Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change To Amend Rule 4121, 35900-35905 [2019-15776]
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(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants or Others
Written comments relating to the
proposed amendments have not been
solicited or received by ICE Clear
Europe. ICE Clear Europe will notify the
Commission of any comments received
with respect to the proposed
amendments.
III. Date of Effectiveness of the
Proposed Rule Change, Security-Based
Swap Submission and Advance Notice
and Timing for Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 10 and paragraph (f) of Rule
19b–4 11 thereunder. At any time within
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change, security-based swap submission
or advance notice is consistent with the
Act. Comments may be submitted by
any of the following methods:
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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–
ICEEU–2019–016 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–ICEEU–2019–016. 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 website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change, security-based swap submission
or advance notice that are filed with the
Commission, and all written
communications relating to the
proposed rule change, security-based
swap submission or advance notice
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 website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filings will also be available for
inspection and copying at the principal
office of ICE Clear Europe and on ICE
Clear Europe’s website at https://
www.theice.com/clear-europe/
regulation.
All comments received will be posted
without change. Persons submitting
comments are cautioned that we do not
redact or edit personal identifying
information from comment submissions.
You should submit only information
that you wish to make available
publicly. All submissions should refer
to File Number SR–ICEEU–2019–016
and should be submitted on or before
August 15, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–15775 Filed 7–24–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–86412; File No. SR–
NASDAQ–2019–057]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing of Proposed Rule Change To
Amend Rule 4121
July 19, 2019.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on July 16,
2019, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I and
II below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
12 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
10 15
U.S.C. 78s(b)(3)(A).
11 17 CFR 240.19b–4(f).
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solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 4121 (Trading Halts Due to
Extraordinary Market Volatility) to
enhance the re-opening auction process
for Nasdaq listed securities following
trading halts due to extraordinary
market volatility.
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaq.cchwallstreet.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change 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 purpose of the proposed rule
change is to amend the re-opening
auction process for Nasdaq listed
securities following trading halts due to
extraordinary market volatility (i.e.,
‘‘market-wide circuit breakers’’) to be
similar to the process currently
employed following a Trading Pause
initiated pursuant to the Plan to
Address Extraordinary Market Volatility
(i.e., the ‘‘Limit Up-Limit Down’’ or
‘‘LULD’’ Plan). In 2017, the Exchange
amended its auction process for reopening a Nasdaq listed security
following a Trading Pause initiated
pursuant to the LULD Plan.3
Specifically, the Exchange modified its
rules such that initial Auction Collars
following a Trading Pause would be
calculated using a new methodology
based on the Price Band that triggered
the Trading Pause, and instituted the
process for extending the auction and
3 See Securities Exchange Act Release No. 79876
(January 25, 2017), 82 FR 8888 (January 31, 2017)
(SR–NASDAQ–2016–131).
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further widening the collars if necessary
to accommodate buy or sell pressure
outside of the collars then in effect. The
Exchange believes that these changes
have been effective in facilitating a fair
and orderly market following Trading
Pauses initiated pursuant to the Limit
Up-Limit Down Plan, and has decided
to implement similar functionality for
trading halts in Nasdaq listed securities
following the initiation of market-wide
circuit breakers.4 The Exchange believes
that the proposed changes would
promote price formation and provide a
more consistent re-opening process for
members and investors following such
trading halts, similar to the current
implementation on NYSE Arca, Inc.
(‘‘Arca’’) and Cboe BZX Exchange, Inc.
(‘‘BZX’’).5
Today, trading in Nasdaq listed
securities would resume on the
Exchange in most cases through a Halt
Cross,6 including after a Level 1 or Level
2 market-wide circuit breaker trading
halt initiated under Rule 4121. In
particular, Rule 4121(c)(i) provides that
the re-opening of trading following a
Level 1 or Level 2 trading halt shall
follow the procedures set forth in Rule
4120. These procedures are in Rule
4120(c)(7), which provides, in relevant
part, for a 5-minute Display Only Period
during which market participants may
enter quotes and orders in Nasdaq
systems, at the conclusion of which
trading will immediately resume
through the Halt Cross under Rule
4753.7 Additionally, the Exchange will
extend the Display Only Period for an
additional 1-minute period if there is
volatility during the Display Only
Period (i.e., an order imbalance in the
security). The volatility checks are
governed under Rule 4120(c)(7)(C)(1)
and (2), and provides that the Display
4 A market-wide circuit breaker is triggered if the
price of the S&P 500 Index declines by a specified
amount compared to the closing price for the
immediately preceding trading day. See Rule 4121.
5 Both Arca and BZX implemented similar
processes for resuming trading following non-LULD
regulatory halts (which include trading halts
following market-wide circuit breakers). See
Securities Exchange Act Release Nos. 79846
(January 19, 2017), 82 FR 8548 (January 26, 2017)
(SR–NYSEArca–2016–130); and 84927 (December
21, 2018), 83 FR 67768 (December 31, 2018) (SR–
CboeBZX–2018–090).
6 The Halt Cross process is set forth in Rule 4753.
As discussed in more detail later in this filing, the
Halt Cross does not apply to the re-opening of a
Nasdaq listed security following a Trading Pause
initiated under the LULD Plan, which instead reopens pursuant to Rule 4120(c)(10).
7 The Exchange would then re-open the Nasdaq
listed security that was subject to the Level 1 or
Level 2 market-wide circuit breaker trading halt at
an execution price determined pursuant to the
execution algorithm in Rule 4753(b)(2)(A)–(D),
which sets forth a series of tie-breakers for selecting
the execution price of the Halt Cross.
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Only Period will be extended if: (i) The
expected cross price moves the greater
of 5% or 50 cents, or (ii) all market
orders will not be executed in the cross.
The Exchange now proposes to amend
this process such that for the
resumption of trading after a Level 1 or
Level 2 market-wide circuit breaker
trading halt, the Exchange proposes to
instead follow a process similar to that
currently applied for releasing a security
following a Trading Pause initiated
under the LULD Plan, which is
described in Rule 4120(c)(10).
Rule 4120(c)(10), which describes the
current process for resuming trading
after a Trading Pause, provides for an
initial auction period and additional
auction periods with widening price
collars should the security fail to
conclude each auction period. For any
such security listed on Nasdaq, prior to
terminating the pause, there is a 5minute initial Display Only Period
during which market participants may
enter quotations and orders in that
security in Nasdaq systems. During this
initial period, the Exchange also
establishes the auction reference price
(hereinafter ‘‘LULD Auction Reference
Price’’),8 as well as the upper and lower
auction collar (hereinafter, ‘‘LULD
Auction Collar’’) prices.9 The security is
released at the end of the initial Display
Only Period unless the Exchange detects
an order imbalance 10 in the security, in
which case the initial Display Only
Period is extended for an additional five
minutes, and the LULD Auction Collar
prices are further widened by 5%
increments (or $0.15 for securities with
a LULD Auction Reference Price of $3
or less) in the direction of the order
imbalance.11 At the end of the first
extended Display Only Period, the
security is released for trading unless
there is an order imbalance in the
security, in which case the extended
Display Only Period will be further
extended every five minutes in the
manner described in Rule 4120(c)(10)(B)
until the security is released for trading.
The security is released for trading at
Rule 4120(c)(10)(A)(i).
Rule 4120(c)(10)(A)(ii). In contrast, price
collars would not be established for re-opening a
Nasdaq listed security after a Level 1 or Level 2
market-wide circuit breaker trading halt today. As
noted above, the Exchange would instead re-open
at an execution price determined pursuant to the
execution algorithm in Rule 4753(b)(2)(A)–(D). See
supra note 8.
