Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of Proposed Rule Change, as Modified by Amendment No. 1, To Amend Equity 4, Rule 4754 Relating to the Limit Up-Limit Down Closing Cross, 29864-29868 [2021-11693]

Download as PDF 29864 Federal Register / Vol. 86, No. 105 / Thursday, June 3, 2021 / Notices that, among other things, are clear and transparent; clearly prioritize the safety and efficiency of the covered clearing agency; and support the public interest requirements of the Exchange Act.42 In adopting Rule 17Ad–22(e)(2), the Commission discussed comments it received regarding the concept of skinin-the-game as a potential tool to align the various incentives of a covered clearing agency’s stakeholders, including management and clearing members.43 And, while the Commission declined to include a specific skin-inthe-game requirement in the rule, it stated its belief that ‘‘the proper alignment of incentives is an important element of a covered clearing agency’s risk management practices,’’ and noted that skin-in-the-game ‘‘may play a role in those risk management practices in many instances.’’ 44 OCC’s current rules require the application management compensation and excess capital as skin-in-the-game, which in turn should help further align the interests of OCC’s stakeholders, including OCC management and Clearing Members.45 As described above, OCC’s proposal would not reduce the resources OCC would apply to address default losses or remove the current skin-in-the-game component of OCC’s rules. Rather, OCC proposes to set aside a defined amount of capital for the sole purpose of absorbing losses and shortfalls arising out of a Clearing Member default. OCC has clearly stated the factors that the Board would consider when determining the amount of resources to hold as skin-in-the-game, a portion of which would comprise the Minimum Corporate Contribution. OCC also proposes to establish a clear process for addressing reductions in the Minimum Corporate Contribution arising out of a Clearing Member’s default. Accordingly, the Commission believes that the proposed changes to establish a persistent minimum level of skin-in-thegame are consistent with Rule 17Ad– 22(e)(2) under the Exchange Act.46 khammond on DSKJM1Z7X2PROD with NOTICES IV. Conclusion On the basis of the foregoing, the Commission finds that the Proposed Rule Change is consistent with the requirements of the Exchange Act, and in particular, the requirements of 42 17 CFR 240.17Ad–22(e)(2). Clearing Agency Standards, 81 FR at 70805–06. 44 Covered Clearing Agency Standards, 81 FR at 70806. 45 See CMP Approval Order at 5507. 46 17 CFR 240.17Ad–22(e)(2). 43 Covered VerDate Sep<11>2014 17:23 Jun 02, 2021 Jkt 253001 Section 17A of the Exchange Act 47 and the rules and regulations thereunder. It is therefore ordered, pursuant to Section 19(b)(2) of the Exchange Act,48 that the Proposed Rule Change (SR– OCC–2021–003) be, and hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.49 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2021–11606 Filed 6–2–21; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–92068; File No. SR– NASDAQ–2021–009] Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of Proposed Rule Change, as Modified by Amendment No. 1, To Amend Equity 4, Rule 4754 Relating to the Limit UpLimit Down Closing Cross May 28, 2021. I. Introduction On February 11, 2021, The Nasdaq Stock Market LLC (‘‘Exchange’’ or ‘‘Nasdaq’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to amend Equity 4, Rule (‘‘Rule’’) 4754 relating to the Limit Up-Limit Down (‘‘LULD’’) closing cross. The proposed rule change was published for comment in the Federal Register on March 3, 2021.3 On April 9, 2021, the Exchange filed Amendment No. 1 to the proposed rule change, which amended and superseded the proposed rule change as originally filed.4 On April 15, 2021, pursuant to 47 In approving this Proposed Rule Change, the Commission has considered the proposed rules’ impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 48 15 U.S.C. 78s(b)(2). 49 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 91208 (February 25, 2021), 86 FR 12503. 4 In Amendment No. 1, the Exchange amended the proposal to: (1) Specify the dissemination of certain imbalance information before the LULD closing cross; (2) clarify the process for calculating the LULD closing cross price and the benchmark prices for the LULD closing cross; (3) specify the treatment of imbalance only orders for purposes of LULD closing cross price selection; (4) provide additional explanation to support the proposal; (5) specify the implementation date for the proposal; PO 00000 Frm 00128 Fmt 4703 Sfmt 4703 Section 19(b)(2) of the Act,5 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.6 The Commission has not received any comment letters on the proposed rule change. The Commission is publishing this notice to solicit comments on Amendment No. 1 from interested persons, and is approving the proposed rule change, as modified by Amendment No. 1, on an accelerated basis. II. Description of the Proposed Rule Change, as Modified by Amendment No. 1 The Nasdaq closing cross is the Exchange’s process for determining the price at which orders will be executed at the close and for executing those orders, and the price determined by the Nasdaq closing cross is the Nasdaq official closing price for securities that participate in the cross.7 The Nasdaq closing cross begins at 4:00 p.m.,8 and the Exchange applies a price range within which the Nasdaq closing cross must occur.9 Currently, the Exchange applies a threshold amount that is the greater of $0.50 or 10% of the midpoint of the Nasdaq best bid and offer, and that amount is then added to the Nasdaq best offer and subtracted from the Nasdaq best bid to establish the price range.10 The LULD closing cross is the Exchange’s process for executing closing trades in Nasdaq-listed securities when an LULD trading pause pursuant to Rule 4120(a)(12) exists at or after 3:50 p.m. and (6) make other clarifying, technical, and conforming changes. Amendment No. 1 is available on the Commission’s website at: https:// www.sec.gov/comments/sr-nasdaq-2021-009/ srnasdaq2021009-8670132-235426.pdf. 5 15 U.S.C. 78s(b)(2). 6 See Securities Exchange Act Release No. 91581, 86 FR 20759 (April 21, 2021). The Commission designated June 1, 2021, as the date by which the Commission shall approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change, as modified by Amendment No. 1. 7 See Rule 4754(a)(6) and (b)(4). See also Rule 4754(b)(2) (describing the methodology for determining the Nasdaq closing cross price). 8 All times referenced are in Eastern Time. 9 See Rule 4754(b). If the Nasdaq closing cross price established pursuant to Rule 4754(b)(2)(A)– (D) is outside the benchmarks established by the Exchange by a threshold amount, the Nasdaq closing cross will occur at a price within the threshold amounts that best satisfies the conditions of Rule 4754(b)(2)(A)–(D). See Rule 4754(b)(2)(E). 10 See Amendment No. 1, supra note 4, at 6. Nasdaq management may set and modify the benchmarks and thresholds from time to time upon prior notice to market participants. See Rule 4754(b)(2)(E). E:\FR\FM\03JNN1.SGM 03JNN1 Federal Register / Vol. 86, No. 105 / Thursday, June 3, 2021 / Notices and before 4:00 p.m.11 The Exchange proposes to make certain changes to the LULD closing cross in order to further align that process with the regular Nasdaq closing cross process.12 A. LULD Closing Cross Time and Benchmark Prices Currently, unlike the regular Nasdaq closing cross, the LULD closing cross occurs at 4:00 p.m. unless an order imbalance exists, in which case the Exchange will extend the time of the cross by one minute until the order imbalance no longer exists.13 If this condition persists until 5:00 p.m., the Exchange will not conduct an LULD closing cross in the security and will instead use the last sale on the Exchange as the Nasdaq official closing price for that security.14 In addition, currently, unlike the regular Nasdaq closing cross, the Exchange does not apply a price range within which the LULD closing cross must occur. The Exchange now proposes to eliminate extensions of the LULD closing cross beyond 4:00 p.m.15 and to require that the LULD closing cross occur within certain benchmark prices. As proposed, for any security that entered a trading pause that was extended prior to 3:50 p.m., the upper (lower) benchmark price would be established by adding (subtracting) a threshold amount to the upper (from the lower) auction collar 16 that was last updated with the extension of the trading pause, rounded to the nearest minimum price increment (with midpoint prices being rounded up), and the lower (upper) benchmark price would be the lower (upper) auction collar that was last updated with the upper (lower) auction collar used to calculate the upper (lower) benchmark price.17 For any security that entered a khammond on DSKJM1Z7X2PROD with NOTICES 11 See Rule 4754(b)(6). 