ is defined in Section 8(a)(4) and, as discussed below, is a term that the Exchange proposes to modify. 8 See Section 8(a)(2). The Exchange proposes to provide itself with the ability to disseminate the Order Imbalance Indicator more frequently than the five second intervals currently required. See proposed Section 8(b)(3). The Exchange also proposes to specify that the dissemination interval, in addition to the start of dissemination, would be posted on its Web site. Id. 9 See Section 8(a)(2)(A). 10 See proposed Section 8(a)(2)(A). The Exchange states that the revised definition of Current Reference Price would be substantively similar to the current definition, but with the opening cross price determined pursuant to Section 8(b). See Notice, 79 FR at 73383. E:\FR\FM\26JAN1.SGM 26JAN1 emcdonald on DSK67QTVN1PROD with NOTICES Federal Register / Vol. 80, No. 16 / Monday, January 26, 2015 / Notices Cross would occur, which are also currently disseminated as part of the Order Imbalance Indicator,11 would be eliminated from such dissemination as part of the proposal.12 • The Exchange proposes to revise the term ‘‘Nasdaq Opening Cross’’ to mean the process for opening or resuming trading pursuant to Section 8, which includes the process for determining the price at which Eligible Interest shall be executed at the opening of trading for the day or the opening of trading for a halted option, and the process for executing such Eligible Interest.13 • The Exchange would revise the term ‘‘Eligible Interest’’ to mean any quotation or any order that may be entered into the system and designated with a time-in-force of IOC (immediateor-cancel), DAY (day order), GTC (goodtill-cancelled), and OPG (On the Open Order).14 The Exchange would also revise the definition of this term to specify that orders received via FIX protocol prior to the Nasdaq Opening Cross designated with a time-in-force of IOC would be rejected and shall not be considered Eligible Interest, and orders received via OTTO and SQF protocols prior to the Nasdaq Opening Cross designated with a time-in-force of IOC would remain in force through the opening but be cancelled immediately after the opening.15 The Exchange notes that FIX protocol users generally prefer a cancellation if an order is not executed immediately so that they can have an opportunity to access other markets, while OTTO and SQF protocol users are liquidity providers who prefer that their orders live throughout the entire opening process until it is clear that their liquidity was not utilized in the opening.16 • The Exchange also proposes to add new terms ‘‘Valid Width National Best Bid or Offer’’ (or ‘‘Valid Width NBBO’’) and ‘‘Away Best Bid or Offer’’ (or ‘‘ABBO’’) to Section 8(a). Specifically, in new Section 8(a)(6), the Exchange proposes to define ‘‘Valid Width NBBO’’ as the combination of all away market quotes and any combination of NOMregistered Market Maker (‘‘Market Maker’’) orders and quotes received over the OTTO or SQF protocols within a specified bid/ask differential as established and published by the Exchange. The Valid Width NBBO 11 See Section 8(a)(2)(E). proposed Section 8(a)(2), from which current Section 8(a)(2)(E) would be deleted. 13 See proposed Section 8(a)(3). 14 See proposed Section 8(a)(4). 15 Id. 16 See Notice, 79 FR at 73383. 12 See VerDate Sep<11>2014 18:48 Jan 23, 2015 Jkt 235001 would be configurable by underlying, and a table with valid width differentials would be posted by Nasdaq on its Web site.17 Away markets that are crossed (i.e., an away market is internally crossed or crosses another away market) would void all Valid Width NBBO calculations.18 If any Market Maker orders or quotes on NOM are crossed internally, then all such orders and quotes would be excluded from the Valid Width NBBO calculation.19 In addition, in new Section 8(a)(7), the Exchange proposes to define ‘‘ABBO’’ as the displayed National Best Bid or Offer not including the Exchange’s Best Bid or Offer. The Exchange states that it is proposing to add these new terms in order to ensure that all away market quotes and any combination of Market Maker orders and quotes, whether they include the Exchange’s Best Bid or Offer or not, are represented in the opening cross.20 Processing of Nasdaq Opening Cross— Section 8(b) The Exchange proposes various revisions to the Nasdaq Opening Cross process set forth in Section 8(b). As an initial matter, the Exchange proposes to edit the introductory paragraph of Section 8(b) by: Deleting the phrase ‘‘there is no Imbalance’’ so that the rule applies more generally; deleting the phrase ‘‘on a class-by-class basis’’ in order to clarify that the Exchange will use a regular market hours quote or trade (as determined by the Exchange) for all classes on the Exchange for the Opening Cross without distinguishing among different classes; and adding the phrase ‘‘the Opening Process shall occur’’ in order to clarify that an Opening Cross shall occur after a trading halt when trading resumes pursuant to Chapter V, Section 4.21 Following the introductory paragraph, the Exchange proposes to set forth the criteria that must be present for NOM to open trading at the beginning of the day or after a halt, provided the ABBO is not 17 See proposed Section 8(a)(6). see also Notice, 79 FR at 73384. 19 See proposed Section 8(a)(6). 