10 For purposes of Rule 4120(c)(10), an order
imbalance is established if: (i) The calculated price
at which the security would be released for trading
is outside the applicable Auction Collar prices
calculated under paragraphs (A), (B), or (C) of Rule
4120(c)(10); or (ii) all market orders would not be
executed in the cross. See Rule 4120(c)(10)(E).
11 See Rule 4120(c)(10)(B).
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8 See
9 See
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35901
the first point there is no order
imbalance.
Proposal
The Exchange now proposes to
implement this process for resuming
trading following a market-wide circuit
breaker under Rule 4121 as well. As
noted above, the current re-opening
process for a Level 1 or Level 2 trading
halt initiated under Rule 4121 does not
have a mechanism for calculating price
collars and a process for widening the
collars if necessary to accommodate buy
or sell pressure outside of the collars
then in effect. The Exchange therefore
believes that its proposal will facilitate
a fair and orderly market following such
trading halts initiated pursuant to a
Level 1 or Level 2 market-wide circuit
breaker that is designed to reduce the
potential for significant price disparity
in post-auction trading. The proposed
process for re-opening a Nasdaq listed
security under Rule 4121 would be
substantially similar to the re-opening
process employed today for Trading
Pauses under Rule 4120(c)(10), with
certain differences discussed below,
primarily related to the calculation of
the halt auction collars.
Accordingly, the Exchange will
provide in new paragraph (d) to Rule
4121 that a Level 1 or Level 2 trading
halt initiated under this Rule (‘‘MWCB
Halt’’) shall be terminated when Nasdaq
releases the security for trading.12 For
any such security listed on Nasdaq,
prior to terminating the MWCB Halt,
there will be a 15-minute ‘‘Initial
Display Only Period’’ during which
market participants may enter
quotations and orders in that security in
Nasdaq systems. The Initial Display
Only Period will be 15 minutes in
duration instead of the 5 minute initial
display only period currently employed
for Trading Pauses under Rule
4120(c)(10) to coincide with the entire
duration of a MWCB Halt.13 The
Exchange believes that the proposed
Initial Display Only Period would
provide additional time to attract
offsetting interest, and would help
address order imbalances that may not
be resolved within the current 5-minute
period.
Proposed Rule 4121(d)(1)(A) will
provide that during the Initial Display
Only Period, the Exchange will also
establish the ‘‘Auction Reference Price.’’
The Auction Reference Price shall mean
the Nasdaq last sale price (either round
12 Rule 4121(c)(i) currently points to Rule 4120
for the re-opening process following a MWCB Halt.
The new re-opening process will be set forth in
proposed Rule 4121(d), so the Exchange will delete
this portion from the current Rule.
13 See Rule 4121(b).
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or odd lot) after 9:15 a.m. Eastern Time
(‘‘ET’’) but prior to the MWCB Halt and,
if none, the prior trading day’s Nasdaq
Office Closing Price (‘‘NOCP’’). The
Exchange is not proposing to use the
LULD Auction Reference Price, which is
based on the Price Band that triggered
the Trading Pause, as the Exchange
believes that a different reference is
necessary for a re-opening process that
is unrelated to the LULD mechanism.
The Exchange has chosen to use the last
Nasdaq sale price prior to the MWCB
Halt (or if none, the prior trading day’s
NOCP) in this circumstance as this price
is reflective of the current market for the
halted security. The Exchange’s
proposal is similar to the current
implementation on Arca and BZX.14
Proposed Rule 4121(d)(1)(B) will
describe how the Exchange would
calculate the upper and lower ‘‘MWCB
Auction Collar’’ prices during the Initial
Display Period. Specifically, the initial
upper and lower collar prices would be
determined as follows:
• The lower MWCB Auction Collar is
derived by subtracting from the Auction
Reference Price 10% of the Auction
Reference Price, rounded to the nearest
minimum price increment,15 or in the
case of securities with an Auction
Reference Price of $5 or less, $0.50.
• The upper MWCB Auction Collar is
derived by adding to the Auction
Reference Price 10% of the Auction
Reference Price, rounded to the nearest
minimum price increment, or in the
case of securities with an Auction
Reference Price of $5 or less, $0.50.
In contrast, the initial price collar
thresholds currently used for the LULD
mechanism are applied only in the
direction of the trading that invoked the
Trading Pause.16 In this case, because
there would not be a security-specific
14 See Arca Rule 7.35–E(a)(8)(A) and BZX Rule
11.23(a)(9). See also SR–CboeBZX–2018–090 for
discussion of similarities between Arca’s and BZX’s
auction reference prices for non-LULD regulatory
halts. The Exchange’s proposed Auction Reference
Price for MWCB Halts is substantially similar to
Arca’s and BZX’s auction reference prices, except
the Exchange will use the last Nasdaq sale price
prior to the MWCB Halt, as described above. The
Exchange believes that it is appropriate to use the
price of a trade on the primary listing market, i.e.,
Nasdaq, to set the reference price for auctions in
Nasdaq listed securities when such a trade has been
executed recently.
15 The term ‘‘minimum price increment’’ means
$0.01 in the case of a System Security priced at $1
or more per share, and $0.0001 in the case of a
System Security priced at less than $1 per share.
See Rule 4107(k). Thus, for example, if adding 10%
of the Auction Reference Price to the MWCB
Auction Collar would result in a tenth of a penny,
the Exchange would round down to the nearest
penny when the calculation results in one to four
tenths of a penny, and the Exchange would round
up to the nearest penny when the calculation
results in five to nine tenths of a penny.
16 See Rule 4120(c)(10)(A)(ii).
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pricing direction reason for the MWCB
Halt, the Exchange believes that it is
appropriate to apply the initial
thresholds on both sides of the Auction
Reference Price. For example, if the
Nasdaq last sale price (either round or
odd lot) after 9:15 a.m. ET but prior to
the MWCB Halt for a security is
$100.00, then the lower and upper
initial MWCB Auction Collar prices
would be $90 and $110—i.e., 10%
below and above the Nasdaq last sale
price. This mirrors the application of
the initial halt auction collars on both
Arca and BZX today, except the
Exchange’s proposed MWCB Auction
Collar threshold amounts will be 10% of
the Auction Reference Price (or $0.50
for securities priced $5 or less).17 The
Exchange believes that the wider
parameters proposed for MWCB
Auction Collars are set at appropriate
levels that would allow the Exchange to
re-open trading in securities more
quickly while still reducing the
potential to re-open at a price that is
significantly away from the last traded
price of the security. Furthermore, the
Exchange has traditionally been a listing
venue for equity stocks, while Arca and
BZX have traditionally listed more
ETFs. ETFs track entire sectors, indices
or other groups of assets, which can
mute the effect of price volatility of the
ETF. The Exchange therefore believes
that the wider price bands proposed
herein strikes an appropriate balance
between allowing the Exchange to
return to normal continuous trading in
a measured, timely manner while
accommodating the potential higher
volatility of individual stocks.
Proposed Rules 4121(d)(2) and (d)(3)
will specify the circumstances when the
Exchange would extend the Display
Only Period for a MWCB Halt reopening process, and how the Exchange
would adjust the MWCB Auction
Collars for each extension. In particular,
at the conclusion of the Initial Display
Only Period, the security will be
released for trading unless, at the end of
the Initial Display Only Period, Nasdaq
detects an order imbalance in the
security.18 In that case, Nasdaq will
extend the Display Only Period for an
additional 5-minute period (‘‘Extended
Display Only Period’’), and the MWCB
17 Both Arca and BZX employ auction collar
thresholds identical to the parameters currently
used for LULD auction collars (i.e., 5% of the
auction reference price, or $0.15 for securities with
an auction reference price of $3 or less). See Arca
Rule 7.35–E(e)(7)(B)(ii) and BZX Rule
11.23(d)(2)(C)(i)(B).
