Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order Granting Approval of Proposed Rule Change, as Modified by Amendment Nos. 2 and 3, To Enhance the Reopening Auction Process Following a Trading Halt Declared Pursuant to the Plan To Address Extraordinary Market Volatility, 8888-8890 [2017-02001]

Download as PDF 8888 Federal Register / Vol. 82, No. 19 / Tuesday, January 31, 2017 / Notices November 1, 2016.3 On December 14, 2016, pursuant to Section 19(b)(2) of the Act,4 the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change.5 The Commission received one comment letter on the proposed rule change.6 On January 20, 2017, the Exchange withdrew the proposed rule change (SR–NASDAQ–2016–141). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.7 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–02000 Filed 1–30–17; 8:45 am] BILLING CODE 8011–01–P II. Description of the Proposed Rule Change, as Modified by Amendment Nos. 2 and 3 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–79876; File No. SR– NASDAQ–2016–131] Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order Granting Approval of Proposed Rule Change, as Modified by Amendment Nos. 2 and 3, To Enhance the Reopening Auction Process Following a Trading Halt Declared Pursuant to the Plan To Address Extraordinary Market Volatility January 25, 2017. asabaliauskas on DSK3SPTVN1PROD with NOTICES I. Introduction On October 13, 2016, The Nasdaq Stock Market LLC (‘‘Nasdaq’’ or ‘‘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 related to the Exchange’s re-opening process following a trading halt declared pursuant to the National Market System Plan to Address Extraordinary Market Volatility (‘‘Plan’’). The proposed rule change was published for comment in the Federal 3 See Securities Exchange Act Release No. 79163 (October 26, 2016), 81 FR 75862. 4 15 U.S.C. 78s(b)(2). 5 See Securities Exchange Act Release No. 79554, 81 FR 92927 (December 20, 2016). The Commission designated January 30, 2017, as the date by which it shall approve, disapprove, or institute proceedings to determine whether to disapprove the proposed rule change. 6 See Letter from Joseph Saluzzi and Sal Arnuk, Partners, Themis Trading LLC, to Brent J. Fields, Secretary, Commission, dated November 7, 2016. 7 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. VerDate Sep<11>2014 18:22 Jan 30, 2017 Jkt 241001 Register on November 1, 2016.3 On December 5, 2016, the Exchange filed Amendment No. 1 to the proposed rule change. On December 14, 2016, the Commission extended the time period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change to January 30, 2017.4 On December 21, 2016, the Exchange withdrew Amendment No. 1 and filed Amendment No. 2 to the proposed rule change. On January 19, 2017, the Exchange filed Amendment No. 3 to the proposed rule change.5 The Commission received no comments on the proposed rule change. This order approves the proposed rule change, as modified by Amendment Nos. 2 and 3. In conjunction with the Twelfth Amendment to the Plan,6 the Exchange proposes to revise its re-opening process following a trading halt declared pursuant to the Plan (‘‘Trading Pause’’) and to make related changes. Auction Reference Price and Auction Collar for the Re-Opening Process Following a Trading Pause The Exchange proposes to establish an ‘‘Auction Reference Price’’ and an ‘‘Auction Collar’’ for the re-opening process following a Trading Pause. Specifically, for a Limit Down triggered pause, the Auction Reference Price would be the Lower Band price of the LULD Band in place at the time the 3 See Securities Exchange Act Release No. 79158 (October 26, 2016), 81 FR 75879 (‘‘Notice’’). 4 See Securities Exchange Act Release No. 79551, 81 FR 92885 (December 20, 2016). 5 In Amendment No. 2, the Exchange proposed to use the Auction Reference Price to determine whether a security subject to a Trading Pause is priced at $3 or less, which would determine the method of calculating the Auction Collars. The Exchange also made a conforming change to Nasdaq Rule 4754(b)(6) relating to Trading Pauses that exist at or after 3:50 p.m. In Amendment No. 3, the Exchange proposed to implement the proposed rule change in the third quarter of 2017, following the Commission’s approval of the Twelfth Amendment to the Plan. The Exchange also explained that this implementation is contingent on the Securities Information Processors successfully implementing changes to their systems to allow for the new reopening process, and the other Primary Listing Exchanges gaining approval of their related filings and their ability to implement the changes concurrent with Nasdaq. Because Amendment Nos. 2 and 3 do not materially alter the substance of the proposed rule change or raise unique or novel regulatory issues, they are not subject to notice and comment. Both amendments are available at: https://www.sec.gov/comments/sr-nasdaq-2016-131 /nasdaq2016131.shtml. 