Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change To Amend Equity 4 To Establish Halt Cross Price Protections and Make Other Related Changes, 91853-91862 [2024-27019]
Download as PDF
<![CDATA[
khammond on DSK9W7S144PROD with NOTICES
Federal Register / Vol. 89, No. 224 / Wednesday, November 20, 2024 / Notices
Rule 12f–1 (17 CFR 240.12f–1) under
the Securities Exchange Act of 1934
(‘‘Act’’) (15 U.S.C. 78a et seq.).
Rule 12f–1 (‘‘Rule’’), originally
adopted in 1979 pursuant to Sections
12(f) and 23(a) of the Act, and as further
modified in 1995 and 2005, sets forth
the requirements for filing an exchange
application to reinstate unlisted trading
privileges (‘‘UTP’’) in a security in
which UTP has been suspended by the
Commission pursuant to Section
12(f)(2)(A) of the Act. Under Rule 12f–
1, an exchange must submit one copy of
an application for reinstatement of UTP
to the Commission that contains
specified information, as set forth in the
Rule. The application for reinstatement,
pursuant to the Rule, must provide the
name of the issuer, the title of the
security, the name of each national
securities exchange, if any, on which
the security is listed or admitted to
unlisted trading privileges, whether
transaction information concerning the
security is reported pursuant to an
effective transaction reporting plan
contemplated by Rule 601 of Regulation
NMS, the date of the Commission’s
suspension of unlisted trading
privileges in the security on the
exchange, and any other pertinent
information related to whether the
reinstatement of UTP in the subject
security is consistent with the
maintenance of fair and orderly markets
and the protection of investors. Rule
12f–1 further requires a national
securities exchange seeking to reinstate
its ability to extend unlisted trading
privileges in a security to indicate that
it has provided a copy of such
application to the issuer of the security,
as well as to any other national
securities exchange on which the
security is listed or admitted to unlisted
trading privileges.
The information required by Rule
12f–1 enables the Commission to make
the necessary findings under the Act
prior to granting applications to
reinstate unlisted trading privileges.
This information is also made available
to members of the public who may wish
to comment upon the applications.
Without the Rule, the Commission
would be unable to fulfill these
statutory responsibilities.
This information collection
requirement was previously approved
by OMB, but the approval expired on
May 31, 2024. Accordingly, the
Commission will request a
reinstatement of OMB’s approval.
There are currently 25 national
securities exchanges subject to Rule
12f–1. The burden of complying with
Rule 12f–1 arises when a potential
respondent seeks to reinstate its ability
VerDate Sep<11>2014
18:39 Nov 19, 2024
Jkt 265001
to extend unlisted trading privileges to
any security for which unlisted trading
privileges have been suspended by the
Commission, pursuant to Section
12(f)(2)(A) of the Act. The staff estimates
that each application would require
approximately one hour to complete.
Thus, each potential respondent would
incur on average one burden hour in
complying with the Rule.
The Commission staff estimates that
there could be as many as 25 responses
annually for an aggregate annual hour
burden for all respondents of
approximately 25 hours (25 responses ×
1 hour per response). Each respondent’s
related internal cost of compliance for
Rule 12f–1 would be approximately
$242.00 (the cost of one hour of
professional work of a paralegal needed
to complete the application). The total
annual cost of compliance for all
potential respondents, therefore, is
approximately $6,050 (25 responses ×
$242.00 per response).
Compliance with Rule 12f–1 is
mandatory. Rule 12f–1 does not have a
record retention requirement per se.
However, responses made pursuant to
Rule 12f–1 are subject to the
recordkeeping requirements of Rules
17a–3 and 17a–4 of the Act. Information
received in response to Rule 12f–1 shall
not be kept confidential; the information
collected is public information.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
under the PRA unless it displays a
currently valid OMB control number.
The public may view background
documentation for this information
collection at the following website:
www.reginfo.gov. Find this particular
information collection by selecting
‘‘Currently under 30-day Review—Open
for Public Comments’’ or by using the
search function. Written comments and
recommendations for the proposed
information collection should be sent
within 30 days of publication of this
notice by December 20, 2024 to (i)
www.reginfo.gov/public/do/PRAMain or
MBX.OMB.OIRA.SEC_desk_officer@
omb.eop.gov, and (ii) Austin Gerig,
Director/Chief Data Officer, Securities
and Exchange Commission, c/o Tanya
Ruttenberg, 100 F Street NE,
Washington, DC 20549, or by sending an
email to: PRA_Mailbox@sec.gov.
Dated: November 15, 2024.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2024–27118 Filed 11–19–24; 8:45 am]
PO 00000
Frm 00182
Fmt 4703
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 101620; File No. SR–NASDAQ–
2024–065]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing of Proposed Rule Change To
Amend Equity 4 To Establish Halt
Cross Price Protections and Make
Other Related Changes
November 14, 2024.
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 November
6, 2024, 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, II,
and III, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Equity 4 to establish halt cross price
protections and make other related
changes.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/nasdaq/rules, 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 Exchange’s
1 15
2 17
BILLING CODE 8011–01–P
Sfmt 4703
91853
U.S.C. 78s(b)(1).
CFR 240.19b–4.
E:\FR\FM\20NON1.SGM
20NON1
91854
Federal Register / Vol. 89, No. 224 / Wednesday, November 20, 2024 / Notices
Rules to implement halt cross
protections to prevent clearly erroneous
executions after the reopening of trading
and ensure that securities are priced
within reasonable levels from their
halted price. The Exchange proposes to
introduce price protections to the halt
cross process that are similar to the
protections currently employed in other
auctions the Exchange conducts. In
addition, the Exchange proposes to
establish a ‘‘Hybrid Closing Cross’’ and
introduce related price protections, as
described below. With the proposed
changes, the Exchange’s processes
would be more harmonized, which the
Exchange believes would promote a
more consistent experience for members
and investors participating in the
Exchange’s auctions.
To implement the proposed price
protections, the Exchange proposes to
modify Equity 4 by: (i) adding the
proposed halt cross protections to
Equity 4, Section 4120,3 replacing the
prior procedures; (ii) adding
information about dissemination of
Auction Reference Prices and Auction
Collars in Rule 4753(a)(3); and (iii)
adding Rules for a modified closing
cross in Rule 4754(b)(7).
In addition, the Exchange proposes to
make a number of changes in Equity 4,
including: (i) removing references to the
Limit-Up-Limit-Down (‘‘LULD’’) Closing
Cross in Rule 4702 and Rule 4755; (ii)
clarifying how Auction Reference Prices
and Auction Collars are disseminated in
Rule 4753(a)(3); (iii) clarifying rule
language about cancellation of IOC
Orders for halted securities in Rule
4753(e); (iv) specifying that the Nasdaq
Closing Cross shall include the LULD
Closing Cross and the Hybrid Closing
Cross in Rule 4754(a)(6); (v) adding
‘‘NOII’’ as an alternative defined term
for ‘‘Order Imbalance Indicator’’ in Rule
4754(a)(7); (vi) adding ‘‘EOII’’ as an
alternative defined term for ‘‘Early
Order Imbalance Indicator’’ in Rule
4754(a)(10); (vii) amending language
related to handling of late Limit on
Close (‘‘LOC’’) Orders 4 in Rule
4754(b)(6); and (viii) modifying the
priority for orders participating in the
LULD Closing Cross in Rule 4754(b)(6).
khammond on DSK9W7S144PROD with NOTICES
Background
The Exchange currently offers price
protection mechanisms in most of the
3 All of the Rule 4000 series referenced in this
filing are within Equity 4.