18 As discussed below, an order imbalance under
the proposed re-opening process for MWCB Halts
will be established in the same manner as an order
imbalance under the current LULD re-opening
process as set forth in Rule 4120(c)(10)(E).
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Auction Collar prices will be adjusted as
follows:
• If the Display Only Period is
extended because the calculated price at
which the security would be released
for trading is below the lower MWCB
Auction Collar price or all sell market
orders would not be executed in the
cross, then the new lower MWCB
Auction Collar price is derived by
subtracting 10% of the Auction
Reference Price, which was rounded to
the nearest minimum price increment,
or in the case of securities with an
Auction Reference Price of $5 or less,
$0.50, from the previous lower MWCB
Auction Collar price, and the upper
MWCB Auction Collar price will not be
changed.
• If the Display Only Period is
extended because the calculated price at
which the security would be released
for trading is above the upper MWCB
Auction Collar price or all buy market
orders would not be executed in the
cross, then the new upper MWCB
Auction Collar price is derived by
adding 10% of the Auction Reference
Price, which was rounded to the nearest
minimum price increment, or in the
case of securities with an Auction
Reference Price of $5 or less, $0.50, to
the previous upper MWCB Auction
Collar price, and the lower MWCB
Auction Collar price will not be
changed.
At the conclusion of the Extended
Display Only Period, the security will
be released for trading unless, at the end
of the Extended Display Only Period,
Nasdaq detects an order imbalance in
the security. In that case, Nasdaq will
further extend the Display Only Period,
continuing to adjust the MWCB Auction
Collar prices every five minutes in the
manner described in Rule 4121(d)(2)
until the security is released for trading;
provided, however, that Nasdaq will not
adjust the MWCB Auction Collar prices
past 50% of the Auction Reference Price
for any security during any Extended
Display Only Period. During any
additional Extended Display Only
Period after the first Extended Display
Only Period, Nasdaq shall release the
security for trading at the first point
there is no order imbalance.
As proposed, the process for initiating
extensions of the Display Only Period
for a MWCB Halt auction will be
identical to the process currently used
for extending Trading Pauses, with only
two differences that relate to the
calculation of the auction collars. First,
for each extension period, the MWCB
Auction Collars would be widened in
the direction of the imbalance using the
wider parameters described above for
the initial MWCB Auction Collar (i.e.,
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by an additional 10% or $0.50 for
securities with an Auction Reference
Price of $5 or less) as opposed to the
parameters currently used to widen
LULD Auction Collars (i.e., by an
additional 5% or $0.15 for securities
with a reference price of $3 or less).
Second, the Exchange would not adjust
the MWCB Auction Collars past 50% of
the Auction Reference Price for any
security during any Extended Display
Only Period, whereas under the current
LULD mechanism, the price collars
would continue to be adjusted for each
extension period.19 For example, a
security with an Auction Reference
Price of $3 would have initial lower and
upper MWCB Auction Collar prices of
$2.50 and $3.50. If all buy market orders
would not be executed in the cross at
the end of the Initial Display Only
Period, the Exchange would extend the
Display Only Period and widen the
upper MWCB Auction Collar price to
$4.00. The lower MWCB Auction Collar
price would remain at $2.50. If there
continues to be any buy side imbalance
at the end of the first Extended Display
Only Period, the Exchange would
further adjust the upper collar price to
$4.50 (while keeping the lower collar at
$2.50) for the second extension period.
To the extent there are subsequent
Extended Display Only Periods to
accommodate buy side trading interest,
the Exchange would not adjust the
upper MWCB Auction Collar past $4.50
(i.e., 50% of the Auction Reference
Price), and would continue to use this
price threshold for the duration of the
MWCB Halt, until the security is
released for trading.
As mentioned above, unlike the
current implementation of auction
collars under LULD as well as similar
MWCB auction collars on Arca and
BZX, the Exchange will not adjust the
MWCB Auction Collars past 50% of the
Auction Reference Price. The Exchange
recognizes that the proposed 50% limit
for adjusting the MWCB Auction Collars
may prevent the transition to
continuous trading, particularly in
instances of extreme price volatility that
could result in increased Extended
Display Only Periods. On the other
hand, however, if there was no limit on
adjusting the price collars, there is
potential for extreme volatility resulting
in trades at prices far away from a
security’s fundamental value, ultimately
harming investors that are party to the
trade. The Exchange considered using
19 Thus as proposed, if the upper or lower MWCB
Auction Collar is already adjusted by 50% of the
Auction Reference Price for any extension period,
that price threshold will be used for the duration
of the MWCB Halt, until the security is released for
trading.
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an Auction Reference Price of $5 or less.
The Exchange believes that the
proposed language would bring greater
transparency to market participants in
how the Exchange would handle the
calculation of MWCB Auction Collars.
The Exchange also proposes to add
new paragraph (e) to Rule 4121 to
describe how the Exchange will handle
the publication of MWCB Halt
Information. Specifically, at the
beginning of the Initial Display Only
Period and continuing through the
resumption of trading, Nasdaq will
disseminate by electronic means an
Order Imbalance Indicator 22 every
second. The Exchange also proposes to
make a related change by adding new
Rule 4753(a)(3)(G), which will provide
that for purposes of a MWCB Halt
initiated pursuant to Rule 4121, the
Order Imbalance Indicator will include
Auction Reference Prices and MWCB
Auction Collars, as defined in Rule
4121(d).
The Exchange also proposes a number
of formatting clean-ups in Rule 4121. In
light of the above changes, Rule 4121(d)
will be renumbered as Rule 4121(f).
Finally, subparagraphs (i)–(iv) in Rule
4121(a) and subparagraphs (i)–(ii) in
Rule 4121(b) will be renumbered as
subparagraphs (1)–(4) and
subparagraphs (1)–(2), respectively, for
greater consistency with the Rulebook.
the same logic as currently implemented
under the LULD mechanism (i.e., where
there is no limit on adjusting the price
collars) and ultimately determined not
to align its proposal in this manner. The
Exchange believes that it may be more
appropriate to continue adjusting price
collars in the context of LULD where
trading is halted due to a period of
extraordinary volatility in a single
security (as opposed to all securities
under a MWCB Halt) because there may
be instances of a discrete event (such as
the announcement of material news)
that ultimately impacts the value of the
individual security. A MWCB Halt,
however, will be triggered during a
period of significant volatility across
markets that may not correlate to the
fundamental value of a single security.
As such, the Exchange believes that by
proposing to adjust the MWCB Auction
Collars up to 50% of the Auction
Reference Price, an appropriate balance
can be achieved in favor of preventing
extraordinary volatility that could result
in significant price disparity in postauction trading.
Proposed Rule 4121(d)(4) will specify
that an order imbalance would be
established for purposes of the process
under Rule 4121 as follows: 20
• The calculated price at which the
security would be released for trading is
above (below) the upper (lower) MWCB
Auction Collar price calculated under
paragraphs (1), (2), or (3) of Rule
4121(d); or
• all market orders would not be
executed in the cross.