20 See Notice, 79 FR at 73384. The Exchange also notes that, with respect to the Valid Width NBBO, the orders and quotes on the Exchange would be received over the OTTO or SQF protocols. Id. 21 See proposed Section 8(b); see also Notice, 79 FR at 73384. Chapter V, Section 4 states that trading in an option that has been the subject of a halt under Section 3 of Chapter V shall be resumed upon the determination by Nasdaq Regulation that the conditions which led to the halt are no longer present or that the interests of a fair and orderly market are best served by a resumption of trading. According to the Exchange, trading shall resume according to the process set forth in proposed Section 8(b). See Notice, 79 FR at 73383. 18 Id.; PO 00000 Frm 00070 Fmt 4703 Sfmt 4703 4009 crossed.22 Specifically, the rule would state that, if a trade is possible on NOM, there must be a Valid Width NBBO before trading will open; 23 and if no trade is possible on NOM, then trading would open upon the occurrence of any one of the following three criteria: (A) A Valid Width NBBO is present, (B) a certain number of other options exchanges (as determined by the Exchange) have disseminated a firm quote on OPRA, or (C) a certain period of time (as determined by the Exchange) has elapsed.24 In addition, the Exchange proposes to add language in proposed Section 8(b)(4)(A)–(C) to specify how the Opening Cross price would be determined when a trade is possible on NOM and a Valid Width NBBO is present. Proposed Section 8(b)(4)(A) would state that the Nasdaq Opening Cross shall occur at the price that maximizes the number of contracts of Eligible Interest in NOM to be executed at or within the ABBO and within a defined range, as established and published by the Exchange, of the Valid Width NBBO.25 Proposed Section 8(b)(4)(B) would state that if more than one price exists under subparagraph (A) and there are no contracts that would remain unexecuted in the cross, the Nasdaq Opening Cross shall occur at the midpoint price, rounded to the penny closest to the price of the last execution in that series (and in the absence of a previous execution price, the price will round up, if necessary),26 of (1) the National Best Bid or the last offer on NOM against which contracts would be traded, whichever is higher; and (2) the National Best Offer or the last bid on NOM against which contracts would be traded, whichever is lower.27 Proposed Section 8(b)(4)(C) would state if more than one price exists under 22 See proposed Section 8(b). proposed Section 8(b)(1). 24 See proposed Section 8(b)(2). In the case of a crossed ABBO, the Exchange notes that the conditions set forth in proposed Sections 8(b)(1) and (b)(2) would become operative when the ABBO becomes uncrossed. See Notice, 79 FR at 73384 n.18. Additionally, the Exchange notes that, due to its proposed addition of new Sections 8(b)(1) and (b)(2), it has proposed to renumber current Sections 8(b)(1) through 8(b)(5) to 8(b)(3) through 8(b)(7), respectively. See Notice, 79 FR at 73386. 25 See proposed Section 8(b)(4)(A). 26 The Exchange notes that rounding would be applied, if needed, in the following manner: If the previous closing price is less than the midpoint, then the opening price rounds down; and if the previous closing price is greater than the midpoint, or if there is no closing price, then the opening price rounds up. For example, if there is a midpoint of 1.045, the opening price would be rounded to 1.04 if the previous closing price was 1.00, and would be rounded to 1.05 if the previous closing price was 1.10. See Notice, 79 FR at 73385 n.22. 27 See proposed Section 8(b)(4)(B). 23 See E:\FR\FM\26JAN1.SGM 26JAN1 emcdonald on DSK67QTVN1PROD with NOTICES 4010 Federal Register / Vol. 80, No. 16 / Monday, January 26, 2015 / Notices subparagraph (A) and contracts would remain unexecuted in the cross, then the opening price would be the highest (lowest) price in the case of a buy (sell) imbalance at which the maximum number of contracts can trade which is equal to or within a defined range, as established and published by the Exchange,28 of the Valid Width NBBO on the contra side of the imbalance that would not trade through the ABBO.29 Further, the Exchange proposes to add subsections to proposed Section 8(b)(4)(C) in order to specify the price at which unexecuted contracts would be posted on the book following the Opening Cross and the subsequent handling of the residual unexecuted contracts.30 These subsections would provide as follows: (i) If unexecuted contracts remain with a limit price that is equal to the opening price, then the remaining unexecuted contracts would be posted at the opening price, displayed one minimum price variation (MPV) away if displaying at the opening price would lock or cross the ABBO, with the contra-side NOM BBO reflected as firm; (ii) if unexecuted contracts remain with a limit price that is through the opening price, and there is a contra side ABBO at the opening price, then the remaining unexecuted contracts would be posted at the opening price, displayed one minimum price variation (MPV) away from the ABBO, with the contra side NOM BBO reflected as firm, and order handling of any remaining interest would be done in accordance with the routing and time-in-force instructions of such interest and would follow the Acceptable Trade Range mechanism set forth in Section 10; (iii) if unexecuted contracts remain with a limit price that is through the opening price, and there is no contra side ABBO at the opening price, then the remaining contracts would be posted at the opening price, with the contra-side NOM BBO reflected as non-firm; and (iv) order handling of any residual unexecuted contracts would be done in accordance with Section 10(7), with the opening price representing the reference price.31 This proposed handling of unexecuted contracts set forth in subsections (i)–(iv) of proposed Section 8(b)(4)(C) is intended to ensure that residual unexecuted contracts from the Opening Cross, regardless of their limit 28 The Exchange notes that, pursuant to Section 10(7), the system will also calculate a defined range to limit the range of prices at which an order would be allowed to execute. See Notice, 79 FR at 73385 n.23. 