4 A ‘‘Limit On Close Order’’ or ‘‘LOC Order’’ is
an Order Type entered with a price that may be
executed only in the Nasdaq Closing Cross or the
LULD Closing Cross, and only if the price
determined by the Nasdaq Closing Cross or the
LULD Closing Cross is equal to or better than the
price at which the LOC Order was entered. See Rule
4702(b)(12).
VerDate Sep<11>2014
18:39 Nov 19, 2024
Jkt 265001
auctions it conducts during the normal
course of trading (including opening/
closing auction, market-wide circuit
breaker (‘‘MWCB’’) halts,5 and LULD
pauses 6). In February 2023, there was
an instance where a stock was halted for
pending news and reopened at a price
that was significantly away from its
current market value due to an
erroneous market order. Given such
event, the Exchange believes that
additional price protections specific to
the halt cross process are needed.
Implementing these new protections
would help to ensure that securities
reopen within a reasonable price range
after the Exchange halts a security.
The Exchange proposes to implement
a new price protection mechanism to
the Nasdaq Halt Cross 7 process. In
2017, the Exchange amended its auction
process for reopening a Nasdaq listed
security following a trading pause
initiated pursuant to the LULD Plan.8
Specifically, the Exchange modified its
Rules such that initial Auction Collars
following a trading pause are calculated
based on the Price Band that triggered
the trading pause, and instituted the
process for extending the auction and
further widening the collars if necessary
to accommodate buy or sell pressure
outside of the collars then in effect.9 In
2020, the Exchange amended its auction
process for reopening a Nasdaq listed
security following a MWCB halt to
follow a process similar to the process
applied for releasing a security
following a trading pause under the
LULD Plan.10 The Exchange believes
that these changes have been effective in
facilitating a fair and orderly market
following trading pauses initiated
pursuant to the LULD Plan and
following MWCB halts, and proposes to
implement similar functionality for
certain trading halts.11 The Exchange
5 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.
6 A LULD pause is a trading pause pursuant to the
Plan to Address Extraordinary Market Volatility or
‘‘LULD Plan’’. See https://www.luldplan.com/.
7 The ‘‘Nasdaq Halt Cross’’ is the process for
determining the price at which Eligible Interest
shall be executed at the open of trading for a halted
security and for executing that Eligible Interest. See
Rule 4753(a)(4). ‘‘Eligible Interest’’ shall mean 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 Nasdaq Rule 4753(a)(5).
8 See Securities Exchange Act Release No. 79876
(January 25, 2017), 82 FR 8888 (January 31, 2017)
(SR–NASDAQ–2016–131).
9 Id.
10 See Securities Exchange Act Release No. 88383
(March 13, 2020), 85 FR 15819 (March 19, 2020)
(SR–NASDAQ–2020–012).
11 See infra note 13. The Exchange also notes that
both NYSE Arca, Inc. and Cboe BZX Exchange, Inc.
PO 00000
Frm 00183
Fmt 4703
Sfmt 4703
believes that the proposed changes
would promote price formation and
provide a more consistent reopening
process for members and investors
following such trading halts.
The new price protection mechanism
would be similar to what is currently
utilized for reopening stocks following a
MWCB halt or LULD trading pause,
where pre-determined price collars
would be built into the halt cross
process. As described in more detail
below, the Exchange proposes to
establish a threshold of 10% below and
above a reference price, within which
the price of the stock must fall to
reopen. If the price falls outside of those
collars after an initial 5-minute displayonly period, the collars would be
widened by the same threshold amount
as the initial collars and a subsequent 5minute display-only period would
commence. If the price falls outside of
those collars after the second 5-minute
display-only period, the collars would
be widened by 20% below and above
the reference price and a third 5-minute
period would commence. This process
would continue (at 20%) until the price
falls within the set thresholds, after
which the auction would execute and
the stock would reopen for trading.
Customers would benefit from having
the new price collar protections in place
as it would ensure that executions
received during the halt cross process
are filled at prices that reflect the true
market for the security. Allowing
additional time for improved price
discovery could increase market
participation, improving liquidity and
helping reduce price volatility.12
Proposed Changes to Rule 4120 (Limit
Up-Limit Down Plan and Trading Halts)
As noted above, the Exchange
proposes to introduce price protections
to the halt cross process that are similar
to the protections used today for
reopening stocks following a LULD
pause and MWCB halt and would
ensure that the reopening price is
reasonably related to current market
conditions. The Exchange proposes to
remove the current procedure for
terminating certain trading halts
provided in Rule 4120(c)(7) and replace
implemented similar processes for resuming trading
following non-LULD regulatory halts. 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)
(SRCboeBZX–2018–090).
12 During 2023, there were 541 halts that would
have been subject to the proposed rule if it was in
effect at the time. Of those 540 halts, 296 of the
securities would have fallen outside of a 10% collar
after the first quoting period. Example A on page
8 illustrates the proposed price protections.
E:\FR\FM\20NON1.SGM
20NON1
Federal Register / Vol. 89, No. 224 / Wednesday, November 20, 2024 / Notices
khammond on DSK9W7S144PROD with NOTICES
with proposed rule language describing
the new procedure in proposed Rule
4120(c)(7). The Exchange believes that
the imposition of price collars and a
mechanism similar to what it currently
utilized for reopening a security
following a LULD trading pause or a
MWCB halt would provide the
Exchange with a price protection
mechanism that is lacking under the
Exchange’s current Rules. The current
reopening process 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 believes that its
proposal would facilitate a fair and
orderly market by reducing the potential
for significant price disparity in postauction trading.
Example A: The below is illustrative
of the proposed price protections to the
halt cross process:
• 1:30p.m.: assume symbol ABC
enters a regulatory halt; the last sale/
reference price is $100.00; and auction
collars are calculated at $90.00/$110.00;
• 1:35p.m.: the calculated auction
reference price is $114.00; the display
only period is extended to 1:40pm; and
the new auction collars are $80.00/
$120.00;
• 1:40p.m.: the calculated auction
reference price is $122.00; the display
only period is extended to 1:45pm; and
the new auction collars are $60.00/
$140.00;
• 1:45p.m.: the calculated auction
reference price is $132.00; at 1:45:01pm,
there is no longer an order imbalance so
the halt cross commences and the
security is released for trading.
The introductory language in
proposed Rule 4120(c)(7) provides that,
a trading halt initiated under Rule
4120(a)(1), (4), (5), (6), (9), (10), (11) or
(14) 13 shall be terminated when Nasdaq
13 This covers trading halts related to
dissemination of material news for Nasdaq-listed
securities (see Rule 4120(a)(1)); halts of Nasdaqlisted American Depository Receipts or other
Nasdaq-listed securities where underlying
securities are halted by foreign markets or
regulators for regulatory reasons (see Rule
4120(a)(4)); halts related to Exchange requests from
issuers relating to material news, the issuer’s ability
to meet listing qualification requirements, or other
information necessary to protect investors and the
public interest (see Rule 4120(a)(5)); halts related to
extraordinary market activity (see Rule 4120(a)(6));
halts in certain products where the Intraday
Indicative Value or index value is not disseminated
as required (see Rule 4120(a)(9)); halts in certain
products where the net asset value is not being
disseminated to all market participants at the same
time (see Rule 4120(a)(10)); halts related to large
price moves for Nasdaq-listed securities not covered
by the LULD Plan (see Rule 4120(a)(11)), and halts
related to reverse stock splits (see Rule 4120(a)(14)).