12 See Amendment No. 1, supra note 4, at 4. The Exchange proposes to implement the proposed changes by the end of Q3 2021, and will provide prior notice in an Equity Trader Alert. See id. 13 See Rule 4754(b)(6)(A)(i) and (iii). 14 See Rule 4754(b)(6)(A)(iii). 15 In connection with eliminating extensions of the LULD closing cross, the Exchange proposes to remove Rule 4754(b)(6)(A)(iii), which currently describes extensions of the LULD closing cross, and parts of Rule 4754(b)(6)(C)(iii), which currently describe the handling of certain orders after 4:00 p.m. for purposes of the LULD closing cross. 16 See Rule 4120(c)(10) (describing the auction collars for reopening following an LULD trading pause). 17 See proposed Rule 4754(b)(6)(E)(i). The Exchange states that it would use the last widened auction collar in this scenario because a security that entered a trading pause prior to 3:50 p.m. would be subject to the Exchange’s reopening process in Rule 4120(c)(10), where the Exchange would halt the security for an initial five-minute period and extend the halt in five-minute VerDate Sep<11>2014 17:23 Jun 02, 2021 Jkt 253001 trading pause that was not extended prior to 3:50 p.m., the upper (lower) benchmark price would be established by adding (subtracting) a threshold amount to the upper auction collar for a Limit Up triggered pause (from the lower auction collar for a Limit Down triggered pause), rounded to the nearest minimum price increment (with midpoint prices being rounded up), and the lower (upper) benchmark price would be the lower (upper) auction collar disseminated with the upper (lower) auction collar used to calculate the upper (lower) benchmark price.18 For any security that entered a trading pause at or after 3:50 p.m., the upper (lower) benchmark price would be established by adding (subtracting) a threshold amount to the upper band for a Limit Up triggered pause (from the lower band for a Limit Down triggered pause), rounded to the nearest minimum price increment (with midpoint prices being rounded up), and the lower (upper) benchmark price would be the lower (upper) band in place at the time the trading pause was triggered.19 The benchmark prices would be published via the Nasdaq UTP SIP and Exchange proprietary data feeds.20 The Exchange proposes to initially set the price threshold amounts at the greater of $1.00 or 10% for securities with a reference price greater than $1.00 (or $0.50 for securities with a reference price equal to or less than $1.00).21 As proposed, Nasdaq management would be able to set and modify these thresholds from time to time upon prior notice to market participants.22 As proposed, at 4:00 p.m., the Exchange would conduct the LULD closing cross, and if the cross price would fall outside of the benchmark increments if the specified reopening criteria are not met, widening the relevant auction collar at the start of each five-minute extension. See Amendment No. 1, supra note 4, at 9 n.18. 18 See proposed Rule 4754(b)(6)(E)(ii). The Exchange states that this scenario would cover securities that entered a trading pause between 3:45 p.m. and 3:50 p.m., and because the Exchange does not extend the reopening process in Rule 4120(c)(10) or widen auction collars past 3:50 p.m., it would use the initial reopening auction collar. See Amendment No. 1, supra note 4, at 9–10 n.19. 19 See proposed Rule 4754(b)(6)(E)(iii). The Exchange states that it would use the LULD band that triggered the pause in this scenario because the Exchange does not conduct the LULD reopening process at or after 3:50 p.m. and therefore there are no reopening auction collars in this scenario. See Amendment No. 1, supra note 4, at 10 n.20. 20 See Amendment No. 1, supra note 4, at 8. 21 See id. at 8–9. 22 See proposed Rule 4754(b)(6)(E). These threshold amounts, like the threshold amounts currently used for the regular Nasdaq closing cross, would be published on the Exchange’s public website. See Amendment No. 1, supra note 4, at 8. PO 00000 Frm 00129 Fmt 4703 Sfmt 4703 29865 prices, the LULD closing cross would execute all available orders at a price within or equal to the benchmark prices.23 Any unexecuted orders intended for the LULD closing cross (i.e., market on close (‘‘MOC’’),24 limit on close (‘‘LOC’’),25 and imbalance only (‘‘IO’’) orders),26 including those that fall outside the benchmark prices, would be cancelled.27 All other orders not executed in the LULD closing cross would be processed according to the entering firm’s instructions.28 B. LULD Closing Cross Price Determination Currently, the LULD closing cross price is determined by the same execution algorithm as the regular Nasdaq closing cross.29 The Exchange now proposes to modify the methodology for determining the LULD closing cross price.30 As proposed, the LULD closing cross would occur at the price within the benchmark prices established pursuant to proposed Rule 4754(b)(6)(E) that maximizes the number of shares of eligible interest,31 MOC, LOC, and IO orders in the Nasdaq market center to be executed.32 If more than one such price exists, the LULD closing cross would occur at the price within the benchmark prices that minimizes any imbalance.33 If more 23 See Amendment No. 1, supra note 4, at 12. Rule 4702(b)(11) (defining a MOC order as an order type entered without a price that may be executed only during the Nasdaq closing cross). 25 See Rule 4702(b)(12) (defining a LOC order as an order type entered with a price that may be executed only in the Nasdaq closing cross, and only if the price determined by the Nasdaq closing cross is equal to or better than the price at which the LOC order was entered). 26 See Rule 4702(b)(13) (defining an IO order as an order entered with a price that may be executed only in the Nasdaq closing cross and only against MOC orders or LOC orders). 27 See Amendment No. 1, supra note 4, at 12. 28 See id. 29 See id. at 16. 30 See proposed Rule 4754(b)(6)(D). See also Rule 4754(b)(2)(A)–(F) (describing the methodology for determining the regular Nasdaq closing cross price). 31 For purposes of the LULD closing cross, the Exchange proposes to define ‘‘eligible interest’’ to have the same meaning as ‘‘close eligible interest’’ in Rule 4754(a), with the addition of any new orders with an eligible underlying order type and order attribute entered during the trading pause. See proposed Rule 4754(b)(6)(A)(i). See also Rule 4754(a)(1) (defining ‘‘close eligible interest’’ to mean any quotation or any order that may be entered into the system and designated with a timein-force of SDAY, SGTC, MDAY, MGTC, SHEX, or GTMC). 32 See proposed Rule 4754(b)(6)(D)(i). The Exchange states that proposed Rule 4754(b)(6)(D)(i) is similar to Rule 4754(b)(2)(A) (i.e., maximizing the number of shares executed in the cross). See Amendment No. 1, supra note 4, at 16. 33 See proposed Rule 4754(b)(6)(D)(ii). For purposes of the LULD closing cross, the Exchange proposes to define ‘‘imbalance’’ to mean the 24 See E:\FR\FM\03JNN1.SGM Continued 03JNN1 29866 Federal Register / Vol. 86, No. 105 / Thursday, June 3, 2021 / Notices khammond on DSKJM1Z7X2PROD with NOTICES than one such price exists, the LULD closing cross would occur at the entered price within the benchmark prices at which shares will remain unexecuted in the cross.34 If no price within the benchmark prices would satisfy these conditions, then: (i) If an imbalance exists, the LULD closing cross would occur at a price equal to the upper (lower) benchmark price for a buy (sell) imbalance; and (ii) if no imbalance exists, the LULD closing cross would occur at a price that minimizes the distance from the last published upper band (lower band) for a Limit Up (Limit Down) trading pause.35 Currently, Rule 4754(b)(6) provides that, in the event of an LULD closing cross, MOC, LOC, and IO orders intended for the closing cross entered into the system and place on the book prior to the trading pause will remain on the book to participate in the LULD closing cross, but these orders may not be modified or cancelled. Rule 4754(b)(6) also provides that, during the pause and prior to 4:00 p.m., new orders (other than MOC or LOC orders) may be entered, modified, and cancelled and may participate in the LULD closing cross. The Exchange now proposes to modify the handling of MOC, LOC, and IO orders such that they could be entered, modified, and cancelled pursuant to Rules 4702(b)(11), 4702(b)(12), and 4702(b)(13), respectively.36 Therefore, as proposed, MOC, LOC, and IO orders could be entered, modified, and cancelled during the same time periods for an LULD closing cross as for a regular Nasdaq closing cross. However, unlike the regular Nasdaq closing cross where if the price of an IO order to buy (sell) is higher than (lower than) the highest bid (lowest offer) on the Nasdaq book, the price of the IO order will be modified number of shares of buy or sell MOC or LOC orders or eligible interest that cannot be matched with other MOC, LOC, or IO orders or eligible interest at a particular price at any given time. See proposed Rule 4754(b)(6)(A)(ii). The Exchange states that proposed Rule 4754(b)(6)(D)(ii) is based on the same principle as Rule 4754(b)(2)(B) (i.e., minimizing the number of shares that cannot be matched in the cross). See Amendment No. 1, supra note 4, at 17. 