29 See proposed Section 8(b)(4)(C). 30 See proposed Section 8(b)(4)(C)(i)–(iv). 31 Id. VerDate Sep<11>2014 18:48 Jan 23, 2015 Jkt 235001 prices, are posted on the book at the opening price before subsequently being routed pursuant to Section 11 or walked to the next potential execution price(s) under the Acceptable Trade Range set forth in Section 10(7) (with the opening price representing the ‘‘reference price’’ of that rule).32 Moreover, the ‘‘firm’’ versus ‘‘non-firm’’ tagging of contra-side interest when residual Opening Cross interest is posted follows the construct currently in place on the Exchange when aggressive interest is received and triggers an Acceptable Trade Range (ATR) process.33 Contra-side NOM BBO interest is reflected as non-firm when the Exchange has interest with a limit price (or market order) that is more aggressive than the Opening Cross price in order to ensure that aggressively priced residual interest maintains priority should other aggressively priced interest be entered before the residual interest is permitted to access the next allowable range of prices.34 The Exchange is also proposing to add new text to proposed Section 8(b)(5) to indicate that if the Nasdaq Opening Cross price is selected and fewer than all contracts of Eligible Interest that are available in NOM would be executed, all Eligible Interest shall be executed at the Nasdaq Opening Cross price in accordance with the execution algorithm assigned to the associated underlying option.35 Absence of Opening Cross—Section 8(c) Lastly, the Exchange proposes to add a new Section 8(c) providing for the return of orders in un-opened symbols in the absence of an Opening Cross. Proposed new Section 8(c) would be substituted for current Section 8(c) and would provide that if an Opening Cross in a symbol is not initiated before the conclusion of the Opening Order Cancel Timer, a firm may elect to have orders returned by providing written notification to the Exchange.36 These orders include all non GTC orders received over the FIX protocol.37 The Opening Order Cancel Timer represents a period of time since the underlying market has opened, and shall be established and disseminated by Nasdaq on its Web site.38 III. Discussion and Commission Findings After careful review, the Commission finds that the proposed rule change is 32 See Notice, 79 FR at 73386. consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.39 In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,40 which requires, among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Exchange believes that the proposal is consistent with Section 6(b)(5) of the Act because it will enhance and clarify the opening cross process, minimize or negate unnecessary complexity, and encourage liquidity when trading opens. The Exchange notes that it proposes to set forth in Section 8(b) clear language describing under what circumstances an opening cross will occur, and how the opening cross will occur if more than one possible cross price exists. In addition, according to the Exchange, the proposed rule change will enhance the price discovery mechanism in the opening process by including not only Market Maker orders and quotes but also away market interest as represented by quotes. The Exchange believes this change will make the transition from the opening cross period to regular market trading more efficient and thus promote just and equitable principles of trade and serve to protect investors and the public interest. The Exchange also believes that the proposal will significantly improve the quality of execution of NOM’s opening, which should attract new order flow. In the Exchange’s view, the proposed rule changes should prove helpful to market participants, particularly those that are involved in adding liquidity during the opening cross. The Commission believes that the proposal is reasonably designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and to protect investors and the public interest by adding clarity to the Exchange’s rules governing NOM’s opening cross process. This enhanced transparency should help to reduce the 33 Id. 34 Id. 35 See 36 See proposed Section 8(b)(5). proposed Section 8(c). 37 Id. 38 Id. PO 00000 Frm 00071 Fmt 4703 Sfmt 4703 39 In approving this proposal, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 40 15 U.S.C. 78f(b)(5). E:\FR\FM\26JAN1.SGM 26JAN1 Federal Register / Vol. 80, No. 16 / Monday, January 26, 2015 / Notices potential for investor confusion as to when an opening cross occurs, how the price for the opening cross is determined, and how orders involved in the opening cross are handled. The Commission also believes that the proposed opening cross process is reasonably designed to open trading in a fair and orderly manner, which is consistent with the protection of investors and the public interest. Additionally, to extent the proposal results in additional liquidity during NOM’s opening at the beginning of the trading day or following a trading halt, and a more orderly transition to regular trading, it should further promote the goals of Section 6(b)(5) of the Act. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,41 that the proposed rule change (SR–NASDAQ– 2014–116) be, and it hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.42 Brent J. Fields, Secretary. [FR Doc. 2015–01249 Filed 1–23–15; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–74095; File No. SR–MIAX– 2015–02] Self-Regulatory Organizations: Miami International Securities Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Implement an Equity Rights Program emcdonald on DSK67QTVN1PROD with NOTICES January 20, 2015. Pursuant to the provisions of 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 January 6, 2015, Miami International Securities Exchange LLC (‘‘MIAX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a 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. U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 42 17 18:48 Jan 23, 2015 II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to implement an equity rights program (‘‘Program’’) pursuant to which units representing the right to acquire equity in the Exchange’s parent holding company, Miami International Holdings, Inc. (‘‘MIH’’) would be issued to a participating Member in exchange for payment of an initial purchase price or the prepayment of certain transaction fees and the achievement of certain liquidity volume thresholds on the Exchange over a 29-month period. The purpose of the Program is to promote the long-term interests of MIAX by providing incentives designed to encourage future MIH owners and MIAX market participants to contribute to the growth and success of MIAX, by being active liquidity providers and takers to provide enhanced levels of trading volume to MIAX’s market, through an opportunity to increase their proprietary interests in MIAX’s enterprise value. Members that participate in the Program will have two options to choose from: (i) an offering of C-Units; and/or (ii) an offering of D-Units.3 3 The Program which provides equity-like consideration in exchange for market making or the provision of liquidity, order flow or volume is open to market participants generally. All MIAX Members may participate subject to their 41 15 VerDate Sep<11>2014 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange is filing a proposal to implement an equity rights program. The text of the proposed rule change is available on the Exchange’s Web site at https://www.miaxoptions.com/filter/ wotitle/rule_filing, at MIAX’s principal office, and at the Commission’s Public Reference Room. Jkt 235001 PO 00000 Frm 00072 Fmt 4703 Sfmt 4703 4011 C-Units Option Members that participate in the CUnit option of the Program will be issued for each unit (i) 52,021 shares of MIH common stock and (ii) warrants to purchase 1,752,670 shares of common stock of MIH in exchange for such participant Member’s initial cash capital contribution of $312,125, and with such warrants being exercisable upon the achievement by the participating Member of certain volume thresholds on the Exchange during a 29-month measurement period commencing February 1, 2015. A total of 20 C-Units will be offered. The total equity ownership of MIH common stock held by any one participant Member will be subject to a cap of 19.9%.4 The warrants will vest in six (6) tranches: (i) One (1) tranche, upon initial investment; and (ii) five (5) tranches during a measurement period of months 1—29 of the Program. In addition, the participant Members may earn or lose the right to exercise warrants on a pro-rata basis based upon meeting volume commitments during the measurement periods, as detailed below. Upon the initial investment, the participant Member would receive common shares equal to 52,021 shares of the common stock and 10% of the warrants will vest. A participant Member will be eligible to earn [sic] the remaining warrants during measurement periods provided that the participant has achieved a specified percentage of the total national average daily volume of options contracts reported to The Options Clearing Corporation (‘‘OCC’’) (‘‘OCC ADV’’) on satisfaction of eligibility requirements. To be designated as a participant Member, an applicant must: (i) Be a Member in good standing of MIAX; (ii) qualify as an ‘‘accredited investor’’ as such term is defined in Regulation D of the Securities Act of 1933; and (iii) have executed all required documentation for Program participation. Members may elect to participate in either or both of the options. If either the C-Unit or the D-Unit option is oversubscribed, the units in the oversubscribed option will be allocated on a pro-rata basis that may result in a fractional allocation. 4 See Ninth Article (b)(i)(B), Amended and Restated Certificate of Incorporation of Miami International Holdings, Inc., dated August 31, 2012 (providing that no Exchange Member, either alone or together with its Related Persons, may own, directly or indirectly, of record or beneficially, shares constituting more than twenty percent (20%) of any class of capital stock of the Corporation). Any purported transfer of shares or ownership of shares in violation of the ownership cap by a Member would be subject to the limitations of the Certificate of Incorporation, including the nonrecognition of voting rights of shares in excess of the cap and a redemption right by MIH for excess shares. See Ninth Article (d) and (e), Amended and Restated Certificate of Incorporation of Miami International Holdings, Inc., dated August 31, 2012. E:\FR\FM\26JAN1.SGM 26JAN1