6 See Securities Exchange Act Release No. 79845 (January 19, 2017) (File No. 4–631). PO 00000 Frm 00066 Fmt 4703 Sfmt 4703 Trading Pause was triggered.7 For a Limit Up triggered pause, the Auction Reference Price would be the Upper Band price of the LULD Band in place at the time the Trading Pause was triggered.8 With respect to Auction Collars, for a Limit Down triggered pause, the lower Auction Collar price would be derived by subtracting 5% of the Auction Reference Price, rounded to the nearest minimum price increment, or in the case of securities with an Auction Reference Price of $3 or less, $0.15, from the Auction Reference Price, and the upper Auction Collar price would be the Upper Band price of the LULD Band in place at the time the Trading Pause was triggered.9 For a Limit Up triggered pause, the upper Auction Collar price would be derived by adding 5% of the Auction Reference Price, rounded to the nearest minimum price increment, or in the case of securities with an Auction Reference Price of $3 or less, $0.15, to the Auction Reference Price, and the lower Auction Collar price would be the Lower Band price of the LULD Band in place at the time the Trading Pause was triggered.10 Extension of Re-Opening Time and Expansion of Auction Collars As proposed, for any security listed on the Exchange, prior to terminating a Trading Pause, there would be a 5-minute ‘‘Initial Display Only Period’’ during which market participants may enter quotations and orders in that security in Nasdaq systems.11 At the conclusion of the Initial Display Only Period, the security would be released for trading unless, at the end of the Initial Display Only Period, the Exchange detects an order imbalance in the security.12 In that case, the Exchange would extend the Display Only Period for an additional 5-minute period 7 See proposed Nasdaq Rule 4120(c)(10)(A)(i)(a). proposed Nasdaq Rule 4120(c)(10)(A)(i)(b). The proposed definition of Auction Reference Price for a Trading Pause is designed to be consistent across listing exchanges. 9 See proposed Nasdaq Rule 4120(c)(10)(A)(ii)(a). 10 See proposed Nasdaq Rule 4120(c)(10)(A)(ii)(b). The proposed Auction Collars for a Trading Pause are designed to be consistent across listing exchanges. 11 See proposed Nasdaq Rule 4120(c)(10). The proposed rule would also provide that the Trading Pause shall be terminated when Nasdaq releases the security for trading. See id. The Exchange proposes a conforming change in Nasdaq Rule 4120(c)(7)(A). 12 See proposed Nasdaq Rule 4120(c)(10)(B). According to proposed Nasdaq Rule 4120(c)(10)(E), upon completion of the cross calculation, an order imbalance shall be established as follows: (i) The calculated price at which the security would be released for trading is above (below) the upper (lower) Auction Collar price calculated under paragraphs (A), (B), or (C) of Nasdaq Rule 4120(c)(10); or (ii) all market orders would not be executed in the cross. 8 See E:\FR\FM\31JAN1.SGM 31JAN1 Federal Register / Vol. 82, No. 19 / Tuesday, January 31, 2017 / Notices (‘‘Extended Display Only Period’’) and the Auction Collars would be adjusted.13 Specifically, If the Display Only Period is extended because the calculated price at which the security would be released for trading is below the lower Auction Collar price or all sell market orders would not be executed in the cross, then the new lower Auction Collar price would be derived by subtracting 5% of the initial Auction Reference Price, which was rounded to the nearest minimum price increment, or in the case of securities with an Auction Reference Price of $3 or less, $0.15, from the previous lower Auction Collar price, and the upper Auction Collar price would not be changed.14 If the Display Only Period is extended because the calculated price at which the security would be released for trading is above the upper Auction Collar price or all buy market orders would not be executed in the cross, then the new upper Auction Collar price would be derived by adding 5% of the initial Auction Reference Price, which was rounded to the nearest minimum price increment, or in the case of securities with an Auction Reference Price of $3 or less, $0.15, to the previous upper Auction Collar price, and the lower Auction Collar price would not be changed.15 At the conclusion of the Extended Display Only Period, the security would be released for trading unless, at the end of the Extended Display Only Period, the Exchange detects an order imbalance in the security.16 In that case, the Exchange would further extend the Display Only Period and continue to adjust the Auction Collar prices every five minutes in the manner described in proposed Nasdaq Rule 4120(c)(10)(B) until the security is released for trading.17 With respect to these additional extensions, the Exchange would release the security for trading at the first point there is no order imbalance.18 As proposed, if a Trading Pause for a security exists at or after 3:50 p.m., the Exchange would conduct a LULD Closing Cross pursuant to Nasdaq Rule 4754(b)(6).19 13 See proposed Nasdaq Rule 4120(c)(10)(B). proposed Nasdaq Rule 4120(c)(10)(B)(i). 15 See proposed Nasdaq Rule 4120(c)(10)(B)(ii). 16 See proposed Nasdaq Rule 4120(c)(10)(C). 17 See id. 18 See id. The proposed extensions and widening of the Auction Collars are designed to be consistent across listing exchanges. 