34 See proposed Rule 4754(b)(6)(D)(iii). The Exchange states that proposed Rule 4754(b)(6)(D)(iii) is similar to Rule 4754(b)(2)(C). See Amendment No. 1, supra note 4, at 18. 35 See proposed Rule 4754(b)(6)(D)(iv). The Exchange states that Rule 4754(b)(2)(D) uses the midpoint of the Nasdaq best bid and offer as the tiebreaker for the regular Nasdaq closing cross, whereas there would be no continuous market prior to the execution of the LULD closing cross and proposed Rule 4754(b)(6)(D)(iv) would better reflect current market forces and conditions for an LULD closing cross. See Amendment No. 1, supra note 4, at 18–19. 36 See proposed Rule 4754(b)(6)(F)(ii). VerDate Sep<11>2014 17:23 Jun 02, 2021 Jkt 253001 repeatedly to equal the highest bid (lowest offer) on the Nasdaq book,37 for purposes of LULD closing cross price selection, buy (sell) IO orders would be re-priced to one minimum price increment below (above) the LULD band that triggered the trading pause.38 C. Imbalance Information Currently, Rule 4754(b)(6)(B) provides that, in the event of an LULD closing cross, the Exchange continues disseminating the order imbalance indicator (‘‘NOII’’) every second until after hours trading begins. The Exchange proposes to amend this rule to also specify the dissemination of the early order imbalance indicator (‘‘EOII’’) before the LULD closing cross.39 As with the regular Nasdaq closing cross, EOII would be disseminated every 10 seconds beginning at 3:50 p.m. until the NOII begins to disseminate, and the NOII would be disseminated every second beginning at 3:55 p.m. until market close.40 Currently, Rule 4754(b)(6)(B) also provides that the near price, far price, and reference prices contained in the NOII all represent the price at which the LULD closing cross would execute should the cross conclude at that time. As proposed, the near clearing price 41 and reference price contained in the EOII and NOII, as applicable, would represent the price at which the LULD closing cross would execute should the cross conclude at that time (i.e., bounded by the benchmark prices),42 and the far clearing price would represent the price at which eligible interest, MOC, LOC, and IO orders would execute (i.e., not bounded by the benchmark prices).43 D. Other Changes The Exchange proposes to specify in Rule 4754(b)(6) that the LULD closing cross process only applies to Nasdaqlisted securities, rather than all stocks. 37 See Rule 4702(b)(13)(A). proposed Rule 4754(b)(6)(F)(iii). 39 See proposed Rule 4754(b)(6)(C). 40 See id.; Amendment No. 1, supra note 4, at 21– 22. See also Rule 4754(b)(1) (describing EOII and NOII dissemination for the regular Nasdaq closing cross). 41 The Exchange proposes to replace all references to the ‘‘near price’’ and ‘‘far price’’ with the ‘‘near clearing price’’ and ‘‘far clearing price’’ respectively to align with terminology used throughout Rule 4754. See Amendment No. 1, supra note 4, at 22. 42 See proposed Rule 4754(b)(6)(C); Amendment No. 1, supra note 4, at 22. 43 See proposed Rule 4754(b)(6)(C); Amendment No. 1, supra note 4, at 22. The far clearing price would be different from the near clearing price and reference price to indicate that not all marketable orders can be filled within the benchmark prices. See Amendment No. 1, supra note 4, at 22. 38 See PO 00000 Frm 00130 Fmt 4703 Sfmt 4703 The Exchange also proposes a conforming change in Rule 4754(b)(6)(B)(i) to clarify that the LULD closing cross applies when a trading pauses exists (rather than is triggered) at or after 3:50 p.m. and before 4:00 p.m. Finally, the Exchange proposes to update obsolete cross references in Rules 4756(c)(3)(B) and 4763(b) to Rule 4751.44 III. Discussion and Commission Findings After careful review, the Commission finds that the proposed rule change, as modified by Amendment No. 1, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.45 In particular, the Commission finds that the proposed rule change, as modified by Amendment No, 1, is consistent with Section 6(b)(5) of the Act,46 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. The Commission believes that the proposed benchmark prices and other changes to the LULD closing cross would more closely align the LULD closing cross process with the regular Nasdaq closing cross process and would promote a more consistent experience for those that participate in the crosses. The Commission also believes that the differences between the proposed LULD closing cross process and the regular Nasdaq closing cross process are reasonably designed to reflect the differences in market conditions leading up to the crosses. More specifically, the Commission believes that the proposed benchmark prices for the LULD closing cross would help ensure that the closing price of a security is reasonably related to current market conditions. The Commission also believes that the addition of benchmark prices would further harmonize the LULD closing cross process with the regular Nasdaq closing cross process, while reflecting market 44 See Amendment No. 1, supra note 4, at 23. 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). 46 15 U.S.C. 78f(b)(5). 45 In E:\FR\FM\03JNN1.SGM 03JNN1 Federal Register / Vol. 86, No. 105 / Thursday, June 3, 2021 / Notices khammond on DSKJM1Z7X2PROD with NOTICES conditions for the security leading up to the LULD closing cross. In particular, the Commission believes that the proposed methodology for determining the benchmark prices would reflect that there is no continuous trading in the security and no Nasdaq best bid and offer based on continuous trading in the security during the pause leading up to the cross,47 that the cross would occur following a period of increased volatility in the security,48 and the direction of trading that triggered the pause in the security and the existence of buy or sell pressure in the security leading up to the cross.49 The Commission also believes that the proposed methodology for determining the LULD closing cross price would reflect the proposed benchmark prices and allow for similar experiences for those that participate in the regular Nasdaq closing cross and the LULD closing cross. In addition, the Commission believes that the proposed methodology, including the proposed definitions of eligible interest and imbalance and the proposed treatment of IO orders, are reasonably designed to reflect market conditions leading up to the LULD closing cross, including that there is no continuous trading in the security and no Nasdaq best bid and offer based on continuous trading in the security leading up to the cross, and the existence of any buy or sell imbalance in the security leading up to the cross. Further, the Commission believes that the proposal to eliminate extensions of the LULD closing cross past 4:00 p.m. would provide more certainty regarding the timing of the LULD closing cross and align that timing with the regular Nasdaq closing cross. The Commission 47 As described above, the benchmark prices for the LULD closing cross would be calculated based on the reopening auction collars or the LULD bands, rather than the midpoint of the Nasdaq best bid and offer as is the case with the regular Nasdaq closing cross. 48 As described above, the initial threshold amounts for determining the benchmark prices for the LULD closing cross (i.e., the greater of $1.00 or 10% for securities with a reference price greater than $1.00, and $0.50 for securities with a reference price equal to or less than $1.00) may be greater than the current threshold amounts for determining the price range for the regular Nasdaq closing cross (i.e., the greater of $0.50 or 10%). As with the regular Nasdaq closing cross, Nasdaq management would be able to set and modify these threshold amounts from time to time upon prior notice to market participants. 49 As described above, the threshold amounts for the LULD closing cross would be applied to the most recently expanded reopening auction collar (if the trading pause was extended before 3:50 p.m.) or in the direction of trading that caused the trading pause (if the trading pause was not extended before 3:50 p.m. or if the trading pause occurred at or after 3:50 p.m.), whereas the threshold amounts for the regular Nasdaq closing cross are applied to both the Nasdaq best bid and Nasdaq best offer. VerDate Sep<11>2014 17:23 Jun 02, 2021 Jkt 253001 also believes that the proposed timing for entering, modifying, and cancelling MOC, LOC, and IO orders for the LULD closing cross would allow additional interest to participate in the cross and further align the LULD closing cross process with the regular Nasdaq closing cross process with respect to these orders. Finally, the Commission believes that the proposal to specify the dissemination of EOII would provide transparency regarding the information that is disseminated in advance of the LULD closing cross.50 Similarly, the Commission believes that the proposal to specify that the LULD closing cross only applies to Nasdaq-listed securities and clarify that the LULD closing cross applies when a trading pause exists (rather than is triggered) at or after 3:50 p.m. and before 4:00 p.m. would provide greater transparency regarding the LULD closing cross process. The Commission also believes that updating obsolete cross references in Rules 4756(c)(3)(B) and 4763(b) would provide greater clarity in the Exchange’s rules. IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule Change Interested persons are invited to submit written data, views, and arguments concerning whether Amendment No. 1 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–2021–009 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–NASDAQ–2021–009. 