Agencies

[Federal Register Volume 80, Number 16 (Monday, January 26, 2015)]
[Notices]
[Pages 4008-4011]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-01249]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74096; File No. SR-NASDAQ-2014-116]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order 
Approving a Proposed Rule Change Relating to the NASDAQ Opening and 
Halt Cross

January 20, 2015.

I. Introduction

    On November 21, 2014, The NASDAQ Stock Market LLC (``Nasdaq'' or 
the ``Exchange'') 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 relating to its process for opening trading on 
Nasdaq Options Market, LLC (``NOM'') at the beginning of the trading 
day and following a trading halt. The proposed rule change was 
published for comment in the Federal Register on December 10, 2014.\3\ 
The Commission received no comments on the proposal. This order 
approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 73739 (November 12, 
2014), 79 FR 73382 (``Notice'').
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II. Description of the Proposal

    The Exchange proposes to modify its process for opening option 
trading on NOM at the beginning of the trading day and following a 
trading halt. The Exchange proposes to accomplish this by revising 
definitional terms set forth in Chapter VI, Sections 1 and 8(a) of its 
rules, and by revising the description of the processing of the Nasdaq 
Opening Cross \4\ set forth in Chapter VI, Section 8(b) of its rules. 
The Exchange also proposes to revise the language set forth in Chapter 
VI, Section 8(c) describing what occurs in the absence of an opening 
cross.\5\
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    \4\ The term ``Nasdaq Opening Cross'' is defined in Chapter VI, 
Section 8(a)(3) of the Exchange's rules. As is discussed infra, this 
definition is among those that the Exchange has proposed to revise.
    \5\ Unless otherwise noted, all citations herein to Sections of 
the Exchange's rules are citations to Sections of Chapter VI of its 
rules.
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Definitions--Sections 1 and 8(a)

    The Exchange proposes to add an ``On the Open Order'' or ``OPG'' as 
a new order type and time-in-force condition defined in Section 1. As 
proposed, any order designated as such would be executable only during 
the Nasdaq Opening Cross, with any portion not so executed cancelled 
back to the entering participant.\6\
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    \6\ See proposed Sections 1(e)(7) and 1(g)(1).
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    In addition, the Exchange proposes to make the following 
definitional changes to Section 8(a):
     ``Order Imbalance Indicator'' is currently defined as a 
message disseminated by electronic means containing information about 
``Eligible Interest'' \7\ and the price in penny increments at which 
such interest would execute at the time of dissemination.\8\ The 
``Current Reference Price'' is one piece of information disseminated as 
part of the Order Imbalance Indicator and, as currently defined, is 
determined based on three price parameters.\9\ The Exchange proposes to 
delete these price parameters and to simplify the definition of 
``Current Reference Price'' to be: An indication of what the opening 
cross would be at a particular point in time.\10\ Additionally, the 
indicative prices at which the Nasdaq Opening

[[Page 4009]]

Cross would occur, which are also currently disseminated as part of the 
Order Imbalance Indicator,\11\ would be eliminated from such 
dissemination as part of the proposal.\12\
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    \7\ The term ``Eligible Interest'' is defined in Section 8(a)(4) 
and, as discussed below, is a term that the Exchange proposes to 
modify.
    \8\ See Section 8(a)(2). The Exchange proposes to provide itself 
with the ability to disseminate the Order Imbalance Indicator more 
frequently than the five second intervals currently required. See 
proposed Section 8(b)(3). The Exchange also proposes to specify that 
the dissemination interval, in addition to the start of 
dissemination, would be posted on its Web site. Id.
    \9\ See Section 8(a)(2)(A).
    \10\ See proposed Section 8(a)(2)(A). The Exchange states that 
the revised definition of Current Reference Price would be 
substantively similar to the current definition, but with the 
opening cross price determined pursuant to Section 8(b). See Notice, 
79 FR at 73383.
    \11\ See Section 8(a)(2)(E).
    \12\ See proposed Section 8(a)(2), from which current Section 
8(a)(2)(E) would be deleted.
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     The Exchange proposes to revise the term ``Nasdaq Opening 
Cross'' to mean the process for opening or resuming trading pursuant to 
Section 8, which includes the process for determining the price at 
which Eligible Interest shall be executed at the opening of trading for 
the day or the opening of trading for a halted option, and the process 
for executing such Eligible Interest.\13\
---------------------------------------------------------------------------

    \13\ See proposed Section 8(a)(3).
---------------------------------------------------------------------------