In 2023, 98% of these aforementioned halts were
news-related halts. The Exchange focuses on these
VerDate Sep<11>2014
18:39 Nov 19, 2024
Jkt 265001
releases the security for trading. It
would also provide that, for any such
security listed on Nasdaq, prior to
terminating the halt, there would be a 5minute ‘‘Initial Display Only Period’’
during which market participants may
enter quotations and orders in that
security in Nasdaq systems. This is
consistent with the process employed
for reopening securities following LULD
trading pauses.14 This is also consistent
with the process employed for
reopening securities following MWCB
halts, except that in the case of a MWCB
halt, the Initial Display Only Period is
15 minutes in length (as opposed to 5)
to coincide with the entire duration of
the MWCB halt.15 In addition, such
introductory language is consistent with
current rule language, with minor
revisions. The minor revisions include
referencing a ‘‘halt’’ rather than both a
‘‘halt or pause’’ for clarification and
adding a specific defined term of
‘‘Initial Display Only Period’’ for the 5minute period referenced. The types of
halts covered by Rule 4120(c)(7) (i.e.,
trading halt initiated under Rule
4120(a)(1), (4), (5), (6), (9), (10), (11) or
(14)) remain unchanged.
Proposed Rule 4120(c)(7)(A) describes
the Exchange’s proposed process for
establishing the ‘‘Auction Reference
Price’’. The Auction Reference Price
would mean: (a) the Nasdaq last sale
price (either round or odd lot); and (b)
if there is no Nasdaq last sale price, the
prior trading day’s Nasdaq Official
Closing Price (‘‘NOCP’’).16 The
Exchange proposes to use the Nasdaq
last sale price 17 (or if none, the NOCP)
as this price is reflective of the current
market for the halted security. The
Exchange proposes to use Nasdaq
specific prices rather than market-wide
prices, consistent with MWCB, because
of the accessibility and controllability of
the Exchange data. In rare instances
where there is no Nasdaq last sale price
or NOCP, Nasdaq’s MarketWatch
Department (‘‘MarketWatch’’) would
have discretion to set the Auction
Reference Price.18 The Exchange
specific trading halts because these halts currently
not do have any price protection mechanism in
place for the reopening of securities following a
halt.
14 See Rule 4120(c)(10).
15 See Rule 4121(d).
16 If there is no Nasdaq last sale price, the prior
trading day’s NOCP is preferable for establishing
the Auction Reference Price. The NOCP, as opposed
to the last sale price on another exchange, serves
as the next best reference price as it is derived from
the primary market center for the Nasdaq-listed
securities.
17 The Nasdaq last sale price reflects the last sale
price of that trading session.
18 Although the proposal would allow for some
discretion to MarketWatch, the Exchange notes that
PO 00000
Frm 00184
Fmt 4703
Sfmt 4703
91855
proposes to set the Auction Reference
Price in a manner similar to that which
is utilized for MWCB halts, in which the
Auction Reference Price is the Nasdaq
last sale price or if none, the NOCP.19
However, the Exchange believes it is
important to have a mechanism by
which it may set a reference price in
rare situations where there is no Nasdaq
last sale price or NOCP. Similar to
MWCB, the Exchange is not proposing
to use the LULD Auction Reference
Price, which is based on the Price Band
that triggered the trading pause,20 as the
Exchange believes that a different
reference is necessary for a reopening
process that is unrelated to the LULD
mechanism. LULD and halt crosses use
distinctly different reference prices in
the auction pricing methodology. The
reference price in a LULD auction in all
cases will be either the pre-calculated
upper or lower LULD band value that
was last disseminated. In contrast, the
reference price of a regulatory halt will
use the prevailing last price or
designated price in the event there is no
last price. The last prevailing price is
more representative of the current value
of a security, and as such, a better
reference price to use for the halt
reopening auction methodology.21
Proposed Rule 4120(c)(7)(A) also
describes the Exchange’s proposed
process for determining the upper and
lower ‘‘Auction Collar’’ prices. For
securities with an Auction Reference
Price of greater than $1, the lower
Auction Collar price (which is rounded
to the nearest minimum price
increment 22) is derived by subtracting
$1 or 10% of the Auction Reference
Price, whichever is greater, from the
Auction Reference Price. For securities
with an Auction Reference Price of $1
or less, the lower Auction Collar price
(which is rounded to the nearest
minimum price increment) is derived by
subtracting $0.50 or 10% of the Auction
Reference Price, whichever is greater,
from the Auction Reference Price. For
securities with an Auction Reference
such discretion is limited to setting the Auction
Reference Price in these rare instances, which does
not determine the ultimate price at which the
security will trade. In exercising such limited
discretion in these rare instances, MarketWatch
would source the best estimation for the Auction
Reference Price from an external vendor.
19 See Rule 4121(d)(1)(A).
20 See Rule 4120(c)(10)(A)(i).
21 Further, LULD bands are published only during
regular trading hours 9:30a.m.–4:00p.m. which
prevents it from being considered as a refence price
as halt auctions can occur at all eligible trading
hours 4:00a.m.–8:00p.m.
22 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 Equity 1, Section 1(a)(13).
E:\FR\FM\20NON1.SGM
20NON1
91856
Federal Register / Vol. 89, No. 224 / Wednesday, November 20, 2024 / Notices
Price of greater than $1, the upper
Auction Collar price (which is rounded
to the nearest minimum price
increment) is derived by adding $1 or
10% of the Auction Reference Price,
whichever is greater, to the Auction
Reference Price. For securities with an
Auction Reference Price of $1 or less,
the upper Auction Collar price (which
is rounded to the nearest minimum
price increment) is derived by adding
$0.50 or 10% of the Auction Reference
Price, whichever is greater, to the
Auction Reference Price. The proposed
process for calculating the upper and
lower Auction Collars is similar to the
process used to calculate MWCB
Auction Collars, where initial
thresholds are applied on both sides of
the Auction Reference Price.23 In
contrast, the initial price collar
thresholds used for the LULD
mechanism are determined by the
direction of the trading that invoked the
trading pause and the price of the LULD
Band in place at the time the trading
pause was triggered.24 In this case,
because there would not be a securityspecific pricing direction reason for the
halt, the Exchange believes that it is
appropriate to apply the initial
thresholds on both sides of the Auction
Reference Price, as is currently done in
the case of a MWCB halt. While the
specific price collar thresholds used for
the LULD and MWCB mechanisms are
5% of the Auction Reference Price, the
proposed rule change would provide
price collar thresholds of 10% (and 20%
in the event a security enters a third
period, as described below) of the
Auction Reference Price. These price
collar thresholds are appropriate as they
balance the need for price protections
with the desire to promote efficient
price discovery and minimize the length
of the interruption from a trading halt.
The Exchange believes it is appropriate
to set the price collar thresholds at a
higher percentage as compared to the
price collar thresholds used for the
LULD and MWCB mechanisms because
halts under the proposal are more likely
to have a significant price impact,
warranting wider collars to allow for
price discovery to happen quicker.25
23 See
Rule 4121(d)(1)(B).
Rule 4120(c)(10)(A)(ii). In the LULD
context, the initial price collar thresholds are
asymmetrically updated because direction of the
order imbalance (buyer/seller imbalances) are
known at the time of the pause. In the halt cross
context, the direction of the order imbalance
(buyer/seller imbalances) is not known at the time
of the halt. Accordingly, the initial price collar
thresholds need to be applied symmetrically before
arriving at the price at which the security will trade.