19 See proposed Nasdaq Rule 4120(a)(10)(D). The Exchange also proposes conforming changes to Nasdaq Rules 4120(a)(12)(H) and 4754(b)(6). The concept of holding a closing auction instead of a reopening auction if a Trading Pause exists in the last ten minutes of trading is designed to be consistent asabaliauskas on DSK3SPTVN1PROD with NOTICES 14 See VerDate Sep<11>2014 18:22 Jan 30, 2017 Jkt 241001 Other Changes Related to the ReOpening Process Following a Trading Pause Nasdaq Rule 4753(a)(3) currently defines ‘‘Order Imbalance Indicator’’ to mean a message disseminated by electronic means containing information about Eligible Interest and the price at which such interest would execute at the time of dissemination. The Exchange proposes to add that, for purposes of a Trading Pause initiated pursuant to Nasdaq Rule 4120(a)(12), ‘‘Order Imbalance Indicator’’ would also include Auction Reference Prices and Auction Collars, as defined in proposed Nasdaq Rule 4120(c)(10)(A).20 The Exchange also proposes to amend Nasdaq Rule 11890 to provide that executions as a result of a Halt Auction under Nasdaq Rule 4120(c)(10) would not be eligible for a request to review as clearly erroneous under Nasdaq Rule 11890.21 Other Changes Relating to Trading Pauses The Exchange proposes to amend Nasdaq Rule 4120(a)(12)(G) to state that if the Exchange is unable to re-open trading due to a systems or technology issue, it shall notify the Processor immediately.22 The Exchange also proposes to amend Nasdaq Rule 4120(a)(12)(H) to state that if a Trading Pause was initiated by another exchange, the Exchange may resume trading only upon receipt of Price Bands from the Processor.23 The Exchange proposes to implement this proposed rule change in the third quarter of 2017.24 The Exchange represents that it will announce the implementation date of this proposed rule change via a notice to be issued across listing exchanges and to reflect the Twelfth Amendment to the Plan. 20 See proposed Nasdaq Rule 4753(a)(3)(F). 21 The proposal to exclude re-opening auction trades from the clearly erroneous execution rule is designed to be consistent across listing exchanges. 22 See proposed Nasdaq Rule 4120(a)(12)(G). This change is designed to be consistent across listing exchanges and to reflect the Twelfth Amendment to the Plan. The Exchange also proposes to delete rule text in Nasdaq Rule 4120(a)(12)(G) concerning phased implementation of the Plan, because the Plan has been fully implemented. 23 See proposed Nasdaq Rule 4120(a)(12)(H). This change is designed to be consistent across listing exchanges and to reflect the Twelfth Amendment to the Plan. 24 The Exchange explains that implementation of the proposed changes is contingent on the Securities Information Processors successfully implementing changes to their systems to allow for the new re-opening process, and the other Primary Listing Exchanges gaining approval of their related filings and their ability to implement the changes concurrent with Nasdaq. See Amendment No. 3, supra note 5. PO 00000 Frm 00067 Fmt 4703 Sfmt 4703 8889 after this proposed rule change is approved by the Commission.25 III. Discussion and Commission Findings After careful review, the Commission finds that the proposed rule change, as modified by Amendment Nos. 2 and 3, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.26 In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,27 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 foster cooperation and coordination with persons engaged in 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. As noted above, the Commission received no comment letters regarding the proposed rule change. The Commission notes that the proposed rule change is designed, together with the Twelfth Amendment to the Plan,28 to address the issues experienced on August 24, 2015 by reducing the number of repeat Trading Pauses in a single NMS Stock.29 The Commission notes that the proposed rule change is also designed to further the goal of establishing a standardized approach for how Primary Listing Exchanges would conduct certain aspects of an automated re-opening following a Trading Pause, which should provide certainty for market participants regarding how a security would re-open following a Trading Pause, regardless of the listing exchange.30 With respect to the proposed Auction Reference Price and Auction Collars, the Commission finds reasonable the Exchange’s belief that the price of the limit state that preceded the Trading Pause (i.e., either the Lower or Upper Price Band price) would better reflect the most recent price of the security, and therefore should be used as the 25 See id. For a more detailed description of the proposed rule change, see Notice, supra note 3. 26 In approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 27 15 U.S.C. 78f(b)(5). 28 See supra note 6. 29 See Notice, supra note 3, at 75882. 30 See id. E:\FR\FM\31JAN1.SGM 31JAN1 asabaliauskas on DSK3SPTVN1PROD with NOTICES 8890 Federal Register / Vol. 82, No. 19 / Tuesday, January 31, 2017 / Notices Auction Reference Price.31 Moreover, the Commission believes that the proposed method for calculating the initial Auction Collars (i.e., the Auction Collar on the opposite side of the trading pressure would be the Price Band in place before the Trading Pause was triggered) would address the concept of mean reversion, as well as avoid a security from trading outside of a price that it would have been permitted to trade before the Trading Pause.32 The Commission believes that extending the Trading Pause and widening the Auction Collar on the side of the order imbalance would be a measured approach to provide additional time to attract offsetting interest, to help to address an imbalance that may not be resolved within the prior Auction Collars, and to reduce the potential for triggering another Trading Pause.33 Also, as the Exchange