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 50 The Commission also believes that the proposed differences between the near clearing price and reference price, and the far clearing price, would reflect the addition of benchmark prices to the LULD closing cross. PO 00000 Frm 00131 Fmt 4703 Sfmt 4703 29867 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–2021–009, and should be submitted on or before June 24, 2021. V. Accelerated Approval of Proposed Rule Change, as Modified by Amendment No. 1 The Commission finds good cause to approve the proposed rule change, as modified by Amendment No. 1, prior to the thirtieth day after the date of publication of notice of the filing of Amendment No. 1 in the Federal Register. As discussed above, in Amendment No. 1, the Exchange specified the dissemination of certain imbalance information before the LULD closing cross, clarified the process for calculating the LULD closing cross price and the benchmark prices, specified the treatment of IO orders for purposes of LULD closing cross price selection, provided additional explanation to support the proposal, specified the implementation date for the proposal, and made other clarifying, technical, and conforming changes. The Commission believes that the changes made in Amendment No. 1 do not raise any material or novel regulatory issues and they provide further clarity to and consistency within the proposal. Accordingly, the Commission finds good cause, pursuant to Section 19(b)(2) of the Act,51 to approve the proposed rule change, as modified by Amendment No. 1, on an accelerated basis. 51 15 E:\FR\FM\03JNN1.SGM U.S.C. 78s(b)(2). 03JNN1 29868 Federal Register / Vol. 86, No. 105 / Thursday, June 3, 2021 / Notices VI. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,52 that the proposed rule change (SR–NASDAQ– 2021–009), as modified by Amendment No. 1, be, and hereby is, approved on an accelerated basis. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.53 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2021–11693 Filed 6–2–21; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–92053; File No. SR– NYSEArca–2021–43] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending the NYSE Arca Equities Fees and Charges May 27, 2021. 19(b)(1) 1 Pursuant to Section of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on May 14, 2021, NYSE Arca, Inc. (‘‘NYSE Arca’’ or the ‘‘Exchange’’) 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 self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. khammond on DSKJM1Z7X2PROD with NOTICES I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend the NYSE Arca Equities Fees and Charges (‘‘Fee Schedule’’) to replace the monthly rebate tied to the performance in the opening and closing auctions in NYSE Arca-listed Securities and the ETF Incentive Program for NYSE Arca-listed Securities with a new pricing incentive for Lead Market Makers and ETP Holders registered as Market Makers. The Exchange proposes to implement the fee changes effective May 14, 2021. The proposed rule change is available on the Exchange’s website at www.nyse.com, at the principal office of 52 Id. 53 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 17:23 Jun 02, 2021 Jkt 253001 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 self-regulatory organization 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 those 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 parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend the Fee Schedule to replace the monthly rebate tied to the performance in the opening and closing auctions in NYSE Arca-listed Securities and the ETF Incentive Program for NYSE Arca-listed Securities 4 with a new pricing incentive that is tied to meeting enhanced market quality metrics. The Exchange now proposes to provide financial incentives for Lead Market Makers (‘‘LMMs’’) 5 that are based on whether the LMM meets certain Performance Metrics (as described below). Specifically, the Exchange would provide incremental credits to LMMs based on how many Performance Metrics an LMM meets in each NYSE Arca-listed Security. The Exchange also proposes to make the additional credits available for ETP Holders registered as Market Maker (‘‘Market Makers’’).6 The Exchange believes that the proposed rule change would encourage LMMs and Market 4 See Securities and Exchange Act Release No. 87978 (January 15, 2020), 85 FR 3727 (January 22, 2020) (SR–NYSEArca–2020–03). 5 The term ‘‘Lead Market Maker’’ is defined in Rule 1.1(w) to mean a registered Market Maker that is the exclusive Designated Market Maker in listings for which the Exchange is the primary market. 6 Pursuant to Rule 7.23–E(a)(1), all registered Market Makers, including LMMs, have an obligation to maintain continuous, two-sided trading interest in those securities in which the Market Marker is registered to trade. In addition, pursuant to Rule 7.24–E(b), LMMs are held to higher performance standards in the securities in which they are registered as LMM. LMMs can earn additional financial incentives for meeting the higher performance standards specified from time to time in the Fee Schedule. Only one LMM can be registered in a NYSE-Arca listed security, but that security can have an unlimited number of registered Market Makers. Market Makers can also be registered in securities that trade on an unlisted trading privileges basis on the Exchange. PO 00000 Frm 00132 Fmt 4703 Sfmt 4703 Makers to maintain better market quality in NYSE Arca-listed Securities in which they are registered, including in lower volume securities. The Exchange notes that its listing business operates in a highly competitive market in which market participants, including issuers of securities, LMMs, and other liquidity providers, can readily transfer their listings, or direct order flow to competing venues if they deem fee levels, liquidity provision incentive programs, or other factors at a particular venue to be insufficient or excessive. The proposed rule change reflects the current competitive pricing environment and is designed to incentivize market participants to participate as LMMs or Market Makers, and thereby, further enhance the market quality on all securities listed on the Exchange and encourage issuers to list new products on the Exchange. The Exchange proposes to implement the fee changes effective May 14, 2021.7 Background As noted above, the Exchange operates in a highly competitive market. The Commission has repeatedly expressed its preference for competition over regulatory intervention in determining prices, products, and services in the securities markets. In Regulation NMS, the Commission highlighted the importance of market forces in determining prices and SRO revenues and, also, recognized that current regulation of the market system ‘‘has been remarkably successful in promoting market competition in its broader forms that are most important to investors and listed companies.’’ 8 While Regulation NMS has enhanced competition, it has also fostered a ‘‘fragmented’’ market structure where trading in a single stock can occur across multiple trading centers. When multiple trading centers compete for order flow in the same stock, the Commission has recognized that ‘‘such competition can lead to the fragmentation of order flow in that stock.’’ 9 Indeed, equity trading is currently dispersed across 16 7 The Exchange originally filed to amend the Fee Schedule on May 3, 2021 (SR–NYSEArca–2021–33). SR–NYSEArca–2021–33 was subsequently withdrawn and replaced by this filing. 8 See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) (File No. S7–10–04) (Final Rule) (‘‘Regulation NMS’’). 9 See Securities Exchange Act Release No. 61358, 75 FR 3594, 3597 (January 21, 2010) (File No. S7– 02–10) (Concept Release on Equity Market Structure). E:\FR\FM\03JNN1.SGM 03JNN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 86, Number 105 (Thursday, June 3, 2021)]
[Notices]
[Pages 29864-29868]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-11693]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92068; File No. SR-NASDAQ-2021-009]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Amendment No. 1 and Order Granting Accelerated 
Approval of Proposed Rule Change, as Modified by Amendment No. 1, To 
Amend Equity 4, Rule 4754 Relating to the Limit Up-Limit Down Closing 
Cross