Proposed Rule 4121(d)(5) will
describe how the MWCB Auction
Collars will function in the event of
more than one trading halt initiated
under Rule 4121 in the same day. In the
event of a Level 2 Market Decline while
a security is in a Level 1 MWCB Halt
and has not been released for trading,
Nasdaq will recalculate the lower and
upper MWCB Auction Collar prices in
the particular security in accordance
with paragraph (1)(B) of Rule 4121.21 In
this instance, the Exchange will start the
calculation of the new upper and lower
MWCB Auction Collar prices using 10%
of the Auction Reference Price, rounded
to the nearest minimum price
increment, or $0.50 for securities with
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,23 in general, and furthers the
objectives of Section 6(b)(5) of the Act,24
in particular, in that it is 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, in general to protect
investors and the public interest.
The Exchange believes that the
proposed rule change is consistent with
the Act because it would amend the halt
auction process following a MWCB Halt
to be more closely aligned with the
process currently implemented for halt
auctions following a Trading Pause
under the LULD Plan. The Exchange
amended its re-opening process
following a Trading Pause to better
20 This is the same manner in which an order
imbalance is established under the current reopening process for Trading Pauses. See Rule
4120(c)(10)(E).
21 As currently provided in Rule 4121(b)(i), the
Exchange would halt trading based on a Level 1 or
Level 2 Market Decline only once per day. Thus for
example, if a Level 1 Market Decline were to occur
and trading were halted, following the re-opening
of trading, the Exchange would not halt the market
again unless a Level 2 Market Decline were to
occur.
22 As described in Rule 4753(a)(3), an ‘‘Order
Imbalance Indicator’’ is 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.
‘‘Eligible Interest’’ is defined as any quotation or
any order that has been entered into the system and
designated with a time-in-force that would allow
the order to be in force at the time of the Halt Cross.
See Rule 4753(a)(5).
23 15 U.S.C. 78f(b).
24 15 U.S.C. 78f(b)(5).
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Federal Register / Vol. 84, No. 143 / Thursday, July 25, 2019 / Notices
account for buy or sell pressure by
changing the manner in which initial
LULD Auction Collars are established,
and widening the collars as appropriate
to accommodate trading interest
submitted to participate in the auction.
The Exchange believes that these
changes have been generally successful
in facilitating a fair and orderly process
for re-opening securities following a
Trading Pause. The Exchange has
therefore decided to use a similar
process for halt auctions following a
MWCB Halt. The Exchange believes that
its proposal would benefit investors by
facilitating price discovery and
promoting more consistency in how the
Exchange conducts the re-opening
process following a Trading Pause or a
MWCB Halt.
While the proposed re-opening
process following MWCB Halts would
largely follow the re-opening process in
place today for Trading Pauses, there
would be several notable differences.
These differences are primarily
designed to ensure that suitable MWCB
Auction Collars are utilized for the reopening process following MWCB Halts.
For instance, while an Auction
Reference Price based on the Price Band
that triggered the Trading Pause
continues to be appropriate in the
context of the re-opening process
following Trading Pauses, the Exchange
believes that a different reference is
necessary for the re-opening process for
MWCB Halts. The Exchange has chosen
to use the Nasdaq last sale price and, if
none, the prior trading day’s NOCP as
the MWCB Auction Reference Price in
these circumstances as this price is
reflective of the current market for the
halted security. Similarly, the Exchange
believes that it is appropriate to
calculate both upper and lower MWCB
Auction Collars that are a specified
percentage or dollar amount from this
reference price because MWCB Halts do
not involve security specific buy or sell
pressure. These differences are similar
to the application of MWCB Auction
Collars on Arca and BZX today, except
for the parameters used to calculate the
price collars.25 The Exchange believes
that the wider parameters of 10%
increments (or $0.50 for securities
priced at $5 or less) proposed above for
MWCB Auction Collars when compared
to the parameters of 5% increments (or
$0.15 for securities priced at $3 or less)
currently used to calculate the LULD
Auction Collars are set at appropriate
levels that would allow the Exchange to
re-open trading in securities more
quickly while still reducing the
25 See supra notes 14 and 17 above, with
accompanying text.
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potential for re-opening at a price that
is significantly away from the last
traded price of the security.
Furthermore, the Exchange believes that
it is appropriate to stop widening the
MWCB Auction Collar prices past 50%
of the Auction Reference Price to ensure
that upon the resumption of trading
after an MWCB Halt, the security is
priced at a reasonable level from the
Auction Reference Price.26
Otherwise, the proposed re-opening
process for MWCB Halts is consistent
with the current LULD re-opening
process. Similar to the current LULD reopening process, the Exchange also
believes that the proposed process is
consistent with the protection of
investors and the public interest
because they are designed to facilitate
price discovery by ensuring that all
market order interest could be satisfied
in the auction process following MWCB
Halts. Furthermore, the Exchange
believes that the standardized
procedures to extend MWCB Halt
auctions an additional five minutes are
appropriate because this would provide
additional time to attract offsetting
liquidity. If at the end of such extension,
market orders still cannot be cannot be
satisfied within the applicable collars,
or if the re-opening price would be
outside of the applicable collars, the
Exchange would extend the halt auction
process an additional five minutes. The
Exchange believes that extending the
auction in these circumstances would
protect investors and the public interest
by reducing the potential for significant
price disparity in post-auction trading.
With each such extension, the Exchange
believes that it is appropriate to widen
the price collar threshold on the side of
the market on which there is buying or
selling pressure as market conditions
may prevent an order imbalance from
being resolved within the prior auction
collars.
The Exchange also believes it is
appropriate to add language clarifying
how the MWCB Auction Collars will
function in the event of more than one
trading halt initiated under Rule 4121 in
the same day. The proposed changes
would increase transparency in how the
Exchange would handle the calculation
of MWCB Auction Collars, and is
therefore consistent with the public
interest and the protection of investors.
The Exchange likewise believes that
specifying how it will handle the
26 As noted above, this is different from the
current implementation of the price collars under
the LULD mechanism where the price collars
continue to be adjusted for each extension period.
This also differs from the current implementation
of non-LULD price collars on Arca and BZX, which
both mirror the LULD process in this respect.
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publication of MWCB Halt information
will bring greater transparency around
the operation of the Exchange’s auction
process.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed rule change is designed to
provide for a measured and transparent
process for re-opening Nasdaq listed
securities after a MWCB Halt that is
similar to the current re-opening process
following a Trading Pause initiated
under the LULD Plan and the process
already implemented on Arca and BZX
for non-LULD regulatory halts.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NASDAQ–2019–057 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
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Federal Register / Vol. 84, No. 143 / Thursday, July 25, 2019 / Notices
All submissions should refer to File
Number SR–NASDAQ–2019–057. 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 website (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 website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly.
All submissions should refer to File
Number SR–NASDAQ–2019–057 and
should be submitted on or before
August 15, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–15776 Filed 7–24–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
jspears on DSK30JT082PROD with NOTICES
[Release No. 34–86415; File No. SR—
CboeEDGX–2019–046]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change Relating To
Update Rule 16.1 To Include the
Definition of Capacity, as well as
Amend Its Fee Schedule To Reflect
This Update
July 19, 2019.
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on July 17,
2019, Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Exchange filed the proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of
the Act 3 and Rule 19b–4(f)(6)
thereunder.4 The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX Options’’)
proposes to update Rule 16.1 to include
the definition of capacity, as well as
amend its fee schedule to reflect this
update. The text of the proposed rule
change is provided in Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
options/regulation/rule_filings/edgx/),
at the Exchange’s Office of the
Secretary, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change 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 add
‘‘capacity’’ as a defined term under Rule
16.1 (Definitions). The proposed change
intends to codify the definition of
capacity in it rules, which is currently
referenced in its technical
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
27 17
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
2 17
CFR 200.30–3(a)(12).