noted, widening the Auction Collar only in the direction of the order imbalance would address issues relating to the concept of mean reversion.34 Moreover, the Commission notes that the proposal to conduct a LULD Closing Cross pursuant to Nasdaq Rule 4754(b)(6) should a Trading Pause exist at or after 3:50 p.m. would be consistent with the Twelfth Amendment to the Plan. The Commission believes that it is appropriate to preclude requests to review executions as a result of a Halt Auction under Nasdaq Rule 4120(c)(10) as clearly erroneous. The Commission notes that the proposed re-opening procedures would allow for widened collars, which may result in a reopening price that would be away from prior trading prices, but the re-opening price would be the result of a measured and transparent process that reduces the potential that such a trade would be considered erroneous.35 The Commission believes that the proposed enhancements to the Order Imbalance Indicator would further promote transparency around the reopening process following a Trading Pause. Finally, the Commission notes that the proposed amendments to Nasdaq Rule 4210(a)(12)(G) and (H) would remove obsolete rule text and conform the remaining rule text to the Twelfth Amendment to the Plan. Based on the Exchange’s representations mentioned above and in the Notice, and for the foregoing 31 See Notice, supra note 3, at 75882–83. Notice, supra note 3, at 75883. 33 See Notice, supra note 3, at 75882. 34 See Notice, supra note 3, at 75883. 35 See id. reasons, the Commission finds that the proposed rule change, as modified by Amendment Nos. 2 and 3, is consistent with Section 6(b)(5) of the Act 36 and the rules and regulations thereunder applicable to a national securities exchange. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,37 that the proposed rule change (SR–NASDAQ– 2016–131), as modified by Amendment Nos. 2 and 3, be, and hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.38 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–02001 Filed 1–30–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Sunshine Act Meeting Notice is hereby given, pursuant to the provisions of the Government in the Sunshine Act, Public Law 94–409, that the Securities and Exchange Commission will hold a closed meeting on Thursday, February 2, 2017 at 2 p.m. Commissioners, Counsel to the Commissioners, the Secretary to the Commission, and recording secretaries will attend the closed meeting. Certain staff members who have an interest in the matters also may be present. The General Counsel of the Commission, or her designee, has certified that, in her opinion, one or more of the exemptions set forth in 5 U.S.C. 552b(c)(3), (5), (7), 9(B) and (10) and 17 CFR 200.402(a)(3), (a)(5), (a)(7), (a)(9)(ii) and (a)(10), permit consideration of the scheduled matter at the closed meeting. Acting Chairman Piwowar, as duty officer, voted to consider the items listed for the closed meeting in closed session. The subject matter of the closed meeting will be: Institution and settlement of injunctive actions; Institution and settlement of administrative proceedings; Resolution of litigation claims; and Other matters relating to enforcement proceedings. At times, changes in Commission priorities require alterations in the scheduling of meeting items. 32 See VerDate Sep<11>2014 18:22 Jan 30, 2017 Jkt 241001 36 15 U.S.C. 78f(b)(5). U.S.C. 78s(b)(2). 38 17 CFR 200.30–3(a)(12). 37 15 PO 00000 Frm 00068 Fmt 4703 Sfmt 4703 For further information and to ascertain what, if any, matters have been added, deleted or postponed; please contact Brent J. Fields from the Office of the Secretary at (202) 551–5400. Dated: January 26, 2017. Brent J. Fields, Secretary. [FR Doc. 2017–02079 Filed 1–27–17; 11:15 am] BILLING CODE 8011–01–P DEPARTMENT OF THE TREASURY Internal Revenue Service Proposed Collection; Comment Request for Form 706–NA Internal Revenue Service (IRS), Treasury. ACTION: Notice and request for comments. AGENCY: The Department of the Treasury, as part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other Federal agencies to take this opportunity to comment on proposed and/or continuing information collections, as required by the Paperwork Reduction Act of 1995. Currently, the IRS is soliciting comments concerning Form 706–NA, United States Estate (and GenerationSkipping Transfer) Tax Return, Estate of nonresident not a citizen of the United States. DATES: Written comments should be received on or before April 3, 2017 to be assured of consideration. ADDRESSES: Direct all written comments to Tuawana Pinkston, Room 6526, 1111 Constitution Avenue NW., Washington, DC 20224. FOR FURTHER INFORMATION CONTACT: Requests for additional information or copies of the form and instructions should be directed to Sara Covington, at Internal Revenue Service, Room 6526, 1111 Constitution Avenue NW., Washington DC 20224, or through the internet, at Sara.L.Covington@irs.gov. SUPPLEMENTARY INFORMATION: Title: United States Estate (and Generation-Skipping Transfer) Tax Return, Estate of nonresident not a citizen of the United States. OMB Number: 1545–0531. Form Number: 706–NA. Abstract: Form 706–NA is used to compute estate and generation-skipping transfer tax liability for nonresident alien decedents in accordance with section 6018 of the Internal Revenue Code. IRS uses the information on the SUMMARY: E:\FR\FM\31JAN1.SGM 31JAN1