25 For example, a news driven halt related to a
drug announcement may warrant a significant price
movement in a short period of time and a wider
khammond on DSK9W7S144PROD with NOTICES
24 See
VerDate Sep<11>2014
18:39 Nov 19, 2024
Jkt 265001
While the LULD and MWCB
mechanisms provide a price collar
threshold of $0.15 for securities with an
Auction Reference Price of $3 or less,26
the Exchange proposes to include
minimum threshold amounts for
calculating the price collars (i.e., $0.50
for securities with an Auction Reference
Price of $1 or less and $1 for securities
with an Auction Reference Price of
greater than $1) to ensure that the
Auction Collars for lower-priced
securities are wide enough to allow for
reopening and effective price discovery.
This approach is reasonable because
lower priced stocks can have significant
price movement which warrants a
greater minimum threshold in order to
allow for efficient price discovery and a
more timely reopening.
Proposed Rule 4120(c)(7)(B) describes
what would happen at the end of the
Initial Display Only Period, the
circumstances when the Exchange
would extend the Display Only Period,
and how the Exchange would adjust the
Auction Collars for an extension. At the
conclusion of the Initial Display Only
Period, the security would be released
for trading unless, at the end of an
Initial Display Only Period, Nasdaq
detects an order imbalance 27 in the
security. In that case, Nasdaq would
extend the Display Only Period for an
additional 5-minute period (‘‘Extended
Display Only Period’’), and the Auction
Collar prices would be adjusted as
follows: The new lower Auction Collar
price is derived by subtracting $1 or
10% of the initial Auction Reference
Price, whichever is greater, from the
previous lower Auction Collar price for
securities with an Auction Reference
Price of greater than $1 or $0.50 or 10%
of the initial Auction Reference Price,
whichever is greater, from the previous
lower Auction Collar price for securities
with an Auction Reference price of $1
or less. The new upper Auction Collar
price is derived by adding $1 or 10% of
the initial Auction Reference Price,
whichever is greater, to the previous
upper Auction Collar price for securities
with an Auction Reference Price of
greater than $1 or $0.50 or 10% of the
initial Auction Reference Price,
whichever is greater, to the previous
upper Auction Collar price for securities
with an Auction Reference price of $1
or less. The proposed process for
initiating extensions is similar to the
process currently used for extending
collar would allow the stock to reopen in a
reasonable period.
26 See Rule 4120(c)(10)(A)(ii); Rule 4121(d)(1)(B).
27 The definition of an order imbalance is
described below and included in proposed Rule
4120(c)(7)(E).
PO 00000
Frm 00185
Fmt 4703
Sfmt 4703
trading pauses or halts under LULD 28
and MWCB,29 with a couple differences.
First, the proposed minimum thresholds
and percentages used to calculate the
Auction Collars during the Extended
Display Only Period are consistent with
that of the Initial Display Only Period
and continue to differ from the LULD
and MWCB mechanisms in that regard,
as discussed above. Second, the
proposed process for calculating the
upper and lower Auction Collars during
the Extended Display Only Period is
similar to the process used to calculate
Auction Collars during the Initial
Display Only Period, where thresholds
are applied on both sides of the Auction
Reference Price. In contrast, the price
collar thresholds used for the LULD and
MWCB mechanisms are applied only in
the direction that caused extension of
the Display Only Period.30 In this case,
the Exchange believes that it is
appropriate to continue to apply the
thresholds on both sides of the Auction
Reference Price to accommodate price
swings in either direction and to
increase the likelihood of resolving
order imbalances.
Proposed Rule 4120(c)(7)(C) explains
what would happen at the end of the
Extended Display Only Period. At the
conclusion of the Extended Display
Only Period, the security would be
released for trading unless, at the end of
the Extended Display Only Period,
Nasdaq detects an order imbalance in
the security. In that case, Nasdaq would
further extend the Display Only Period
for an additional 5-minute period
(‘‘Third Period’’), and the Auction
Collar prices would be adjusted as
follows: The new lower Auction Collar
price is derived by subtracting $1 or
20% of the initial Auction Reference
Price, whichever is greater, from the
previous lower Auction Collar price for
securities with an Auction Reference
Price of greater than $1 or $0.50 or 20%
of the initial Auction Reference Price,
whichever is greater, from the previous
lower Auction Collar price for securities
with an Auction Reference price of $1
or less. The new upper Auction Collar
price is derived by adding $1 or 20% of
the initial Auction Reference Price,
whichever is greater, to the previous
upper Auction Collar price for securities
with an Auction Reference Price of
greater than $1 or $0.50 or 20% of the
initial Auction Reference Price,
whichever is greater, to the previous
upper Auction Collar price for securities
with an Auction Reference price of $1
or less. Nasdaq would release the
28 See
Rule 4120(c)(10)(B).
Rule 4121(d)(2).
30 See Rule 4120(c)(10)(B); Rule 4121(d)(2).
29 See
E:\FR\FM\20NON1.SGM
20NON1
Federal Register / Vol. 89, No. 224 / Wednesday, November 20, 2024 / Notices
security for trading at the first point 31
there is no order imbalance.32 The
Exchange believes it is appropriate to
widen the collars by 20% instead of
10% to the extent a security has not
reopened after the Extended Display
Only Period because the order
imbalance may be indicative that a
significant price movement in the
security is warranted based on the news
announcement (or otherwise). If the
security has not been released for
trading by the conclusion of the Third
Period, Nasdaq will continue to adjust
the Auction Collar prices every five
minutes in the manner described in this
Rule 4120(c)(7)(C) until the security is
released for trading. Other than the
change in the percentage by which the
Exchange will widen the collars, the
process in proposed Rule 4120(c)(7)(C)
is consistent with that of the LULD and
MWCB mechanisms.33
Proposed Rule 4120(c)(7)(D) explains
that, notwithstanding Rule
4120(c)(7)(A)–(C), a trading halt that
exists at or after 3:50 p.m.34 in a stock
shall reopen via a Hybrid Closing Cross
pursuant to Rule 4754(b)(7). As
described in more detail below, the
Hybrid Closing Cross would provide an
alternative process for executing closing
trades on the Exchange. Proposed Rule
4120(c)(7)(D) is consistent with the
LULD mechanism, where a stock
reopens via a LULD Closing Cross where
a trading pause exists at or after 3:50
p.m.35
Proposed Rule 4120(c)(7)(E) explains
when an order imbalance exists.
Specifically, it provides that, for
purposes of Rule 4120(c)(7), upon
completion of the cross calculation an
order imbalance shall be established as
follows: the calculated price at which
the security would be released for
trading is above (below) the upper
(lower) Auction Collar price; or (ii) all
khammond on DSK9W7S144PROD with NOTICES
31 The
‘‘first point’’ there is no order imbalance
would occur after the next NOII message
dissemination.
32 Unlike the Initial Display Only Period and the
Extended Display Only Period, the security could
be released for trading prior to the end of the Third
Period. For example, assume ABC security enters a
regulatory halt at 1:30 p.m. The last sale/reference
price is $100. The auction collars are $90 and $110.
At 1:35 p.m., the calculated price at which the
security would be released for trading is $122. The
display only period is extended until 1:40. The new
auction collars are $80 and $120. At 1:40 p.m., the
calculated price at which the security would be
release for trading is still $122. The Third Period
commences at 1:40 p.m. The new auction collars
are $60 and $140. At 1:40:01 p.m., the system
detects that there is no longer an Order Imbalance
so the Halt Cross commences and the security is
released for trading.