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35905
specifications 5 and in certain rules. 6
This proposed change is also a
harmonizing change intended to
conform to the capacity definition under
the rules of its affiliated exchange, Cboe
C2 Exchange, Inc. (‘‘C2’’). The Exchange
also proposes to update a term under
Rule 20.7 (Audit Trail) to reflect the
proposed capacity definition. In
addition to this, the Exchange proposes
to conform certain definitions under its
fee schedule to this proposed definition.
Currently, the System 7 allows for a
User to mark its order with various
capacity codes which correspond to the
capacity of the User (i.e., a customer, a
Market Maker, etc.),8 and, pursuant to
current Exchange Rules, Users are
required to submit orders with the
proper capacity identification.9 The
current Exchange Rules, however, do
not provide for a specific definition of
the capacity in which a User may
submit an order nor for the
corresponding codes for different User
capacity types. Additionally, the current
fee schedule provides that a Member’s
transaction is assigned a fee code and
defines the various types (i.e., capacity
type) of Members to which the
corresponding fee codes are assigned.
Specifically, the Member type
definitions apply to any transaction
identified by such Member. For
example, ‘‘Market Maker’’ applies to any
transaction identified by a Member for
clearing in the Market Maker range at
the OCC, where such Member is
registered with the Exchange as a
Market Maker.
The Exchange now proposes to amend
Rule 16.1 to codify the definition of
‘‘capacity’’. The Exchange proposes to
define ‘‘capacity’’ to mean the capacity
in which a User submits an order,
which the User specifies by applying
the corresponding code to the order.
The proposed corresponding codes and
capacity types include: ‘‘B’’ to an order
for the account of a broker dealer,
including a foreign broker dealer; ‘‘C’’ to
an order for the account of a Priority
Customer; ‘‘F’’ to an order for the
proprietary account of an OCC clearing
member firm; ‘‘J’’ to an order for a joint
back office account; ‘‘M’’ to an order for
the account of a registered Market
5 See Cboe Options Exchanges Binary Order Entry
Specification, available at https://
cdn.batstrading.com/resources/membership/US_
Options_BOE_Specification.pdf.
6 See Rule 18.2, Rule 20.7(b), and Rule 21.10.
7 The automated trading system used by EDGX
Options for the trading of options contracts. See
Rule 16.1.
8 See Cboe Options Exchanges Binary Order Entry
Specification, available at https://
cdn.batstrading.com/resources/membership/US_
Options_BOE_Specification.pdf.
9 See Rule 20.7.
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]]>Agencies
[Federal Register Volume 84, Number 143 (Thursday, July 25, 2019)]
[Notices]
[Pages 35900-35905]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-15776]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86412; File No. SR-NASDAQ-2019-057]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Proposed Rule Change To Amend Rule 4121
July 19, 2019.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on July 16, 2019, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I and II below, which Items have been prepared by the Exchange.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rule 4121 (Trading Halts Due to
Extraordinary Market Volatility) to enhance the re-opening auction
process for Nasdaq listed securities following trading halts due to
extraordinary market volatility.
The text of the proposed rule change is available on the Exchange's
website at https://nasdaq.cchwallstreet.com, at the principal office of
the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change 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 purpose of the proposed rule change is to amend the re-opening
auction process for Nasdaq listed securities following trading halts
due to extraordinary market volatility (i.e., ``market-wide circuit
breakers'') to be similar to the process currently employed following a
Trading Pause initiated pursuant to the Plan to Address Extraordinary
Market Volatility (i.e., the ``Limit Up-Limit Down'' or ``LULD'' Plan).
In 2017, the Exchange amended its auction process for re-opening a
Nasdaq listed security following a Trading Pause initiated pursuant to
the LULD Plan.\3\ Specifically, the Exchange modified its rules such
that initial Auction Collars following a Trading Pause would be
calculated using a new methodology based on the Price Band that
triggered the Trading Pause, and instituted the process for extending
the auction and
[[Page 35901]]
further widening the collars if necessary to accommodate buy or sell
pressure outside of the collars then in effect. The Exchange believes
that these changes have been effective in facilitating a fair and
orderly market following Trading Pauses initiated pursuant to the Limit
Up-Limit Down Plan, and has decided to implement similar functionality
for trading halts in Nasdaq listed securities following the initiation
of market-wide circuit breakers.\4\ The Exchange believes that the
proposed changes would promote price formation and provide a more
consistent re-opening process for members and investors following such
trading halts, similar to the current implementation on NYSE Arca, Inc.
(``Arca'') and Cboe BZX Exchange, Inc. (``BZX'').\5\
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 79876 (January 25,
2017), 82 FR 8888 (January 31, 2017) (SR-NASDAQ-2016-131).
\4\ A market-wide circuit breaker is triggered if the price of
the S&P 500 Index declines by a specified amount compared to the
closing price for the immediately preceding trading day. See Rule
4121.
\5\ Both Arca and BZX implemented similar processes for resuming
trading following non-LULD regulatory halts (which include trading
halts following market-wide circuit breakers). See Securities
Exchange Act Release Nos. 79846 (January 19, 2017), 82 FR 8548
(January 26, 2017) (SR-NYSEArca-2016-130); and 84927 (December 21,
2018), 83 FR 67768 (December 31, 2018) (SR-CboeBZX-2018-090).
---------------------------------------------------------------------------
Today, trading in Nasdaq listed securities would resume on the
Exchange in most cases through a Halt Cross,\6\ including after a Level
1 or Level 2 market-wide circuit breaker trading halt initiated under
Rule 4121. In particular, Rule 4121(c)(i) provides that the re-opening
of trading following a Level 1 or Level 2 trading halt shall follow the
procedures set forth in Rule 4120. These procedures are in Rule
4120(c)(7), which provides, in relevant part, for a 5-minute Display
Only Period during which market participants may enter quotes and
orders in Nasdaq systems, at the conclusion of which trading will
immediately resume through the Halt Cross under Rule 4753.\7\
Additionally, the Exchange will extend the Display Only Period for an
additional 1-minute period if there is volatility during the Display
Only Period (i.e., an order imbalance in the security). The volatility
checks are governed under Rule 4120(c)(7)(C)(1) and (2), and provides
that the Display Only Period will be extended if: (i) The expected
cross price moves the greater of 5% or 50 cents, or (ii) all market
orders will not be executed in the cross. The Exchange now proposes to
amend this process such that for the resumption of trading after a
Level 1 or Level 2 market-wide circuit breaker trading halt, the
Exchange proposes to instead follow a process similar to that currently
applied for releasing a security following a Trading Pause initiated
under the LULD Plan, which is described in Rule 4120(c)(10).
---------------------------------------------------------------------------
\6\ The Halt Cross process is set forth in Rule 4753. As
discussed in more detail later in this filing, the Halt Cross does
not apply to the re-opening of a Nasdaq listed security following a
Trading Pause initiated under the LULD Plan, which instead re-opens
pursuant to Rule 4120(c)(10).
\7\ The Exchange would then re-open the Nasdaq listed security
that was subject to the Level 1 or Level 2 market-wide circuit
breaker trading halt at an execution price determined pursuant to
the execution algorithm in Rule 4753(b)(2)(A)-(D), which sets forth
a series of tie-breakers for selecting the execution price of the
Halt Cross.