May 28, 2021.

I. Introduction

    On February 11, 2021, The Nasdaq Stock Market LLC (``Exchange'' or 
``Nasdaq'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend Equity 4, Rule (``Rule'') 4754 relating 
to the Limit Up-Limit Down (``LULD'') closing cross. The proposed rule 
change was published for comment in the Federal Register on March 3, 
2021.\3\ On April 9, 2021, the Exchange filed Amendment No. 1 to the 
proposed rule change, which amended and superseded the proposed rule 
change as originally filed.\4\ On April 15, 2021, pursuant to Section 
19(b)(2) of the Act,\5\ 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.\6\ The Commission has not received 
any comment letters on the proposed rule change. The Commission is 
publishing this notice to solicit comments on Amendment No. 1 from 
interested persons, and is approving the proposed rule change, as 
modified by Amendment No. 1, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 91208 (February 25, 
2021), 86 FR 12503.
    \4\ In Amendment No. 1, the Exchange amended the proposal to: 
(1) Specify the dissemination of certain imbalance information 
before the LULD closing cross; (2) clarify the process for 
calculating the LULD closing cross price and the benchmark prices 
for the LULD closing cross; (3) specify the treatment of imbalance 
only orders for purposes of LULD closing cross price selection; (4) 
provide additional explanation to support the proposal; (5) specify 
the implementation date for the proposal; and (6) make other 
clarifying, technical, and conforming changes. Amendment No. 1 is 
available on the Commission's website at: https://www.sec.gov/comments/sr-nasdaq-2021-009/srnasdaq2021009-8670132-235426.pdf.
    \5\ 15 U.S.C. 78s(b)(2).
    \6\ See Securities Exchange Act Release No. 91581, 86 FR 20759 
(April 21, 2021). The Commission designated June 1, 2021, as the 
date by which the Commission shall approve or disapprove, or 
institute proceedings to determine whether to disapprove, the 
proposed rule change, as modified by Amendment No. 1.
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II. Description of the Proposed Rule Change, as Modified by Amendment 
No. 1

    The Nasdaq closing cross is the Exchange's process for determining 
the price at which orders will be executed at the close and for 
executing those orders, and the price determined by the Nasdaq closing 
cross is the Nasdaq official closing price for securities that 
participate in the cross.\7\ The Nasdaq closing cross begins at 4:00 
p.m.,\8\ and the Exchange applies a price range within which the Nasdaq 
closing cross must occur.\9\ Currently, the Exchange applies a 
threshold amount that is the greater of $0.50 or 10% of the midpoint of 
the Nasdaq best bid and offer, and that amount is then added to the 
Nasdaq best offer and subtracted from the Nasdaq best bid to establish 
the price range.\10\
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    \7\ See Rule 4754(a)(6) and (b)(4). See also Rule 4754(b)(2) 
(describing the methodology for determining the Nasdaq closing cross 
price).
    \8\ All times referenced are in Eastern Time.
    \9\ See Rule 4754(b). If the Nasdaq closing cross price 
established pursuant to Rule 4754(b)(2)(A)-(D) is outside the 
benchmarks established by the Exchange by a threshold amount, the 
Nasdaq closing cross will occur at a price within the threshold 
amounts that best satisfies the conditions of Rule 4754(b)(2)(A)-
(D). See Rule 4754(b)(2)(E).
    \10\ See Amendment No. 1, supra note 4, at 6. Nasdaq management 
may set and modify the benchmarks and thresholds from time to time 
upon prior notice to market participants. See Rule 4754(b)(2)(E).
---------------------------------------------------------------------------

    The LULD closing cross is the Exchange's process for executing 
closing trades in Nasdaq-listed securities when an LULD trading pause 
pursuant to Rule 4120(a)(12) exists at or after 3:50 p.m.