     The Exchange would revise the term ``Eligible Interest'' 
to mean any quotation or any order that may be entered into the system 
and designated with a time-in-force of IOC (immediate-or-cancel), DAY 
(day order), GTC (good-till-cancelled), and OPG (On the Open 
Order).\14\ The Exchange would also revise the definition of this term 
to specify that orders received via FIX protocol prior to the Nasdaq 
Opening Cross designated with a time-in-force of IOC would be rejected 
and shall not be considered Eligible Interest, and orders received via 
OTTO and SQF protocols prior to the Nasdaq Opening Cross designated 
with a time-in-force of IOC would remain in force through the opening 
but be cancelled immediately after the opening.\15\ The Exchange notes 
that FIX protocol users generally prefer a cancellation if an order is 
not executed immediately so that they can have an opportunity to access 
other markets, while OTTO and SQF protocol users are liquidity 
providers who prefer that their orders live throughout the entire 
opening process until it is clear that their liquidity was not utilized 
in the opening.\16\
---------------------------------------------------------------------------

    \14\ See proposed Section 8(a)(4).
    \15\ Id.
    \16\ See Notice, 79 FR at 73383.
---------------------------------------------------------------------------

     The Exchange also proposes to add new terms ``Valid Width 
National Best Bid or Offer'' (or ``Valid Width NBBO'') and ``Away Best 
Bid or Offer'' (or ``ABBO'') to Section 8(a). Specifically, in new 
Section 8(a)(6), the Exchange proposes to define ``Valid Width NBBO'' 
as the combination of all away market quotes and any combination of 
NOM-registered Market Maker (``Market Maker'') orders and quotes 
received over the OTTO or SQF protocols within a specified bid/ask 
differential as established and published by the Exchange. The Valid 
Width NBBO would be configurable by underlying, and a table with valid 
width differentials would be posted by Nasdaq on its Web site.\17\ Away 
markets that are crossed (i.e., an away market is internally crossed or 
crosses another away market) would void all Valid Width NBBO 
calculations.\18\ If any Market Maker orders or quotes on NOM are 
crossed internally, then all such orders and quotes would be excluded 
from the Valid Width NBBO calculation.\19\ In addition, in new Section 
8(a)(7), the Exchange proposes to define ``ABBO'' as the displayed 
National Best Bid or Offer not including the Exchange's Best Bid or 
Offer. The Exchange states that it is proposing to add these new terms 
in order to ensure that all away market quotes and any combination of 
Market Maker orders and quotes, whether they include the Exchange's 
Best Bid or Offer or not, are represented in the opening cross.\20\
---------------------------------------------------------------------------

    \17\ See proposed Section 8(a)(6).
    \18\ Id.; see also Notice, 79 FR at 73384.
    \19\ See proposed Section 8(a)(6).
    \20\ See Notice, 79 FR at 73384. The Exchange also notes that, 
with respect to the Valid Width NBBO, the orders and quotes on the 
Exchange would be received over the OTTO or SQF protocols. Id.
---------------------------------------------------------------------------

Processing of Nasdaq Opening Cross--Section 8(b)

    The Exchange proposes various revisions to the Nasdaq Opening Cross 
process set forth in Section 8(b). As an initial matter, the Exchange 
proposes to edit the introductory paragraph of Section 8(b) by: 
Deleting the phrase ``there is no Imbalance'' so that the rule applies 
more generally; deleting the phrase ``on a class-by-class basis'' in 
order to clarify that the Exchange will use a regular market hours 
quote or trade (as determined by the Exchange) for all classes on the 
Exchange for the Opening Cross without distinguishing among different 
classes; and adding the phrase ``the Opening Process shall occur'' in 
order to clarify that an Opening Cross shall occur after a trading halt 
when trading resumes pursuant to Chapter V, Section 4.\21\
---------------------------------------------------------------------------

    \21\ See proposed Section 8(b); see also Notice, 79 FR at 73384. 
Chapter V, Section 4 states that trading in an option that has been 
the subject of a halt under Section 3 of Chapter V shall be resumed 
upon the determination by Nasdaq Regulation that the conditions 
which led to the halt are no longer present or that the interests of 
a fair and orderly market are best served by a resumption of 
trading. According to the Exchange, trading shall resume according 
to the process set forth in proposed Section 8(b). See Notice, 79 FR 
at 73383.
---------------------------------------------------------------------------

    Following the introductory paragraph, the Exchange proposes to set 
forth the criteria that must be present for NOM to open trading at the 
beginning of the day or after a halt, provided the ABBO is not 
crossed.\22\ Specifically, the rule would state that, if a trade is 
possible on NOM, there must be a Valid Width NBBO before trading will 
open; \23\ and if no trade is possible on NOM, then trading would open 
upon the occurrence of any one of the following three criteria: (A) A 
Valid Width NBBO is present, (B) a certain number of other options 
exchanges (as determined by the Exchange) have disseminated a firm 
quote on OPRA, or (C) a certain period of time (as determined by the 
Exchange) has elapsed.\24\
---------------------------------------------------------------------------