33 See Rule 4120(c)(10)(C); Rule 4121(d)(3).
34 All times referenced in this filing are Eastern
Time.
35 See Rule 4120(c)(10)(D).
VerDate Sep<11>2014
18:39 Nov 19, 2024
Jkt 265001
market orders would not be executed in
the cross. This is the same manner in
which an order imbalance is established
under the current reopening process for
trading pauses and MWCB halts.36
Proposed Rule 4120(c)(7)(F) provides
that, if the Exchange is unable to reopen
trading due to a systems or technology
issue, it shall notify the securities
information processor immediately.
This is consistent with the Exchange’s
notification process for LULD.37
In sum, the proposed changes to Rule
4120(c)(7) would establish a price
protection mechanism for the halt cross
process for securities halted under the
provisions noted above.38 The proposed
price protection mechanism is similar to
what is currently utilized for reopening
stocks following a LULD trading pause
or MWCB halt. Price collars would be
built into the halt cross process and if
the price falls outside of those collars
after an initial 5-minute display only
period, the collars would be widened by
the same threshold amount as the initial
collars and a subsequent 5-minute
display only period would commence. If
the price falls outside of those collars
after the second 5-minute display only
period, the collars would be widened by
a wider amount and a subsequent, third
period would commence. This process
would continue until the price falls
within the set thresholds, after which
the auction would execute and the stock
would reopen for trading. Customers
would benefit from having the new
price collar protections in place as it
would ensure that executions received
during the halt cross process are filled
at prices that reflect the true market for
the security. Allowing additional time
for improved price discovery could
increase market participation,
improving liquidity and helping reduce
price volatility.
Proposed Changes to Rule 4702 (Order
Types)
The Exchange proposes to amend
Rule 4702 by deleting references to the
LULD Closing Cross from Rule
4702(b)(12) (Limit on Close (LOC)
Orders) and Rule 4702(b)(17) (Extended
Trading Close (ETC) Orders). The
Exchange believes that the LULD
Closing Cross 39 as well as the proposed
Hybrid Closing Cross 40 should be
36 See
Rule 4120(c)(10)(E); Rule 4121(d)(4).
Rule 4120(a)(12)(G).
38 Supra note 13.
39 The LULD Closing Cross is the Exchange’s
auction process for executing closing trades in
Nasdaq-listed securities when a trading pause
pursuant to Rule 4120(a)(12) exists at or after 3:50
p.m. and before 4:00 p.m. See Rule 4754(b)(6).
40 As described below, the Exchange proposes to
establish the Hybrid Closing Cross in Rule
37 See
PO 00000
Frm 00186
Fmt 4703
Sfmt 4703
91857
included in the definition of the Nasdaq
Closing Cross because the LULD Closing
Cross and the Hybrid Closing Cross are
alternative processes for executing
closing trades on the Exchange and
therefore do not need to be specifically
referenced in the Rules where the
Nasdaq Closing Cross is already
referenced, thereby simplifying the rule
language. For clarification, the Exchange
also proposes to specify that the Nasdaq
Closing Cross includes the LULD
Closing Cross and Hybrid Closing Cross
in the definition of the Nasdaq Closing
Cross in Rule 4754(a)(6), as described
below.
Proposed Changes to Rule 4753 (Nasdaq
Halt Cross)
First, the Exchange proposes to clarify
that Auction Reference Prices and
Auction Collars are not included in the
Order Imbalance Indicator, but instead
are disseminated in a separate message.
For purposes of LULD and MWCB, the
Rules incorrectly state that the Auction
Reference Prices and Auction Collars
are included in the Order Imbalance
Indicator and the Exchange proposes to
correct such inaccuracies by modifying
Section (F) and (G) in Rule 4753(a)(3)
accordingly.
The Exchange also proposes to add
section (H) in Rule 4753(a)(3). This
section (H) would provide that, for
purposes of a trading halt initiated
under Rule 4120(a)(1), (4), (5), (6), (9),
(10), (11) or (14), the Exchange will
disseminate a separate message with
Auction Reference Prices and Auction
Collars, as defined in Rule
4120(c)(7)(A).41 This is consistent with
dissemination of Auction Reference
Prices and Auction Collars for purposes
of LULD pauses and MWCB halts.
Rule 4753(e) currently states that any
IOC Order for a halted security that is
entered prior to the Nasdaq Closing
Cross and for which the halt remains in
effect at the commencement of the
Nasdaq Closing Cross, shall be cancelled
immediately after the Nasdaq Closing
Cross. With the introduction of the
Hybrid Closing Cross, as described
further below, if the quoting period has
4754(b)(7). The Hybrid Closing Cross would be the
Exchange’s auction process for executing closing
trades in Nasdaq-listed securities when a trading
halt pursuant to Rules 4120(a)(1), (4), (5), (6), (9),
(10), (11), or (14) exists at or after 3:50 p.m. and
before 4:00 p.m.
41 Dissemination will take place on Nasdaq’s
proprietary feed, Nasdaq TotalView-ITCH. As is the
case with MWCB halts and to be consistent with
current Exchange processes, the Exchange will not
send auction information to the SIP, including price
collars and the number of extensions. While auction
information for LULD pauses is disseminated to the
SIP per plan requirements, the Exchange does not
disseminate auction information to the SIP for other
halts.
E:\FR\FM\20NON1.SGM
20NON1
91858
Federal Register / Vol. 89, No. 224 / Wednesday, November 20, 2024 / Notices
khammond on DSK9W7S144PROD with NOTICES
commenced at any time prior to 4 p.m.
IOC orders for halted securities would
execute in the Hybrid Closing Cross.
Similarly, IOC orders could also execute
in the LULD Closing Cross. Therefore,
the Exchange proposes to clarify, in
Rule 4753(e), that any IOC Order for a
halted security that is entered prior to
the Nasdaq Closing Cross and for which
the halt remains in effect at the
commencement of the Nasdaq Closing
Cross, shall either execute in the
Nasdaq Closing Cross or be cancelled
immediately after the Nasdaq Closing
Cross.
Proposed Changes to Rule 4754 (Nasdaq
Closing Cross)
First, the Exchange proposes to
amend the definition of ‘‘Nasdaq
Closing Cross’’ in Rule 4754(a)(6). As
noted above, the Exchange believes that
the LULD Closing Cross and Hybrid
Closing Cross should be included in the
definition of Nasdaq Closing Cross
because they are types of closing
crosses. The Exchange therefore
proposes to clarify that the Nasdaq
Closing Cross shall include the LULD
Closing Cross and the Hybrid Closing
Cross in Rule 4754(a)(6). Such change
would allow the Exchange to simplify
its rule language and prevent the
Exchange from needing to list the LULD
Closing Cross and Hybrid Closing Cross
where the Nasdaq Closing Cross is
referenced in the Rules.
Second, the Exchange proposes to add
‘‘NOII’’ as an alternative defined term
for ‘‘Order Imbalance Indicator’’ in Rule
4754(a)(7). NOII is currently referenced
in the Rules and the Exchange proposes
to add references to NOII in the
proposed rule change; however, NOII is
not currently defined in the Rules. The
Exchange is not proposing to make any
substantive changes to the meaning of
NOII or Order Imbalance Indicator.
Rather, the Exchange wishes to provide
clarity regarding the definition of NOII.