[[Page 29865]]

and before 4:00 p.m.\11\ The Exchange proposes to make certain changes 
to the LULD closing cross in order to further align that process with 
the regular Nasdaq closing cross process.\12\
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    \11\ See Rule 4754(b)(6).
    \12\ See Amendment No. 1, supra note 4, at 4. The Exchange 
proposes to implement the proposed changes by the end of Q3 2021, 
and will provide prior notice in an Equity Trader Alert. See id.
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A. LULD Closing Cross Time and Benchmark Prices

    Currently, unlike the regular Nasdaq closing cross, the LULD 
closing cross occurs at 4:00 p.m. unless an order imbalance exists, in 
which case the Exchange will extend the time of the cross by one minute 
until the order imbalance no longer exists.\13\ If this condition 
persists until 5:00 p.m., the Exchange will not conduct an LULD closing 
cross in the security and will instead use the last sale on the 
Exchange as the Nasdaq official closing price for that security.\14\ In 
addition, currently, unlike the regular Nasdaq closing cross, the 
Exchange does not apply a price range within which the LULD closing 
cross must occur. The Exchange now proposes to eliminate extensions of 
the LULD closing cross beyond 4:00 p.m.\15\ and to require that the 
LULD closing cross occur within certain benchmark prices.
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    \13\ See Rule 4754(b)(6)(A)(i) and (iii).
    \14\ See Rule 4754(b)(6)(A)(iii).
    \15\ In connection with eliminating extensions of the LULD 
closing cross, the Exchange proposes to remove Rule 
4754(b)(6)(A)(iii), which currently describes extensions of the LULD 
closing cross, and parts of Rule 4754(b)(6)(C)(iii), which currently 
describe the handling of certain orders after 4:00 p.m. for purposes 
of the LULD closing cross.
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    As proposed, for any security that entered a trading pause that was 
extended prior to 3:50 p.m., the upper (lower) benchmark price would be 
established by adding (subtracting) a threshold amount to the upper 
(from the lower) auction collar \16\ that was last updated with the 
extension of the trading pause, rounded to the nearest minimum price 
increment (with midpoint prices being rounded up), and the lower 
(upper) benchmark price would be the lower (upper) auction collar that 
was last updated with the upper (lower) auction collar used to 
calculate the upper (lower) benchmark price.\17\ For any security that 
entered a trading pause that was not extended prior to 3:50 p.m., the 
upper (lower) benchmark price would be established by adding 
(subtracting) a threshold amount to the upper auction collar for a 
Limit Up triggered pause (from the lower auction collar for a Limit 
Down triggered pause), rounded to the nearest minimum price increment 
(with midpoint prices being rounded up), and the lower (upper) 
benchmark price would be the lower (upper) auction collar disseminated 
with the upper (lower) auction collar used to calculate the upper 
(lower) benchmark price.\18\ For any security that entered a trading 
pause at or after 3:50 p.m., the upper (lower) benchmark price would be 
established by adding (subtracting) a threshold amount to the upper 
band for a Limit Up triggered pause (from the lower band for a Limit 
Down triggered pause), rounded to the nearest minimum price increment 
(with midpoint prices being rounded up), and the lower (upper) 
benchmark price would be the lower (upper) band in place at the time 
the trading pause was triggered.\19\ The benchmark prices would be 
published via the Nasdaq UTP SIP and Exchange proprietary data 
feeds.\20\
---------------------------------------------------------------------------

    \16\ See Rule 4120(c)(10) (describing the auction collars for 
reopening following an LULD trading pause).
    \17\ See proposed Rule 4754(b)(6)(E)(i). The Exchange states 
that it would use the last widened auction collar in this scenario 
because a security that entered a trading pause prior to 3:50 p.m. 
would be subject to the Exchange's reopening process in Rule 
4120(c)(10), where the Exchange would halt the security for an 
initial five-minute period and extend the halt in five-minute 
increments if the specified reopening criteria are not met, widening 
the relevant auction collar at the start of each five-minute 
extension. See Amendment No. 1, supra note 4, at 9 n.18.
    \18\ See proposed Rule 4754(b)(6)(E)(ii). The Exchange states 
that this scenario would cover securities that entered a trading 
pause between 3:45 p.m. and 3:50 p.m., and because the Exchange does 
not extend the reopening process in Rule 4120(c)(10) or widen 
auction collars past 3:50 p.m., it would use the initial reopening 
auction collar. See Amendment No. 1, supra note 4, at 9-10 n.19.
    \19\ See proposed Rule 4754(b)(6)(E)(iii). The Exchange states 
that it would use the LULD band that triggered the pause in this 
scenario because the Exchange does not conduct the LULD reopening 
process at or after 3:50 p.m. and therefore there are no reopening 
auction collars in this scenario. See Amendment No. 1, supra note 4, 
at 10 n.20.
    \20\ See Amendment No. 1, supra note 4, at 8.
---------------------------------------------------------------------------

    The Exchange proposes to initially set the price threshold amounts 
at the greater of $1.00 or 10% for securities with a reference price 
greater than $1.00 (or $0.50 for securities with a reference price 
equal to or less than $1.00).\21\ As proposed, Nasdaq management would 
be able to set and modify these thresholds from time to time upon prior 
notice to market participants.\22\
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    \21\ See id. at 8-9.
    \22\ See proposed Rule 4754(b)(6)(E). These threshold amounts, 
like the threshold amounts currently used for the regular Nasdaq 
closing cross, would be published on the Exchange's public website. 
See Amendment No. 1, supra note 4, at 8.
---------------------------------------------------------------------------

    As proposed, at 4:00 p.m., the Exchange would conduct the LULD 
closing cross, and if the cross price would fall outside of the 
benchmark prices, the LULD closing cross would execute all available 
orders at a price within or equal to the benchmark prices.\23\ Any 
unexecuted orders intended for the LULD closing cross (i.e., market on 
close (``MOC''),\24\ limit on close (``LOC''),\25\ and imbalance only 
(``IO'') orders),\26\ including those that fall outside the benchmark 
prices, would be cancelled.\27\ All other orders not executed in the 
LULD closing cross would be processed according to the entering firm's 
instructions.\28\
---------------------------------------------------------------------------

    \23\ See Amendment No. 1, supra note 4, at 12.
    \24\ See Rule 4702(b)(11) (defining a MOC order as an order type 
entered without a price that may be executed only during the Nasdaq 
closing cross).
    \25\ See Rule 4702(b)(12) (defining a LOC order as an order type 
entered with a price that may be executed only in the Nasdaq closing 
cross, and only if the price determined by the Nasdaq closing cross 
is equal to or better than the price at which the LOC order was 
entered).
    \26\ See Rule 4702(b)(13) (defining an IO order as an order 
entered with a price that may be executed only in the Nasdaq closing 
cross and only against MOC orders or LOC orders).
    \27\ See Amendment No. 1, supra note 4, at 12.
    \28\ See id.
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B. LULD Closing Cross Price Determination