    \22\ See proposed Section 8(b).
    \23\ See proposed Section 8(b)(1).
    \24\ See proposed Section 8(b)(2). In the case of a crossed 
ABBO, the Exchange notes that the conditions set forth in proposed 
Sections 8(b)(1) and (b)(2) would become operative when the ABBO 
becomes uncrossed. See Notice, 79 FR at 73384 n.18. Additionally, 
the Exchange notes that, due to its proposed addition of new 
Sections 8(b)(1) and (b)(2), it has proposed to renumber current 
Sections 8(b)(1) through 8(b)(5) to 8(b)(3) through 8(b)(7), 
respectively. See Notice, 79 FR at 73386.
---------------------------------------------------------------------------

    In addition, the Exchange proposes to add language in proposed 
Section 8(b)(4)(A)-(C) to specify how the Opening Cross price would be 
determined when a trade is possible on NOM and a Valid Width NBBO is 
present. Proposed Section 8(b)(4)(A) would state that the Nasdaq 
Opening Cross shall occur at the price that maximizes the number of 
contracts of Eligible Interest in NOM to be executed at or within the 
ABBO and within a defined range, as established and published by the 
Exchange, of the Valid Width NBBO.\25\ Proposed Section 8(b)(4)(B) 
would state that if more than one price exists under subparagraph (A) 
and there are no contracts that would remain unexecuted in the cross, 
the Nasdaq Opening Cross shall occur at the midpoint price, rounded to 
the penny closest to the price of the last execution in that series 
(and in the absence of a previous execution price, the price will round 
up, if necessary),\26\ of (1) the National Best Bid or the last offer 
on NOM against which contracts would be traded, whichever is higher; 
and (2) the National Best Offer or the last bid on NOM against which 
contracts would be traded, whichever is lower.\27\ Proposed Section 
8(b)(4)(C) would state if more than one price exists under

[[Page 4010]]

subparagraph (A) and contracts would remain unexecuted in the cross, 
then the opening price would be the highest (lowest) price in the case 
of a buy (sell) imbalance at which the maximum number of contracts can 
trade which is equal to or within a defined range, as established and 
published by the Exchange,\28\ of the Valid Width NBBO on the contra 
side of the imbalance that would not trade through the ABBO.\29\
---------------------------------------------------------------------------

    \25\ See proposed Section 8(b)(4)(A).
    \26\ The Exchange notes that rounding would be applied, if 
needed, in the following manner: If the previous closing price is 
less than the midpoint, then the opening price rounds down; and if 
the previous closing price is greater than the midpoint, or if there 
is no closing price, then the opening price rounds up. For example, 
if there is a midpoint of 1.045, the opening price would be rounded 
to 1.04 if the previous closing price was 1.00, and would be rounded 
to 1.05 if the previous closing price was 1.10. See Notice, 79 FR at 
73385 n.22.
    \27\ See proposed Section 8(b)(4)(B).
    \28\ The Exchange notes that, pursuant to Section 10(7), the 
system will also calculate a defined range to limit the range of 
prices at which an order would be allowed to execute. See Notice, 79 
FR at 73385 n.23.
    \29\ See proposed Section 8(b)(4)(C).
---------------------------------------------------------------------------

    Further, the Exchange proposes to add subsections to proposed 
Section 8(b)(4)(C) in order to specify the price at which unexecuted 
contracts would be posted on the book following the Opening Cross and 
the subsequent handling of the residual unexecuted contracts.\30\ These 
subsections would provide as follows: (i) If unexecuted contracts 
remain with a limit price that is equal to the opening price, then the 
remaining unexecuted contracts would be posted at the opening price, 
displayed one minimum price variation (MPV) away if displaying at the 
opening price would lock or cross the ABBO, with the contra-side NOM 
BBO reflected as firm; (ii) if unexecuted contracts remain with a limit 
price that is through the opening price, and there is a contra side 
ABBO at the opening price, then the remaining unexecuted contracts 
would be posted at the opening price, displayed one minimum price 
variation (MPV) away from the ABBO, with the contra side NOM BBO 
reflected as firm, and order handling of any remaining interest would 
be done in accordance with the routing and time-in-force instructions 
of such interest and would follow the Acceptable Trade Range mechanism 
set forth in Section 10; (iii) if unexecuted contracts remain with a 
limit price that is through the opening price, and there is no contra 
side ABBO at the opening price, then the remaining contracts would be 
posted at the opening price, with the contra-side NOM BBO reflected as 
non-firm; and (iv) order handling of any residual unexecuted contracts 
would be done in accordance with Section 10(7), with the opening price 
representing the reference price.\31\
---------------------------------------------------------------------------