Agencies

[Federal Register Volume 82, Number 19 (Tuesday, January 31, 2017)]
[Notices]
[Pages 8888-8890]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-02001]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79876; File No. SR-NASDAQ-2016-131]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order 
Granting Approval of Proposed Rule Change, as Modified by Amendment 
Nos. 2 and 3, To Enhance the Reopening Auction Process Following a 
Trading Halt Declared Pursuant to the Plan To Address Extraordinary 
Market Volatility

January 25, 2017.

I. Introduction

    On October 13, 2016, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``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 related to the Exchange's re-opening process 
following a trading halt declared pursuant to the National Market 
System Plan to Address Extraordinary Market Volatility (``Plan''). The 
proposed rule change was published for comment in the Federal Register 
on November 1, 2016.\3\ On December 5, 2016, the Exchange filed 
Amendment No. 1 to the proposed rule change. On December 14, 2016, the 
Commission extended the time period within which to approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to disapprove the proposed rule change 
to January 30, 2017.\4\ On December 21, 2016, the Exchange withdrew 
Amendment No. 1 and filed Amendment No. 2 to the proposed rule change. 
On January 19, 2017, the Exchange filed Amendment No. 3 to the proposed 
rule change.\5\ The Commission received no comments on the proposed 
rule change. This order approves the proposed rule change, as modified 
by Amendment Nos. 2 and 3.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 79158 (October 26, 
2016), 81 FR 75879 (``Notice'').
    \4\ See Securities Exchange Act Release No. 79551, 81 FR 92885 
(December 20, 2016).
    \5\ In Amendment No. 2, the Exchange proposed to use the Auction 
Reference Price to determine whether a security subject to a Trading 
Pause is priced at $3 or less, which would determine the method of 
calculating the Auction Collars. The Exchange also made a conforming 
change to Nasdaq Rule 4754(b)(6) relating to Trading Pauses that 
exist at or after 3:50 p.m. In Amendment No. 3, the Exchange 
proposed to implement the proposed rule change in the third quarter 
of 2017, following the Commission's approval of the Twelfth 
Amendment to the Plan. The Exchange also explained that this 
implementation is contingent on the Securities Information 
Processors successfully implementing changes to their systems to 
allow for the new re-opening process, and the other Primary Listing 
Exchanges gaining approval of their related filings and their 
ability to implement the changes concurrent with Nasdaq. Because 
Amendment Nos. 2 and 3 do not materially alter the substance of the 
proposed rule change or raise unique or novel regulatory issues, 
they are not subject to notice and comment. Both amendments are 
available at: https://www.sec.gov/comments/sr-nasdaq-2016-131/nasdaq2016131.shtml.
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II. Description of the Proposed Rule Change, as Modified by Amendment 
Nos. 2 and 3