    Currently, the LULD closing cross price is determined by the same 
execution algorithm as the regular Nasdaq closing cross.\29\ The 
Exchange now proposes to modify the methodology for determining the 
LULD closing cross price.\30\ As proposed, the LULD closing cross would 
occur at the price within the benchmark prices established pursuant to 
proposed Rule 4754(b)(6)(E) that maximizes the number of shares of 
eligible interest,\31\ MOC, LOC, and IO orders in the Nasdaq market 
center to be executed.\32\ If more than one such price exists, the LULD 
closing cross would occur at the price within the benchmark prices that 
minimizes any imbalance.\33\ If more

[[Page 29866]]

than one such price exists, the LULD closing cross would occur at the 
entered price within the benchmark prices at which shares will remain 
unexecuted in the cross.\34\ If no price within the benchmark prices 
would satisfy these conditions, then: (i) If an imbalance exists, the 
LULD closing cross would occur at a price equal to the upper (lower) 
benchmark price for a buy (sell) imbalance; and (ii) if no imbalance 
exists, the LULD closing cross would occur at a price that minimizes 
the distance from the last published upper band (lower band) for a 
Limit Up (Limit Down) trading pause.\35\
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    \29\ See id. at 16.
    \30\ See proposed Rule 4754(b)(6)(D). See also Rule 
4754(b)(2)(A)-(F) (describing the methodology for determining the 
regular Nasdaq closing cross price).
    \31\ For purposes of the LULD closing cross, the Exchange 
proposes to define ``eligible interest'' to have the same meaning as 
``close eligible interest'' in Rule 4754(a), with the addition of 
any new orders with an eligible underlying order type and order 
attribute entered during the trading pause. See proposed Rule 
4754(b)(6)(A)(i). See also Rule 4754(a)(1) (defining ``close 
eligible interest'' to mean any quotation or any order that may be 
entered into the system and designated with a time-in-force of SDAY, 
SGTC, MDAY, MGTC, SHEX, or GTMC).
    \32\ See proposed Rule 4754(b)(6)(D)(i). The Exchange states 
that proposed Rule 4754(b)(6)(D)(i) is similar to Rule 4754(b)(2)(A) 
(i.e., maximizing the number of shares executed in the cross). See 
Amendment No. 1, supra note 4, at 16.
    \33\ See proposed Rule 4754(b)(6)(D)(ii). For purposes of the 
LULD closing cross, the Exchange proposes to define ``imbalance'' to 
mean the number of shares of buy or sell MOC or LOC orders or 
eligible interest that cannot be matched with other MOC, LOC, or IO 
orders or eligible interest at a particular price at any given time. 
See proposed Rule 4754(b)(6)(A)(ii). The Exchange states that 
proposed Rule 4754(b)(6)(D)(ii) is based on the same principle as 
Rule 4754(b)(2)(B) (i.e., minimizing the number of shares that 
cannot be matched in the cross). See Amendment No. 1, supra note 4, 
at 17.
    \34\ See proposed Rule 4754(b)(6)(D)(iii). The Exchange states 
that proposed Rule 4754(b)(6)(D)(iii) is similar to Rule 
4754(b)(2)(C). See Amendment No. 1, supra note 4, at 18.
    \35\ See proposed Rule 4754(b)(6)(D)(iv). The Exchange states 
that Rule 4754(b)(2)(D) uses the midpoint of the Nasdaq best bid and 
offer as the tiebreaker for the regular Nasdaq closing cross, 
whereas there would be no continuous market prior to the execution 
of the LULD closing cross and proposed Rule 4754(b)(6)(D)(iv) would 
better reflect current market forces and conditions for an LULD 
closing cross. See Amendment No. 1, supra note 4, at 18-19.
---------------------------------------------------------------------------

    Currently, Rule 4754(b)(6) provides that, in the event of an LULD 
closing cross, MOC, LOC, and IO orders intended for the closing cross 
entered into the system and place on the book prior to the trading 
pause will remain on the book to participate in the LULD closing cross, 
but these orders may not be modified or cancelled. Rule 4754(b)(6) also 
provides that, during the pause and prior to 4:00 p.m., new orders 
(other than MOC or LOC orders) may be entered, modified, and cancelled 
and may participate in the LULD closing cross. The Exchange now 
proposes to modify the handling of MOC, LOC, and IO orders such that 
they could be entered, modified, and cancelled pursuant to Rules 
4702(b)(11), 4702(b)(12), and 4702(b)(13), respectively.\36\ Therefore, 
as proposed, MOC, LOC, and IO orders could be entered, modified, and 
cancelled during the same time periods for an LULD closing cross as for 
a regular Nasdaq closing cross. However, unlike the regular Nasdaq 
closing cross where if the price of an IO order to buy (sell) is higher 
than (lower than) the highest bid (lowest offer) on the Nasdaq book, 
the price of the IO order will be modified repeatedly to equal the 
highest bid (lowest offer) on the Nasdaq book,\37\ for purposes of LULD 
closing cross price selection, buy (sell) IO orders would be re-priced 
to one minimum price increment below (above) the LULD band that 
triggered the trading pause.\38\
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    \36\ See proposed Rule 4754(b)(6)(F)(ii).
    \37\ See Rule 4702(b)(13)(A).
    \38\ See proposed Rule 4754(b)(6)(F)(iii).
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C. Imbalance Information

    Currently, Rule 4754(b)(6)(B) provides that, in the event of an 
LULD closing cross, the Exchange continues disseminating the order 
imbalance indicator (``NOII'') every second until after hours trading 
begins. The Exchange proposes to amend this rule to also specify the 
dissemination of the early order imbalance indicator (``EOII'') before 
the LULD closing cross.\39\ As with the regular Nasdaq closing cross, 
EOII would be disseminated every 10 seconds beginning at 3:50 p.m. 
until the NOII begins to disseminate, and the NOII would be 
disseminated every second beginning at 3:55 p.m. until market 
close.\40\
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    \39\ See proposed Rule 4754(b)(6)(C).
    \40\ See id.; Amendment No. 1, supra note 4, at 21-22. See also 
Rule 4754(b)(1) (describing EOII and NOII dissemination for the 
regular Nasdaq closing cross).
---------------------------------------------------------------------------

    Currently, Rule 4754(b)(6)(B) also provides that the near price, 
far price, and reference prices contained in the NOII all represent the 
price at which the LULD closing cross would execute should the cross 
conclude at that time. As proposed, the near clearing price \41\ and 
reference price contained in the EOII and NOII, as applicable, would 
represent the price at which the LULD closing cross would execute 
should the cross conclude at that time (i.e., bounded by the benchmark 
prices),\42\ and the far clearing price would represent the price at 
which eligible interest, MOC, LOC, and IO orders would execute (i.e., 
not bounded by the benchmark prices).\43\
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    \41\ The Exchange proposes to replace all references to the 
``near price'' and ``far price'' with the ``near clearing price'' 
and ``far clearing price'' respectively to align with terminology 
used throughout Rule 4754. See Amendment No. 1, supra note 4, at 22.
    \42\ See proposed Rule 4754(b)(6)(C); Amendment No. 1, supra 
note 4, at 22.
    \43\ See proposed Rule 4754(b)(6)(C); Amendment No. 1, supra 
note 4, at 22. The far clearing price would be different from the 
near clearing price and reference price to indicate that not all 
marketable orders can be filled within the benchmark prices. See 
Amendment No. 1, supra note 4, at 22.
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D. Other Changes