    \30\ See proposed Section 8(b)(4)(C)(i)-(iv).
    \31\ Id.
---------------------------------------------------------------------------

    This proposed handling of unexecuted contracts set forth in 
subsections (i)-(iv) of proposed Section 8(b)(4)(C) is intended to 
ensure that residual unexecuted contracts from the Opening Cross, 
regardless of their limit prices, are posted on the book at the opening 
price before subsequently being routed pursuant to Section 11 or walked 
to the next potential execution price(s) under the Acceptable Trade 
Range set forth in Section 10(7) (with the opening price representing 
the ``reference price'' of that rule).\32\ Moreover, the ``firm'' 
versus ``non-firm'' tagging of contra-side interest when residual 
Opening Cross interest is posted follows the construct currently in 
place on the Exchange when aggressive interest is received and triggers 
an Acceptable Trade Range (ATR) process.\33\ Contra-side NOM BBO 
interest is reflected as non-firm when the Exchange has interest with a 
limit price (or market order) that is more aggressive than the Opening 
Cross price in order to ensure that aggressively priced residual 
interest maintains priority should other aggressively priced interest 
be entered before the residual interest is permitted to access the next 
allowable range of prices.\34\
---------------------------------------------------------------------------

    \32\ See Notice, 79 FR at 73386.
    \33\ Id.
    \34\ Id.
---------------------------------------------------------------------------

    The Exchange is also proposing to add new text to proposed Section 
8(b)(5) to indicate that if the Nasdaq Opening Cross price is selected 
and fewer than all contracts of Eligible Interest that are available in 
NOM would be executed, all Eligible Interest shall be executed at the 
Nasdaq Opening Cross price in accordance with the execution algorithm 
assigned to the associated underlying option.\35\
---------------------------------------------------------------------------

    \35\ See proposed Section 8(b)(5).
---------------------------------------------------------------------------

Absence of Opening Cross--Section 8(c)

    Lastly, the Exchange proposes to add a new Section 8(c) providing 
for the return of orders in un-opened symbols in the absence of an 
Opening Cross. Proposed new Section 8(c) would be substituted for 
current Section 8(c) and would provide that if an Opening Cross in a 
symbol is not initiated before the conclusion of the Opening Order 
Cancel Timer, a firm may elect to have orders returned by providing 
written notification to the Exchange.\36\ These orders include all non 
GTC orders received over the FIX protocol.\37\ The Opening Order Cancel 
Timer represents a period of time since the underlying market has 
opened, and shall be established and disseminated by Nasdaq on its Web 
site.\38\
---------------------------------------------------------------------------

    \36\ See proposed Section 8(c).
    \37\ Id.
    \38\ Id.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\39\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\40\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest.
---------------------------------------------------------------------------

    \39\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \40\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposal is consistent with Section 
6(b)(5) of the Act because it will enhance and clarify the opening 
cross process, minimize or negate unnecessary complexity, and encourage 
liquidity when trading opens. The Exchange notes that it proposes to 
set forth in Section 8(b) clear language describing under what 
circumstances an opening cross will occur, and how the opening cross 
will occur if more than one possible cross price exists. In addition, 
according to the Exchange, the proposed rule change will enhance the 
price discovery mechanism in the opening process by including not only 
Market Maker orders and quotes but also away market interest as 
represented by quotes. The Exchange believes this change will make the 
transition from the opening cross period to regular market trading more 
efficient and thus promote just and equitable principles of trade and 
serve to protect investors and the public interest. The Exchange also 
believes that the proposal will significantly improve the quality of 
execution of NOM's opening, which should attract new order flow. In the 
Exchange's view, the proposed rule changes should prove helpful to 
market participants, particularly those that are involved in adding 
liquidity during the opening cross.
    The Commission believes that the proposal is reasonably designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and to protect investors and the public interest by 
adding clarity to the Exchange's rules governing NOM's opening cross 
process. This enhanced transparency should help to reduce the

[[Page 4011]]

potential for investor confusion as to when an opening cross occurs, 
how the price for the opening cross is determined, and how orders 
involved in the opening cross are handled. The Commission also believes 
that the proposed opening cross process is reasonably designed to open 
trading in a fair and orderly manner, which is consistent with the 
protection of investors and the public interest. Additionally, to 
extent the proposal results in additional liquidity during NOM's 
opening at the beginning of the trading day or following a trading 
halt, and a more orderly transition to regular trading, it should 
further promote the goals of Section 6(b)(5) of the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\41\ that the proposed rule change (SR-NASDAQ-2014-116) be, and it 
hereby is, approved.
---------------------------------------------------------------------------

    \41\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\42\
---------------------------------------------------------------------------

    \42\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2015-01249 Filed 1-23-15; 8:45 am]
BILLING CODE 8011-01-P
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