    In conjunction with the Twelfth Amendment to the Plan,\6\ the 
Exchange proposes to revise its re-opening process following a trading 
halt declared pursuant to the Plan (``Trading Pause'') and to make 
related changes.
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 79845 (January 19, 
2017) (File No. 4-631).
---------------------------------------------------------------------------

Auction Reference Price and Auction Collar for the Re-Opening Process 
Following a Trading Pause

    The Exchange proposes to establish an ``Auction Reference Price'' 
and an ``Auction Collar'' for the re-opening process following a 
Trading Pause. Specifically, for a Limit Down triggered pause, the 
Auction Reference Price would be the Lower Band price of the LULD Band 
in place at the time the Trading Pause was triggered.\7\ For a Limit Up 
triggered pause, the Auction Reference Price would be the Upper Band 
price of the LULD Band in place at the time the Trading Pause was 
triggered.\8\ With respect to Auction Collars, for a Limit Down 
triggered pause, the lower Auction Collar price would be derived by 
subtracting 5% of the Auction Reference Price, rounded to the nearest 
minimum price increment, or in the case of securities with an Auction 
Reference Price of $3 or less, $0.15, from the Auction Reference Price, 
and the upper Auction Collar price would be the Upper Band price of the 
LULD Band in place at the time the Trading Pause was triggered.\9\ For 
a Limit Up triggered pause, the upper Auction Collar price would be 
derived by adding 5% of the Auction Reference Price, rounded to the 
nearest minimum price increment, or in the case of securities with an 
Auction Reference Price of $3 or less, $0.15, to the Auction Reference 
Price, and the lower Auction Collar price would be the Lower Band price 
of the LULD Band in place at the time the Trading Pause was 
triggered.\10\
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    \7\ See proposed Nasdaq Rule 4120(c)(10)(A)(i)(a).
    \8\ See proposed Nasdaq Rule 4120(c)(10)(A)(i)(b). The proposed 
definition of Auction Reference Price for a Trading Pause is 
designed to be consistent across listing exchanges.
    \9\ See proposed Nasdaq Rule 4120(c)(10)(A)(ii)(a).
    \10\ See proposed Nasdaq Rule 4120(c)(10)(A)(ii)(b). The 
proposed Auction Collars for a Trading Pause are designed to be 
consistent across listing exchanges.
---------------------------------------------------------------------------

Extension of Re-Opening Time and Expansion of Auction Collars

    As proposed, for any security listed on the Exchange, prior to 
terminating a Trading Pause, there would be a 5-minute ``Initial 
Display Only Period'' during which market participants may enter 
quotations and orders in that security in Nasdaq systems.\11\ At the 
conclusion of the Initial Display Only Period, the security would be 
released for trading unless, at the end of the Initial Display Only 
Period, the Exchange detects an order imbalance in the security.\12\ In 
that case, the Exchange would extend the Display Only Period for an 
additional 5-minute period

[[Page 8889]]

(``Extended Display Only Period'') and the Auction Collars would be 
adjusted.\13\ Specifically, If the Display Only Period is extended 
because the calculated price at which the security would be released 
for trading is below the lower Auction Collar price or all sell market 
orders would not be executed in the cross, then the new lower Auction 
Collar price would be derived by subtracting 5% of the initial Auction 
Reference Price, which was rounded to the nearest minimum price 
increment, or in the case of securities with an Auction Reference Price 
of $3 or less, $0.15, from the previous lower Auction Collar price, and 
the upper Auction Collar price would not be changed.\14\ If the Display 
Only Period is extended because the calculated price at which the 
security would be released for trading is above the upper Auction 
Collar price or all buy market orders would not be executed in the 
cross, then the new upper Auction Collar price would be derived by 
adding 5% of the initial Auction Reference Price, which was rounded to 
the nearest minimum price increment, or in the case of securities with 
an Auction Reference Price of $3 or less, $0.15, to the previous upper 
Auction Collar price, and the lower Auction Collar price would not be 
changed.\15\
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    \11\ See proposed Nasdaq Rule 4120(c)(10). The proposed rule 
would also provide that the Trading Pause shall be terminated when 
Nasdaq releases the security for trading. See id. The Exchange 
proposes a conforming change in Nasdaq Rule 4120(c)(7)(A).
    \12\ See proposed Nasdaq Rule 4120(c)(10)(B). According to 
proposed Nasdaq Rule 4120(c)(10)(E), upon completion of the cross 
calculation, an order imbalance shall be established as follows: (i) 
The calculated price at which the security would be released for 
trading is above (below) the upper (lower) Auction Collar price 
calculated under paragraphs (A), (B), or (C) of Nasdaq Rule 
4120(c)(10); or (ii) all market orders would not be executed in the 
cross.
    \13\ See proposed Nasdaq Rule 4120(c)(10)(B).
    \14\ See proposed Nasdaq Rule 4120(c)(10)(B)(i).
    \15\ See proposed Nasdaq Rule 4120(c)(10)(B)(ii).
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    At the conclusion of the Extended Display Only Period, the security 
would be released for trading unless, at the end of the Extended 
Display Only Period, the Exchange detects an order imbalance in the 
security.\16\ In that case, the Exchange would further extend the 
Display Only Period and continue to adjust the Auction Collar prices 
every five minutes in the manner described in proposed Nasdaq Rule 
4120(c)(10)(B) until the security is released for trading.\17\ With 
respect to these additional extensions, the Exchange would release the 
security for trading at the first point there is no order 
imbalance.\18\
---------------------------------------------------------------------------