Third, the Exchange proposes to add
‘‘EOII’’ as an alternative defined term for
‘‘Early Order Imbalance Indicator’’ in
Rule 4754(a)(10). EOII is currently
referenced in the Rules and the
Exchange proposes to add references to
EOII in the proposed rule change;
however, EOII is not currently defined
in the Rules. The Exchange is not
proposing to make any substantive
changes to the meaning of EOII or Early
Order Imbalance Indicator. Rather, the
Exchange wishes to provide clarity
regarding the definition of EOII.
Fourth, the Exchange proposes to
make two changes to Rule 4754(b)(6),
which relates to the LULD Closing Cross
Following Limit-Up-Limit-Down
Trading Pause. In part, Rule
VerDate Sep<11>2014
18:39 Nov 19, 2024
Jkt 265001
4754(b)(6)(F)(ii) sets forth Rules as to
how the Exchange would handle LOC
Orders entered between 3:55 p.m. and
immediately prior to 3:58 p.m. The
Exchange wishes to make a clarifying
change to specify that the relevant
timeframe is after the NOII immediately
following 3:55 p.m. and immediately
prior to 3:58 p.m. In other words,
instead of stating ‘‘between 3:55 p.m. ET
and immediately prior to 3:58 p.m. ET,’’
the Exchange proposes to state, ‘‘after
the NOII immediately following 3:55
p.m. ET and immediately prior to 3:58
p.m. ET’’ to ensure the Rule is precise.
In addition, the Exchange wishes to
modify in Rule 4754(b)(6)(G) that orders
participating in the LULD Closing Cross
shall be executed in price/display/time
priority rather than just price/time
priority as the current rule language
states. This modification would be
consistent with how the Exchange
generally assigns priority with the
execution of Displayed Orders and
interest before Non-Displayed Orders.
Specifically, Rule 4754(b)(3)(B)
prescribes that, in the Closing Cross, the
Exchange prioritizes as a group the
execution of Displayed Orders and
interest, with price as the primary
priority, and then within each price
level, with time as the secondary
priority.42 Accordingly, the Exchange
proposes to update the rule to reflect
this current behavior, whereby
displayed orders are executed ahead of
hidden orders. Such change would
provide more specificity in the Rule for
accuracy.
Lastly, in proposed Rule 4754(b)(7),
the Exchange proposes to adopt a
modified closing cross (defined as the
‘‘Hybrid Closing Cross’’) that the
Exchange would conduct for Nasdaqlisted securities when a trading halt
pursuant to Rule 4120(a)(1), (4), (5), (6),
(9), (10), (11) or (14) exists at or after
3:50 p.m. and before 4:00 p.m.43 Today,
the Exchange has not needed to handle
a halt reopening auction at or after 3:50
p.m. and before 4:00 p.m. due to the
current policy of MarketWatch not
scheduling any reopening of a security
past 3:30 p.m. The Exchange in practice
does not want to negatively impact the
price discovery process because of the
possibility of a conflict between a halt
cross reopening and the official closing
cross in the closing minutes of the
42 See Rule 4754(b)(3)(B); see also Securities
Exchange Act Release No. 34–97973 (July 25, 2023),
88 FR 49522 (July 31, 2023) (Notice of Filing and
Immediate Effectiveness of File No. SR–NASDAQ–
2023–024 to Amend Equity 4, Rules 4752, 4753,
and 4754).
43 In contrast, today, such halts would typically
not be scheduled to resume trading during such
period, avoiding interference with the closing cross.
PO 00000
Frm 00187
Fmt 4703
Sfmt 4703
trading day. Under the Exchange’s halt
cross protection proposal, however, and
its advent of collars and extensions, it
is possible for a stock to be scheduled
for reopening well ahead of the 4:00
p.m. close and have its quoting period
extended multiple times past 3:50 p.m.
due to its reference price falling outside
of the established collars. As such, our
proposed Hybrid Closing Cross process
eliminates the possibility of a
conflicting cross and allows the
Exchange to ensure that it can establish
an efficient price discovery process for
the closing price upon the market close
at 4:00 p.m. The Hybrid Closing Cross
provides an alternative process for
executing closing trades on Nasdaq for
when certain trading halts 44 exist at or
after 3:50 p.m. and before 4:00 p.m. (if
the Display Only Period has begun for
a halted security). The Exchange
believes that the price protections for
the LULD Closing Cross have been
effective at facilitating price discovery
and ensuring that the closing price of a
security is reasonably based on current
market conditions in the security, and
therefore proposes to adopt similar price
protections for its Hybrid Closing Cross.
Under the proposal, a halted security
would only be eligible to resume trading
via the Hybrid Closing Cross after the
Display Only Period begins.45 The
Exchange proposes to define ‘‘Auction
Reference Price’’, ‘‘Eligible Interest’’,
and ‘‘Imbalance’’ in Rule 4754(b)(7)(A)
for purposes of Rule 4754(b)(7).
‘‘Auction Reference Price’’ would have
the same meaning as defined in Rule
4120(c)(7)(A), discussed above. ‘‘Eligible
Interest’’ would have the same meaning
as ‘‘Close Eligible Interest’’ in Rule
4754(a),46 with the addition of any new
orders with an eligible underlying Order
Type and Attribute, entered during the
trading halt. ‘‘Imbalance’’ would mean
the number of shares of buy or sell
Market on Close (‘‘MOC’’),47 LOC
Orders, or Eligible Interest that cannot
44 See
supra note 13.
halted stock that has not entered the Display
Only Period at or after 3:50 and before 4:00 p.m.
would not participate in the Hybrid Closing Cross
and would remain halted.
46 ‘‘Close Eligible Interest’’ means 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. The System
will delay processing any full cancellation request
for Close Eligible Interest made during the Nasdaq
Closing Cross until such time as the Nasdaq Closing
Cross concludes, except for securities in a halt or
pause. During a halt or pause, the System will
process any full or partial cancellation request for
Close Eligible Interest made for such halted or
paused security during the Nasdaq Closing Cross.
See Rule 4754(a)(1).
47 A ‘‘Market On Close Order’’ or ‘‘MOC Order’’
is an Order Type entered without a price that may
be executed only during the Nasdaq Closing Cross.
See Rule 4702(b)(11).
45 A
E:\FR\FM\20NON1.SGM
20NON1
Federal Register / Vol. 89, No. 224 / Wednesday, November 20, 2024 / Notices
khammond on DSK9W7S144PROD with NOTICES
be matched with other MOC, LOC, or
Imbalance Only (‘‘IO’’) Order shares or
Eligible Interest at a particular price at
any given time. These proposed
definitions are consistent with the
definitions of Eligible Interest and
Imbalance used for purposes of the
LULD Closing Cross.48
In proposed Rule 4754(b)(7)(B), the
Exchange proposes to specify the timing
of the Hybrid Closing Cross and After
Hours Trading, as well as what happens
if there is insufficient trading in the
System to execute a Hybrid Closing
Cross. For trading halts existing at or
after 3:50 and before 4:00 p.m., the
Hybrid Closing Cross would occur at
4:00 p.m. After Hours Trading would
commence after the Hybrid Closing
Cross executes. If there is insufficient
trading interest in the Nasdaq system to
execute a Hybrid Closing Cross, Nasdaq
would not conduct a cross in that
security and would instead use the last
sale on Nasdaq as the NOCP in that
security for that trading day. After
Hours Trading would commence after
Nasdaq publishes the NOCP. Such
procedures are consistent with that of
the LULD Closing Cross.49
Proposed Rule 4754(b)(7)(C) provides
information about dissemination of the
EOII 50 and NOII 51 and about the price
at which the Hybrid Closing Cross
would execute. Specifically, Nasdaq
proposes to continue disseminating the
EOII and the NOII pursuant to Rule
4754(b)(1) until After Hours Trading
begins. The Near Clearing Price 52 and
Reference Prices contained in the EOII
and the NOII, as applicable, would
represent the price at which the Hybrid
Closing Cross would execute should the
cross conclude at that time, bounded by
the Threshold Prices (defined below),
and the Far Clearing Price 53 would
represent the price at which the Hybrid
Closing Cross would execute should the
cross conclude at that time, if it were
not bounded by the Threshold Prices
(defined below). Such procedures are
similar to that of the LULD Closing
Cross.54
Proposed Rule 4754(b)(7)(D) would
specify that the Hybrid Closing Cross
would occur at the price within the
threshold prices established pursuant to
Rule 4754(b)(7)(E) (‘‘Threshold Prices’’)
that maximizes the number of shares of
Eligible Interest, MOC, LOC, and IO 55
Rule 4754(b)(6)(A).