---------------------------------------------------------------------------
Rule 4120(c)(10), which describes the current process for resuming
trading after a Trading Pause, provides for an initial auction period
and additional auction periods with widening price collars should the
security fail to conclude each auction period. For any such security
listed on Nasdaq, prior to terminating the pause, there is a 5-minute
initial Display Only Period during which market participants may enter
quotations and orders in that security in Nasdaq systems. During this
initial period, the Exchange also establishes the auction reference
price (hereinafter ``LULD Auction Reference Price''),\8\ as well as the
upper and lower auction collar (hereinafter, ``LULD Auction Collar'')
prices.\9\ The security is released at the end of the initial Display
Only Period unless the Exchange detects an order imbalance \10\ in the
security, in which case the initial Display Only Period is extended for
an additional five minutes, and the LULD Auction Collar prices are
further widened by 5% increments (or $0.15 for securities with a LULD
Auction Reference Price of $3 or less) in the direction of the order
imbalance.\11\ At the end of the first extended Display Only Period,
the security is released for trading unless there is an order imbalance
in the security, in which case the extended Display Only Period will be
further extended every five minutes in the manner described in Rule
4120(c)(10)(B) until the security is released for trading. The security
is released for trading at the first point there is no order imbalance.
---------------------------------------------------------------------------
\8\ See Rule 4120(c)(10)(A)(i).
\9\ See Rule 4120(c)(10)(A)(ii). In contrast, price collars
would not be established for re-opening a Nasdaq listed security
after a Level 1 or Level 2 market-wide circuit breaker trading halt
today. As noted above, the Exchange would instead re-open at an
execution price determined pursuant to the execution algorithm in
Rule 4753(b)(2)(A)-(D). See supra note 8.
\10\ For purposes of Rule 4120(c)(10), an order imbalance is
established if: (i) The calculated price at which the security would
be released for trading is outside the applicable Auction Collar
prices calculated under paragraphs (A), (B), or (C) of Rule
4120(c)(10); or (ii) all market orders would not be executed in the
cross. See Rule 4120(c)(10)(E).
\11\ See Rule 4120(c)(10)(B).
---------------------------------------------------------------------------
Proposal
The Exchange now proposes to implement this process for resuming
trading following a market-wide circuit breaker under Rule 4121 as
well. As noted above, the current re-opening process for a Level 1 or
Level 2 trading halt initiated under Rule 4121 does not have a
mechanism for calculating price collars and a process for widening the
collars if necessary to accommodate buy or sell pressure outside of the
collars then in effect. The Exchange therefore believes that its
proposal will facilitate a fair and orderly market following such
trading halts initiated pursuant to a Level 1 or Level 2 market-wide
circuit breaker that is designed to reduce the potential for
significant price disparity in post-auction trading. The proposed
process for re-opening a Nasdaq listed security under Rule 4121 would
be substantially similar to the re-opening process employed today for
Trading Pauses under Rule 4120(c)(10), with certain differences
discussed below, primarily related to the calculation of the halt
auction collars.
Accordingly, the Exchange will provide in new paragraph (d) to Rule
4121 that a Level 1 or Level 2 trading halt initiated under this Rule
(``MWCB Halt'') shall be terminated when Nasdaq releases the security
for trading.\12\ For any such security listed on Nasdaq, prior to
terminating the MWCB Halt, there will be a 15-minute ``Initial Display
Only Period'' during which market participants may enter quotations and
orders in that security in Nasdaq systems. The Initial Display Only
Period will be 15 minutes in duration instead of the 5 minute initial
display only period currently employed for Trading Pauses under Rule
4120(c)(10) to coincide with the entire duration of a MWCB Halt.\13\
The Exchange believes that the proposed Initial Display Only Period
would provide additional time to attract offsetting interest, and would
help address order imbalances that may not be resolved within the
current 5-minute period.
---------------------------------------------------------------------------
\12\ Rule 4121(c)(i) currently points to Rule 4120 for the re-
opening process following a MWCB Halt. The new re-opening process
will be set forth in proposed Rule 4121(d), so the Exchange will
delete this portion from the current Rule.
\13\ See Rule 4121(b).
---------------------------------------------------------------------------
Proposed Rule 4121(d)(1)(A) will provide that during the Initial
Display Only Period, the Exchange will also establish the ``Auction
Reference Price.'' The Auction Reference Price shall mean the Nasdaq
last sale price (either round
[[Page 35902]]
or odd lot) after 9:15 a.m. Eastern Time (``ET'') but prior to the MWCB
Halt and, if none, the prior trading day's Nasdaq Office Closing Price
(``NOCP''). The Exchange is not proposing to use the LULD Auction
Reference Price, which is based on the Price Band that triggered the
Trading Pause, as the Exchange believes that a different reference is
necessary for a re-opening process that is unrelated to the LULD
mechanism. The Exchange has chosen to use the last Nasdaq sale price
prior to the MWCB Halt (or if none, the prior trading day's NOCP) in
this circumstance as this price is reflective of the current market for
the halted security. The Exchange's proposal is similar to the current
implementation on Arca and BZX.\14\
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\14\ See Arca Rule 7.35-E(a)(8)(A) and BZX Rule 11.23(a)(9). See
also SR-CboeBZX-2018-090 for discussion of similarities between
Arca's and BZX's auction reference prices for non-LULD regulatory
halts. The Exchange's proposed Auction Reference Price for MWCB
Halts is substantially similar to Arca's and BZX's auction reference
prices, except the Exchange will use the last Nasdaq sale price
prior to the MWCB Halt, as described above. The Exchange believes
that it is appropriate to use the price of a trade on the primary
listing market, i.e., Nasdaq, to set the reference price for
auctions in Nasdaq listed securities when such a trade has been
executed recently.
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Proposed Rule 4121(d)(1)(B) will describe how the Exchange would
calculate the upper and lower ``MWCB Auction Collar'' prices during the
Initial Display Period. Specifically, the initial upper and lower
collar prices would be determined as follows:
The lower MWCB Auction Collar is derived by subtracting
from the Auction Reference Price 10% of the Auction Reference Price,
rounded to the nearest minimum price increment,\15\ or in the case of
securities with an Auction Reference Price of $5 or less, $0.50.
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\15\ The term ``minimum price increment'' means $0.01 in the
case of a System Security priced at $1 or more per share, and
$0.0001 in the case of a System Security priced at less than $1 per
share. See Rule 4107(k). Thus, for example, if adding 10% of the
Auction Reference Price to the MWCB Auction Collar would result in a
tenth of a penny, the Exchange would round down to the nearest penny
when the calculation results in one to four tenths of a penny, and
the Exchange would round up to the nearest penny when the
calculation results in five to nine tenths of a penny.
---------------------------------------------------------------------------
The upper MWCB Auction Collar is derived by adding to the
Auction Reference Price 10% of the Auction Reference Price, rounded to
the nearest minimum price increment, or in the case of securities with
an Auction Reference Price of $5 or less, $0.50.
In contrast, the initial price collar thresholds currently used for
the LULD mechanism are applied only in the direction of the trading
that invoked the Trading Pause.\16\ In this case, because there would
not be a security-specific pricing direction reason for the MWCB Halt,
the Exchange believes that it is appropriate to apply the initial
thresholds on both sides of the Auction Reference Price. For example,
if the Nasdaq last sale price (either round or odd lot) after 9:15 a.m.
ET but prior to the MWCB Halt for a security is $100.00, then the lower
and upper initial MWCB Auction Collar prices would be $90 and $110--
i.e., 10% below and above the Nasdaq last sale price. This mirrors the
application of the initial halt auction collars on both Arca and BZX
today, except the Exchange's proposed MWCB Auction Collar threshold
amounts will be 10% of the Auction Reference Price (or $0.50 for
securities priced $5 or less).\17\ The Exchange believes that the wider
parameters proposed for MWCB Auction Collars are set at appropriate
levels that would allow the Exchange to re-open trading in securities
more quickly while still reducing the potential to re-open at a price
that is significantly away from the last traded price of the security.