    \16\ See proposed Nasdaq Rule 4120(c)(10)(C).
    \17\ See id.
    \18\ See id. The proposed extensions and widening of the Auction 
Collars are designed to be consistent across listing exchanges.
---------------------------------------------------------------------------

    As proposed, if a Trading Pause for a security exists at or after 
3:50 p.m., the Exchange would conduct a LULD Closing Cross pursuant to 
Nasdaq Rule 4754(b)(6).\19\
---------------------------------------------------------------------------

    \19\ See proposed Nasdaq Rule 4120(a)(10)(D). The Exchange also 
proposes conforming changes to Nasdaq Rules 4120(a)(12)(H) and 
4754(b)(6). The concept of holding a closing auction instead of a 
re-opening auction if a Trading Pause exists in the last ten minutes 
of trading is designed to be consistent across listing exchanges and 
to reflect the Twelfth Amendment to the Plan.
---------------------------------------------------------------------------

Other Changes Related to the Re-Opening Process Following a Trading 
Pause

    Nasdaq Rule 4753(a)(3) currently defines ``Order Imbalance 
Indicator'' to mean a message disseminated by electronic means 
containing information about Eligible Interest and the price at which 
such interest would execute at the time of dissemination. The Exchange 
proposes to add that, for purposes of a Trading Pause initiated 
pursuant to Nasdaq Rule 4120(a)(12), ``Order Imbalance Indicator'' 
would also include Auction Reference Prices and Auction Collars, as 
defined in proposed Nasdaq Rule 4120(c)(10)(A).\20\
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    \20\ See proposed Nasdaq Rule 4753(a)(3)(F).
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    The Exchange also proposes to amend Nasdaq Rule 11890 to provide 
that executions as a result of a Halt Auction under Nasdaq Rule 
4120(c)(10) would not be eligible for a request to review as clearly 
erroneous under Nasdaq Rule 11890.\21\
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    \21\ The proposal to exclude re-opening auction trades from the 
clearly erroneous execution rule is designed to be consistent across 
listing exchanges.
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Other Changes Relating to Trading Pauses