Rule 4754(b)(6)(B).
50 See Rule 4754(a)(10).
51 See Rule 4754(a)(7).
52 See Rule 4754(a)(7)(E)(ii).
53 See Rule 4754(a)(7)(E)(i).
54 See Rule 4754(b)(6)(C).
55 An ‘‘Imbalance Only Order’’ or ‘‘IO Order’’ is
an Order entered with a price that may be executed
Orders in the Nasdaq Market Center to
be executed. If more than one price
exists, the Hybrid Closing Cross would
occur at the price within the Threshold
Prices that minimizes any Imbalance. If
more than one price still exists, the
Hybrid Closing Cross would occur at the
entered price 56 within the Threshold
Prices at which shares will remain
unexecuted in the cross. If there is no
price within the Threshold Prices that
satisfies the above conditions, then the
Hybrid Closing Cross would occur at: (a)
if an Imbalance exists, a price equal to
the upper (lower) Threshold Price for a
buy (sell) Imbalance; or (b) if no
Imbalance exists, a price equal to the
Auction Reference Price. The proposed
tiebreakers in Rule 4754(b)(7)(D) are
consistent with the tiebreakers used for
determining the LULD Closing Cross
price with one exception.57 Specifically,
if there is no price within the Threshold
Prices that satisfies the conditions
mentioned above and no Imbalance
exists, the Hybrid Closing Cross would
occur at a price equal to the Auction
Reference Price 58 whereas the LULD
Closing Cross occurs at a price that
minimizes the distance from the last
published Upper Band (Lower Band) for
a Limit Up (Limit Down) Trading
Pause.59 Such difference reflects the
need for a price that is unrelated to the
LULD mechanism in the case of the
Hybrid Closing Cross given there would
not be a security-specific pricing
direction reason for the halt (or LULD
Bands).
The Exchange proposes to introduce
price protections to the Hybrid Closing
Cross that are similar to the protections
used today for the LULD Closing Cross
and will ensure that the Hybrid Closing
Cross price is reasonably related to
current market conditions. Proposed
Rule 4754(b)(7)(E) would describe the
Threshold Prices within which the
Hybrid Closing Cross price must fall.
The upper (lower) Threshold Price
would be established by adding
(subtracting) $1 or a certain percentage
of the initial Auction Reference Price,
whichever is greater, to the upper (or
from the lower) Auction Collar price
that was last disseminated pursuant to
4120(c)(7)(A)(ii) for securities with an
Auction Reference Price of greater than
$1. The upper (lower) Threshold Price
would be established by adding
(subtracting) $0.50 or a certain
48 See
49 See
VerDate Sep<11>2014
18:39 Nov 19, 2024
Jkt 265001
only in the Nasdaq Closing Cross and only against
MOC Orders or LOC Orders. See Rule 4702(b)(13).
56 The ‘‘entered price’’ refers to the price of the
cross eligible order interest at which shares would
remain unexecuted in the Hybrid Closing Cross.
57 See Rule 4754(b)(6)(D).
58 See Rule 4754(b)(7)(A)(i).
59 See Rule 4754(b)(6)(D)(iv)(b).
PO 00000
Frm 00188
Fmt 4703
Sfmt 4703
91859
percentage of the initial Auction
Reference Price, whichever is greater, to
the upper (or from the lower) Auction
Collar price that was last disseminated
pursuant to 4120(c)(7)(A)(ii) for
securities with an Auction Reference
price of $1 or less. Nasdaq management
would set and modify the thresholds
from time to time upon prior notice to
market participants. This is similar to
the discretion provided to Nasdaq
management in connection with the
opening cross, closing cross, and LULD
Closing Cross, where Nasdaq
management has discretion to set and
modify thresholds used in determining
the Benchmark Prices.60 Although the
proposed price protections are similar
in nature to those used for the LULD
Closing Cross, the process for
calculating the Benchmark Prices for the
LULD Closing Cross is distinct because
it involves widening the Auction Collar
(or Band) on only one side,61 while the
proposed process would widen the
Auction Reference Price on both sides
for the Hybrid Closing Cross. In this
case, because there would not be a
security-specific pricing direction
reason for the halt, the Exchange
believes that it is appropriate to apply
the thresholds on both sides of the
Auction Reference Price.
Proposed Rule 4754(b)(7)(F) sets forth
the orders that would be eligible to
participate in the Hybrid Closing Cross,
including all orders entered into the
system and placed on the continuous
book prior to the trading halt. Such
orders may be modified or cancelled up
until the time of the Hybrid Closing
Cross. During the halt and prior to 4:00
p.m., new orders may be entered,
modified, and cancelled and may
participate in the Hybrid Closing Cross.
MOC, LOC and IO Orders may be
entered, modified, and cancelled
pursuant to Rules 4702(b)(11),
4702(b)(12), and 4702(b)(13).62 If the
security entered a trading halt prior and
up to 3:50 p.m., the System would not
accept late LOC Orders.63 For purposes
60 See Rule 4752(d)(2)(E)(Opening Cross); Rule
4754(b)(2)(E)(Closing Cross); Rule
4754(b)(6)(E)(LULD Closing Cross).
61 Rule 4754(b)(6)(E)(LULD Closing Cross).
62 Though other order types are also applicable,
the Exchange calls out MOC, LOC and IO Orders
to make it clear that, for these order types, there
may be exceptions to the general rule that ‘‘During
the halt and prior to 4:00 p.m., new orders may be
entered, modified, and cancelled and may
participate in the Hybrid Closing Cross.’’ As such,
the Exchange proposes to make it clear that Rules
4702(b)(11), 4702(b)(12), and 4702(b)(13) prevail.
63 The System would not accept late LOC orders
in this scenario because if a security entered a
trading halt prior and up to 3:50 p.m. ET, there
would be no relevant reference prices, upon which
such orders depend.
E:\FR\FM\20NON1.SGM
20NON1
91860
Federal Register / Vol. 89, No. 224 / Wednesday, November 20, 2024 / Notices
of Hybrid Closing Cross price selection,
buy (sell) IO orders are re-priced to one
minimum price increment below
(above) the initial Auction Reference
Price. Such rules are consistent with the
LULD mechanism,64 except that the
proposed rules do not include certain
inapplicable language from the LULD
Closing Cross processes.65
Proposed Rule 4754(b)(7)(G) provides
that orders participating in the Hybrid
Closing Cross would be executed in
price/display/time priority order and for
purposes of determining priority,
eligible IO orders would be priced to the
closing price and executed in time
priority with other orders at that price.