Furthermore, the Exchange has traditionally been a listing venue for
equity stocks, while Arca and BZX have traditionally listed more ETFs.
ETFs track entire sectors, indices or other groups of assets, which can
mute the effect of price volatility of the ETF. The Exchange therefore
believes that the wider price bands proposed herein strikes an
appropriate balance between allowing the Exchange to return to normal
continuous trading in a measured, timely manner while accommodating the
potential higher volatility of individual stocks.
---------------------------------------------------------------------------
\16\ See Rule 4120(c)(10)(A)(ii).
\17\ Both Arca and BZX employ auction collar thresholds
identical to the parameters currently used for LULD auction collars
(i.e., 5% of the auction reference price, or $0.15 for securities
with an auction reference price of $3 or less). See Arca Rule 7.35-
E(e)(7)(B)(ii) and BZX Rule 11.23(d)(2)(C)(i)(B).
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Proposed Rules 4121(d)(2) and (d)(3) will specify the circumstances
when the Exchange would extend the Display Only Period for a MWCB Halt
re-opening process, and how the Exchange would adjust the MWCB Auction
Collars for each extension. In particular, at the conclusion of the
Initial Display Only Period, the security will be released for trading
unless, at the end of the Initial Display Only Period, Nasdaq detects
an order imbalance in the security.\18\ In that case, Nasdaq will
extend the Display Only Period for an additional 5-minute period
(``Extended Display Only Period''), and the MWCB Auction Collar prices
will be adjusted as follows:
---------------------------------------------------------------------------
\18\ As discussed below, an order imbalance under the proposed
re-opening process for MWCB Halts will be established in the same
manner as an order imbalance under the current LULD re-opening
process as set forth in Rule 4120(c)(10)(E).
---------------------------------------------------------------------------
If the Display Only Period is extended because the
calculated price at which the security would be released for trading is
below the lower MWCB Auction Collar price or all sell market orders
would not be executed in the cross, then the new lower MWCB Auction
Collar price is derived by subtracting 10% of the Auction Reference
Price, which was rounded to the nearest minimum price increment, or in
the case of securities with an Auction Reference Price of $5 or less,
$0.50, from the previous lower MWCB Auction Collar price, and the upper
MWCB Auction Collar price will not be changed.
If the Display Only Period is extended because the
calculated price at which the security would be released for trading is
above the upper MWCB Auction Collar price or all buy market orders
would not be executed in the cross, then the new upper MWCB Auction
Collar price is derived by adding 10% of the Auction Reference Price,
which was rounded to the nearest minimum price increment, or in the
case of securities with an Auction Reference Price of $5 or less,
$0.50, to the previous upper MWCB Auction Collar price, and the lower
MWCB Auction Collar price will not be changed.
At the conclusion of the Extended Display Only Period, the security
will be released for trading unless, at the end of the Extended Display
Only Period, Nasdaq detects an order imbalance in the security. In that
case, Nasdaq will further extend the Display Only Period, continuing to
adjust the MWCB Auction Collar prices every five minutes in the manner
described in Rule 4121(d)(2) until the security is released for
trading; provided, however, that Nasdaq will not adjust the MWCB
Auction Collar prices past 50% of the Auction Reference Price for any
security during any Extended Display Only Period. During any additional
Extended Display Only Period after the first Extended Display Only
Period, Nasdaq shall release the security for trading at the first
point there is no order imbalance.
As proposed, the process for initiating extensions of the Display
Only Period for a MWCB Halt auction will be identical to the process
currently used for extending Trading Pauses, with only two differences
that relate to the calculation of the auction collars. First, for each
extension period, the MWCB Auction Collars would be widened in the
direction of the imbalance using the wider parameters described above
for the initial MWCB Auction Collar (i.e.,
[[Page 35903]]
by an additional 10% or $0.50 for securities with an Auction Reference
Price of $5 or less) as opposed to the parameters currently used to
widen LULD Auction Collars (i.e., by an additional 5% or $0.15 for
securities with a reference price of $3 or less). Second, the Exchange
would not adjust the MWCB Auction Collars past 50% of the Auction
Reference Price for any security during any Extended Display Only
Period, whereas under the current LULD mechanism, the price collars
would continue to be adjusted for each extension period.\19\ For
example, a security with an Auction Reference Price of $3 would have
initial lower and upper MWCB Auction Collar prices of $2.50 and $3.50.
If all buy market orders would not be executed in the cross at the end
of the Initial Display Only Period, the Exchange would extend the
Display Only Period and widen the upper MWCB Auction Collar price to
$4.00. The lower MWCB Auction Collar price would remain at $2.50. If
there continues to be any buy side imbalance at the end of the first
Extended Display Only Period, the Exchange would further adjust the
upper collar price to $4.50 (while keeping the lower collar at $2.50)
for the second extension period. To the extent there are subsequent
Extended Display Only Periods to accommodate buy side trading interest,
the Exchange would not adjust the upper MWCB Auction Collar past $4.50
(i.e., 50% of the Auction Reference Price), and would continue to use
this price threshold for the duration of the MWCB Halt, until the
security is released for trading.
---------------------------------------------------------------------------
\19\ Thus as proposed, if the upper or lower MWCB Auction Collar
is already adjusted by 50% of the Auction Reference Price for any
extension period, that price threshold will be used for the duration
of the MWCB Halt, until the security is released for trading.
---------------------------------------------------------------------------
As mentioned above, unlike the current implementation of auction
collars under LULD as well as similar MWCB auction collars on Arca and
BZX, the Exchange will not adjust the MWCB Auction Collars past 50% of
the Auction Reference Price. The Exchange recognizes that the proposed
50% limit for adjusting the MWCB Auction Collars may prevent the
transition to continuous trading, particularly in instances of extreme
price volatility that could result in increased Extended Display Only
Periods. On the other hand, however, if there was no limit on adjusting
the price collars, there is potential for extreme volatility resulting
in trades at prices far away from a security's fundamental value,
ultimately harming investors that are party to the trade. The Exchange
considered using the same logic as currently implemented under the LULD
mechanism (i.e., where there is no limit on adjusting the price
collars) and ultimately determined not to align its proposal in this
manner. The Exchange believes that it may be more appropriate to
continue adjusting price collars in the context of LULD where trading
is halted due to a period of extraordinary volatility in a single
security (as opposed to all securities under a MWCB Halt) because there
may be instances of a discrete event (such as the announcement of
material news) that ultimately impacts the value of the individual
security. A MWCB Halt, however, will be triggered during a period of
significant volatility across markets that may not correlate to the
fundamental value of a single security. As such, the Exchange believes
that by proposing to adjust the MWCB Auction Collars up to 50% of the
Auction Reference Price, an appropriate balance can be achieved in
favor of preventing extraordinary volatility that could result in
significant price disparity in post-auction trading.
Proposed Rule 4121(d)(4) will specify that an order imbalance would
be established for purposes of the process under Rule 4121 as follows:
\20\
---------------------------------------------------------------------------
\20\ This is the same manner in which an order imbalance is
established under the current re-opening process for Trading Pauses.
See Rule 4120(c)(10)(E).
---------------------------------------------------------------------------
The calculated price at which the security would be
released for trading is above (below) the upper (lower) MWCB Auction
Collar price calculated under paragraphs (1), (2), or (3) of Rule
4121(d); or
all market orders would not be executed in the cross.