    The Exchange proposes to amend Nasdaq Rule 4120(a)(12)(G) to state 
that if the Exchange is unable to re-open trading due to a systems or 
technology issue, it shall notify the Processor immediately.\22\ The 
Exchange also proposes to amend Nasdaq Rule 4120(a)(12)(H) to state 
that if a Trading Pause was initiated by another exchange, the Exchange 
may resume trading only upon receipt of Price Bands from the 
Processor.\23\
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    \22\ See proposed Nasdaq Rule 4120(a)(12)(G). This change is 
designed to be consistent across listing exchanges and to reflect 
the Twelfth Amendment to the Plan. The Exchange also proposes to 
delete rule text in Nasdaq Rule 4120(a)(12)(G) concerning phased 
implementation of the Plan, because the Plan has been fully 
implemented.
    \23\ See proposed Nasdaq Rule 4120(a)(12)(H). This change is 
designed to be consistent across listing exchanges and to reflect 
the Twelfth Amendment to the Plan.
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    The Exchange proposes to implement this proposed rule change in the 
third quarter of 2017.\24\ The Exchange represents that it will 
announce the implementation date of this proposed rule change via a 
notice to be issued after this proposed rule change is approved by the 
Commission.\25\
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    \24\ The Exchange explains that implementation of the proposed 
changes is contingent on the Securities Information Processors 
successfully implementing changes to their systems to allow for the 
new re-opening process, and the other Primary Listing Exchanges 
gaining approval of their related filings and their ability to 
implement the changes concurrent with Nasdaq. See Amendment No. 3, 
supra note 5.
    \25\ See id. For a more detailed description of the proposed 
rule change, see Notice, supra note 3.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment Nos. 2 and 3, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\26\ In particular, the 
Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act,\27\ 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 foster cooperation and coordination 
with persons engaged in 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. As noted above, the Commission 
received no comment letters regarding the proposed rule change.
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    \26\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \27\ 15 U.S.C. 78f(b)(5).
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    The Commission notes that the proposed rule change is designed, 
together with the Twelfth Amendment to the Plan,\28\ to address the 
issues experienced on August 24, 2015 by reducing the number of repeat 
Trading Pauses in a single NMS Stock.\29\ The Commission notes that the 
proposed rule change is also designed to further the goal of 
establishing a standardized approach for how Primary Listing Exchanges 
would conduct certain aspects of an automated re-opening following a 
Trading Pause, which should provide certainty for market participants 
regarding how a security would re-open following a Trading Pause, 
regardless of the listing exchange.\30\
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    \28\ See supra note 6.
    \29\ See Notice, supra note 3, at 75882.
    \30\ See id.
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    With respect to the proposed Auction Reference Price and Auction 
Collars, the Commission finds reasonable the Exchange's belief that the 
price of the limit state that preceded the Trading Pause (i.e., either 
the Lower or Upper Price Band price) would better reflect the most 
recent price of the security, and therefore should be used as the

[[Page 8890]]

Auction Reference Price.\31\ Moreover, the Commission believes that the 
proposed method for calculating the initial Auction Collars (i.e., the 
Auction Collar on the opposite side of the trading pressure would be 
the Price Band in place before the Trading Pause was triggered) would 
address the concept of mean reversion, as well as avoid a security from 
trading outside of a price that it would have been permitted to trade 
before the Trading Pause.\32\
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    \31\ See Notice, supra note 3, at 75882-83.
    \32\ See Notice, supra note 3, at 75883.
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    The Commission believes that extending the Trading Pause and 
widening the Auction Collar on the side of the order imbalance would be 
a measured approach to provide additional time to attract offsetting 
interest, to help to address an imbalance that may not be resolved 
within the prior Auction Collars, and to reduce the potential for 
triggering another Trading Pause.\33\ Also, as the Exchange noted, 
widening the Auction Collar only in the direction of the order 
imbalance would address issues relating to the concept of mean 
reversion.\34\ Moreover, the Commission notes that the proposal to 
conduct a LULD Closing Cross pursuant to Nasdaq Rule 4754(b)(6) should 
a Trading Pause exist at or after 3:50 p.m. would be consistent with 
the Twelfth Amendment to the Plan.
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    \33\ See Notice, supra note 3, at 75882.
    \34\ See Notice, supra note 3, at 75883.
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    The Commission believes that it is appropriate to preclude requests 
to review executions as a result of a Halt Auction under Nasdaq Rule 
4120(c)(10) as clearly erroneous. The Commission notes that the 
proposed re-opening procedures would allow for widened collars, which 
may result in a re-opening price that would be away from prior trading 
prices, but the re-opening price would be the result of a measured and 
transparent process that reduces the potential that such a trade would 
be considered erroneous.\35\
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    \35\ See id.
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    The Commission believes that the proposed enhancements to the Order 
Imbalance Indicator would further promote transparency around the re-
opening process following a Trading Pause.
    Finally, the Commission notes that the proposed amendments to 
Nasdaq Rule 4210(a)(12)(G) and (H) would remove obsolete rule text and 
conform the remaining rule text to the Twelfth Amendment to the Plan.
    Based on the Exchange's representations mentioned above and in the 
Notice, and for the foregoing reasons, the Commission finds that the 
proposed rule change, as modified by Amendment Nos. 2 and 3, is 
consistent with Section 6(b)(5) of the Act \36\ and the rules and 
regulations thereunder applicable to a national securities exchange.
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    \36\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\37\ that the proposed rule change (SR-NASDAQ-2016-131), as 
modified by Amendment Nos. 2 and 3, be, and hereby is, approved.
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    \37\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
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    \38\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-02001 Filed 1-30-17; 8:45 am]
 BILLING CODE 8011-01-P