    The Exchange proposes to specify in Rule 4754(b)(6) that the LULD 
closing cross process only applies to Nasdaq-listed securities, rather 
than all stocks. The Exchange also proposes a conforming change in Rule 
4754(b)(6)(B)(i) to clarify that the LULD closing cross applies when a 
trading pauses exists (rather than is triggered) at or after 3:50 p.m. 
and before 4:00 p.m. Finally, the Exchange proposes to update obsolete 
cross references in Rules 4756(c)(3)(B) and 4763(b) to Rule 4751.\44\
---------------------------------------------------------------------------

    \44\ See Amendment No. 1, supra note 4, at 23.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\45\ In particular, the 
Commission finds that the proposed rule change, as modified by 
Amendment No, 1, is consistent with Section 6(b)(5) of the Act,\46\ 
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.
---------------------------------------------------------------------------

    \45\ 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).
    \46\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposed benchmark prices and 
other changes to the LULD closing cross would more closely align the 
LULD closing cross process with the regular Nasdaq closing cross 
process and would promote a more consistent experience for those that 
participate in the crosses. The Commission also believes that the 
differences between the proposed LULD closing cross process and the 
regular Nasdaq closing cross process are reasonably designed to reflect 
the differences in market conditions leading up to the crosses.
    More specifically, the Commission believes that the proposed 
benchmark prices for the LULD closing cross would help ensure that the 
closing price of a security is reasonably related to current market 
conditions. The Commission also believes that the addition of benchmark 
prices would further harmonize the LULD closing cross process with the 
regular Nasdaq closing cross process, while reflecting market

[[Page 29867]]

conditions for the security leading up to the LULD closing cross. In 
particular, the Commission believes that the proposed methodology for 
determining the benchmark prices would reflect that there is no 
continuous trading in the security and no Nasdaq best bid and offer 
based on continuous trading in the security during the pause leading up 
to the cross,\47\ that the cross would occur following a period of 
increased volatility in the security,\48\ and the direction of trading 
that triggered the pause in the security and the existence of buy or 
sell pressure in the security leading up to the cross.\49\
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    \47\ As described above, the benchmark prices for the LULD 
closing cross would be calculated based on the reopening auction 
collars or the LULD bands, rather than the midpoint of the Nasdaq 
best bid and offer as is the case with the regular Nasdaq closing 
cross.
    \48\ As described above, the initial threshold amounts for 
determining the benchmark prices for the LULD closing cross (i.e., 
the greater of $1.00 or 10% for securities with a reference price 
greater than $1.00, and $0.50 for securities with a reference price 
equal to or less than $1.00) may be greater than the current 
threshold amounts for determining the price range for the regular 
Nasdaq closing cross (i.e., the greater of $0.50 or 10%). As with 
the regular Nasdaq closing cross, Nasdaq management would be able to 
set and modify these threshold amounts from time to time upon prior 
notice to market participants.
    \49\ As described above, the threshold amounts for the LULD 
closing cross would be applied to the most recently expanded 
reopening auction collar (if the trading pause was extended before 
3:50 p.m.) or in the direction of trading that caused the trading 
pause (if the trading pause was not extended before 3:50 p.m. or if 
the trading pause occurred at or after 3:50 p.m.), whereas the 
threshold amounts for the regular Nasdaq closing cross are applied 
to both the Nasdaq best bid and Nasdaq best offer.
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    The Commission also believes that the proposed methodology for 
determining the LULD closing cross price would reflect the proposed 
benchmark prices and allow for similar experiences for those that 
participate in the regular Nasdaq closing cross and the LULD closing 
cross. In addition, the Commission believes that the proposed 
methodology, including the proposed definitions of eligible interest 
and imbalance and the proposed treatment of IO orders, are reasonably 
designed to reflect market conditions leading up to the LULD closing 
cross, including that there is no continuous trading in the security 
and no Nasdaq best bid and offer based on continuous trading in the 
security leading up to the cross, and the existence of any buy or sell 
imbalance in the security leading up to the cross.
    Further, the Commission believes that the proposal to eliminate 
extensions of the LULD closing cross past 4:00 p.m. would provide more 
certainty regarding the timing of the LULD closing cross and align that 
timing with the regular Nasdaq closing cross. The Commission also 
believes that the proposed timing for entering, modifying, and 
cancelling MOC, LOC, and IO orders for the LULD closing cross would 
allow additional interest to participate in the cross and further align 
the LULD closing cross process with the regular Nasdaq closing cross 
process with respect to these orders.
    Finally, the Commission believes that the proposal to specify the 
dissemination of EOII would provide transparency regarding the 
information that is disseminated in advance of the LULD closing 
cross.\50\ Similarly, the Commission believes that the proposal to 
specify that the LULD closing cross only applies to Nasdaq-listed 
securities and clarify that the LULD closing cross applies when a 
trading pause exists (rather than is triggered) at or after 3:50 p.m. 
and before 4:00 p.m. would provide greater transparency regarding the 
LULD closing cross process. The Commission also believes that updating 
obsolete cross references in Rules 4756(c)(3)(B) and 4763(b) would 
provide greater clarity in the Exchange's rules.
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    \50\ The Commission also believes that the proposed differences 
between the near clearing price and reference price, and the far 
clearing price, would reflect the addition of benchmark prices to 
the LULD closing cross.
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IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 1 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-2021-009 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-NASDAQ-2021-009. 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-2021-009, and should be submitted 
on or before June 24, 2021.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
1 in the Federal Register. As discussed above, in Amendment No. 1, the 
Exchange specified the dissemination of certain imbalance information 
before the LULD closing cross, clarified the process for calculating 
the LULD closing cross price and the benchmark prices, specified the 
treatment of IO orders for purposes of LULD closing cross price 
selection, provided additional explanation to support the proposal, 
specified the implementation date for the proposal, and made other 
clarifying, technical, and conforming changes. The Commission believes 
that the changes made in Amendment No. 1 do not raise any material or 
novel regulatory issues and they provide further clarity to and 
consistency within the proposal. Accordingly, the Commission finds good 
cause, pursuant to Section 19(b)(2) of the Act,\51\ to approve the 
proposed rule change, as modified by Amendment No. 1, on an accelerated 
basis.
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    \51\ 15 U.S.C. 78s(b)(2).

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[[Page 29868]]

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\52\ that the proposed rule change (SR-NASDAQ-2021-009), as 
modified by Amendment No. 1, be, and hereby is, approved on an 
accelerated basis.
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    \52\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\53\
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    \53\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-11693 Filed 6-2-21; 8:45 am]
BILLING CODE 8011-01-P

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