Proposed Rule 4121(d)(5) will describe how the MWCB Auction Collars
will function in the event of more than one trading halt initiated
under Rule 4121 in the same day. In the event of a Level 2 Market
Decline while a security is in a Level 1 MWCB Halt and has not been
released for trading, Nasdaq will recalculate the lower and upper MWCB
Auction Collar prices in the particular security in accordance with
paragraph (1)(B) of Rule 4121.\21\ In this instance, the Exchange will
start the calculation of the new upper and lower MWCB Auction Collar
prices using 10% of the Auction Reference Price, rounded to the nearest
minimum price increment, or $0.50 for securities with an Auction
Reference Price of $5 or less. The Exchange believes that the proposed
language would bring greater transparency to market participants in how
the Exchange would handle the calculation of MWCB Auction Collars.
---------------------------------------------------------------------------
\21\ As currently provided in Rule 4121(b)(i), the Exchange
would halt trading based on a Level 1 or Level 2 Market Decline only
once per day. Thus for example, if a Level 1 Market Decline were to
occur and trading were halted, following the re-opening of trading,
the Exchange would not halt the market again unless a Level 2 Market
Decline were to occur.
---------------------------------------------------------------------------
The Exchange also proposes to add new paragraph (e) to Rule 4121 to
describe how the Exchange will handle the publication of MWCB Halt
Information. Specifically, at the beginning of the Initial Display Only
Period and continuing through the resumption of trading, Nasdaq will
disseminate by electronic means an Order Imbalance Indicator \22\ every
second. The Exchange also proposes to make a related change by adding
new Rule 4753(a)(3)(G), which will provide that for purposes of a MWCB
Halt initiated pursuant to Rule 4121, the Order Imbalance Indicator
will include Auction Reference Prices and MWCB Auction Collars, as
defined in Rule 4121(d).
---------------------------------------------------------------------------
\22\ As described in Rule 4753(a)(3), an ``Order Imbalance
Indicator'' is 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.
``Eligible Interest'' is defined as any quotation or any order
that has been entered into the system and designated with a time-in-
force that would allow the order to be in force at the time of the
Halt Cross. See Rule 4753(a)(5).
---------------------------------------------------------------------------
The Exchange also proposes a number of formatting clean-ups in Rule
4121. In light of the above changes, Rule 4121(d) will be renumbered as
Rule 4121(f). Finally, subparagraphs (i)-(iv) in Rule 4121(a) and
subparagraphs (i)-(ii) in Rule 4121(b) will be renumbered as
subparagraphs (1)-(4) and subparagraphs (1)-(2), respectively, for
greater consistency with the Rulebook.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\23\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\24\ in particular, in that it is 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, in general to protect investors and the public
interest.
---------------------------------------------------------------------------
\23\ 15 U.S.C. 78f(b).
\24\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change is consistent
with the Act because it would amend the halt auction process following
a MWCB Halt to be more closely aligned with the process currently
implemented for halt auctions following a Trading Pause under the LULD
Plan. The Exchange amended its re-opening process following a Trading
Pause to better
[[Page 35904]]
account for buy or sell pressure by changing the manner in which
initial LULD Auction Collars are established, and widening the collars
as appropriate to accommodate trading interest submitted to participate
in the auction. The Exchange believes that these changes have been
generally successful in facilitating a fair and orderly process for re-
opening securities following a Trading Pause. The Exchange has
therefore decided to use a similar process for halt auctions following
a MWCB Halt. The Exchange believes that its proposal would benefit
investors by facilitating price discovery and promoting more
consistency in how the Exchange conducts the re-opening process
following a Trading Pause or a MWCB Halt.
While the proposed re-opening process following MWCB Halts would
largely follow the re-opening process in place today for Trading
Pauses, there would be several notable differences. These differences
are primarily designed to ensure that suitable MWCB Auction Collars are
utilized for the re-opening process following MWCB Halts. For instance,
while an Auction Reference Price based on the Price Band that triggered
the Trading Pause continues to be appropriate in the context of the re-
opening process following Trading Pauses, the Exchange believes that a
different reference is necessary for the re-opening process for MWCB
Halts. The Exchange has chosen to use the Nasdaq last sale price and,
if none, the prior trading day's NOCP as the MWCB Auction Reference
Price in these circumstances as this price is reflective of the current
market for the halted security. Similarly, the Exchange believes that
it is appropriate to calculate both upper and lower MWCB Auction
Collars that are a specified percentage or dollar amount from this
reference price because MWCB Halts do not involve security specific buy
or sell pressure. These differences are similar to the application of
MWCB Auction Collars on Arca and BZX today, except for the parameters
used to calculate the price collars.\25\ The Exchange believes that the
wider parameters of 10% increments (or $0.50 for securities priced at
$5 or less) proposed above for MWCB Auction Collars when compared to
the parameters of 5% increments (or $0.15 for securities priced at $3
or less) currently used to calculate the LULD Auction Collars are set
at appropriate levels that would allow the Exchange to re-open trading
in securities more quickly while still reducing the potential for re-
opening at a price that is significantly away from the last traded
price of the security. Furthermore, the Exchange believes that it is
appropriate to stop widening the MWCB Auction Collar prices past 50% of
the Auction Reference Price to ensure that upon the resumption of
trading after an MWCB Halt, the security is priced at a reasonable
level from the Auction Reference Price.\26\
---------------------------------------------------------------------------
\25\ See supra notes 14 and 17 above, with accompanying text.
\26\ As noted above, this is different from the current
implementation of the price collars under the LULD mechanism where
the price collars continue to be adjusted for each extension period.
This also differs from the current implementation of non-LULD price
collars on Arca and BZX, which both mirror the LULD process in this
respect.
---------------------------------------------------------------------------
Otherwise, the proposed re-opening process for MWCB Halts is
consistent with the current LULD re-opening process. Similar to the
current LULD re-opening process, the Exchange also believes that the
proposed process is consistent with the protection of investors and the
public interest because they are designed to facilitate price discovery
by ensuring that all market order interest could be satisfied in the
auction process following MWCB Halts. Furthermore, the Exchange
believes that the standardized procedures to extend MWCB Halt auctions
an additional five minutes are appropriate because this would provide
additional time to attract offsetting liquidity. If at the end of such
extension, market orders still cannot be cannot be satisfied within the
applicable collars, or if the re-opening price would be outside of the
applicable collars, the Exchange would extend the halt auction process
an additional five minutes. The Exchange believes that extending the
auction in these circumstances would protect investors and the public
interest by reducing the potential for significant price disparity in
post-auction trading. With each such extension, the Exchange believes
that it is appropriate to widen the price collar threshold on the side
of the market on which there is buying or selling pressure as market
conditions may prevent an order imbalance from being resolved within
the prior auction collars.
The Exchange also believes it is appropriate to add language
clarifying how the MWCB Auction Collars will function in the event of
more than one trading halt initiated under Rule 4121 in the same day.
The proposed changes would increase transparency in how the Exchange
would handle the calculation of MWCB Auction Collars, and is therefore
consistent with the public interest and the protection of investors.
The Exchange likewise believes that specifying how it will handle the
publication of MWCB Halt information will bring greater transparency
around the operation of the Exchange's auction process.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The proposed rule change is
designed to provide for a measured and transparent process for re-
opening Nasdaq listed securities after a MWCB Halt that is similar to
the current re-opening process following a Trading Pause initiated
under the LULD Plan and the process already implemented on Arca and BZX
for non-LULD regulatory halts.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NASDAQ-2019-057 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
[[Page 35905]]
All submissions should refer to File Number SR-NASDAQ-2019-057. 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 website (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 website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly.
All submissions should refer to File Number SR-NASDAQ-2019-057 and
should be submitted on or before August 15, 2019.
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\27\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-15776 Filed 7-24-19; 8:45 am]
BILLING CODE 8011-01-P