This clarification would be consistent
with how the Exchange generally
assigns priority with the execution of
Displayed Orders and interest before
Non-Displayed Orders. In addition,
Proposed Rule 4754(b)(7)(G) provides
that any order not executed in the
Hybrid Closing Cross would be
processed according to the entering
firm’s instructions. This is consistent
with how orders execute in the LULD
Closing Cross.66
Finally, the Exchange would
renumber current Rule 4754(b)(7) as
Rule 4754(b)(8) and update a related
reference in such Rule.
Proposed Changes to Rule 4755
(Extended Trading Close)
Similar to the revisions made to Rule
4702 (Order Types), the Exchange
proposes to delete references to the
LULD Closing Cross from Rule 4755
because the Exchange proposes to
include the LULD Closing Cross and the
Hybrid Closing Cross in the definition of
the Nasdaq Closing Cross, thereby
making the specific references to the
LULD Closing Cross in Rule 4755
unnecessary.
khammond on DSK9W7S144PROD with NOTICES
Implementation
The Exchange will issue an Equities
Trader Alert not less than 7 days prior
to implementing the proposed changes.
On February 22, 2022, the Exchange
submitted a proposal to amend its Rules
related to halts (‘‘Halts Proposal’’) for
the purpose of implementing UTP Plan
amendments and establishing common
criteria and procedures for halting and
resuming trading in equity securities in
the event of regulatory or operational
64 See
Rule 4754(b)(6)(F).
halts subject to the Hybrid Closing
Cross would not be entered between 3:50 and 4
p.m. and therefore certain procedures included in
the LULD Closing Cross Rules are inapplicable to
the Hybrid Closing Cross. See, e.g., Rule
4754(b)(6)(F)(ii)(b)–(c).
66 See Rule 4754(b)(6)(G).
65 Trading
VerDate Sep<11>2014
18:39 Nov 19, 2024
Jkt 265001
issues.67 The Halts Proposal was
approved on June 8, 2022.68 The
Exchange intends to implement the
Halts Proposal in conjunction with
other SROs. Because the Exchange
continues to await an industry-wide
implementation and wishes to
implement the proposed enhancements
to its halt cross process in the
meantime, the Exchange intends to file
a proposed rule change in the future in
order to incorporate the changes herein
with those changes in the Halts
Proposal. As such, the proposed rule
changes described herein reflect
changes to the Exchange’s currently
operative rule language.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,69 in general, and furthers the
objectives of Section 6(b)(5) of the Act,70
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 certain
trading halts 71 to be more closely
aligned with the process currently
implemented for halt auctions following
a trading pause under the LULD Plan
and the process for halt auctions
following a MWCB halt. The current
reopening process following a trading
pause and following a MWCB halt have
been generally successful in facilitating
a fair and orderly process for reopening
securities. The Exchange has therefore
decided to propose a similar process for
halt auctions following other types of
halts, as specified above. The Exchange
believes that its proposal would benefit
investors by facilitating price discovery
and promoting more consistency in how
the Exchange conducts the reopening
process following trading halts and
pauses. While auctions cannot prevent
price volatility, auctions should
facilitate ongoing trading and afford
market participants with ample time to
participate in the auction price
67 See Securities Exchange Act Release No. 94370
(March 7, 2022), 87 FR 14071 (March 11, 2022).
Nasdaq filed an amendment to the proposal on
April 29, 2022. See Securities Exchange Act Release
No. 94838 (May 3, 2022), 87 FR 27683 (May 9,
2022).
68 See Securities Exchange Act Release No. 95069
(June 8, 2022), 87 FR 36018 (June 14, 2022).
69 15 U.S.C. 78f(b).
70 15 U.S.C. 78f(b)(5).
71 See supra note 13.
PO 00000
Frm 00189
Fmt 4703
Sfmt 4703
discovery process. Accordingly, this
proposal balances transparency and
timeliness to ensure efficient price
discovery. Furthermore, because there
are no price protection mechanisms
specific to the halt cross process today,
the Exchange believes that there is little
risk 72 in adopting the proposal.
While the proposed reopening process
would largely follow the reopening
process in place today for trading
pauses under the LULD Plan and/or
MWCB halts, there would be several
differences. These differences are
primarily designed to ensure that
suitable Auction Collars are utilized for
the reopening process. The Exchange
proposes to use the Nasdaq last sale
price (or if none, the NOCP) as the
Auction Reference Price, similar to the
Auction Reference Price under a MWCB
halt.73 However, the Exchange also
proposes to provide MarketWatch
authority to set an Auction Reference
Price in rare situations where there is no
Nasdaq last sale price or NOCP.74 In
addition, the Exchange believes that it is
appropriate to calculate both upper and
lower Auction Collars that are a
specified percentage or dollar amount
from the reference price because the
halts covered in the proposal do not
involve security specific buy or sell
pressure. With extensions, the Exchange
also believes that it is appropriate to
widen the collars on both sides to
accommodate price swings in either
direction and to increase the likelihood
of resolving order imbalances. The
proposal would utilize price collar
thresholds of 10% (and 20% after the
first two display only periods) of the
Auction Reference Price, as compared to
price collar thresholds of 5% of the
Auction Reference Price used for the
LULD and MWCB mechanisms, to
ensure that the parameters are
appropriately set to ensure securities are
priced within a reasonable range of their
halted price but are also not so
restrictive as to prevent effective price
discovery. These price collar thresholds
are appropriate as they balance the need
for price protections with the desire to
promote efficient price discovery and
minimize the length of the interruption
from a trading halt. Finally, the
Exchange proposes to include minimum
threshold amounts for calculating the
price collars (i.e., $0.50 for securities
with an Auction Reference Price of $1
or less and $1 for securities with an
Auction Reference Price of greater than
$1) to ensure that the Auction Collars
72 There is a risk of a delayed reopening if the
price of the halted security is fluctuating.
73 Supra note 16.
74 Supra note 18.
E:\FR\FM\20NON1.SGM
20NON1
khammond on DSK9W7S144PROD with NOTICES
Federal Register / Vol. 89, No. 224 / Wednesday, November 20, 2024 / Notices
for lower-priced securities are wide
enough to allow for reopening and
effective price discovery. This approach
is reasonable because lower priced
stocks can have significant price
movement which warrants a greater
minimum threshold in order to allow
for efficient price discovery and a more
timely reopening.
Otherwise, the proposed reopening
process is consistent with the current
LULD and/or MWCB reopening process.
Similar to the current LULD and MWCB
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. Furthermore, the
Exchange believes that the standardized
procedures to extend 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 satisfied within the
applicable collars, or if the reopening
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.
The Exchange also believes that its
proposal to establish a Hybrid Closing
Cross and implement price protections
for the Hybrid Closing Cross that are
similar to the protections used today for
the LULD Closing Cross would promote
just and equitable principles of trade.
For purposes of the LULD Closing Cross,
the Exchange currently calculates and
applies a price threshold to a
benchmark value that, when applied to
an individual security, determines the
price threshold range within which the
security must execute in the LULD
Closing Cross. The Exchange believes
that this mechanism has been effective
in facilitating a fair and orderly price
discovery process at the close and
ensuring that the cross price derived
does not exceed a price reasonably tied
to the prevailing market at the time. The
Exchange has therefore determined to
adopt a Hybrid Closing Cross and apply
similar protections to such Hybrid
Closing Cross. The Exchange believes
that its proposal would facilitate a fair
and orderly close. Additionally, the
Exchange believes that the proposed
rule change would benefit investors by
harmonizing the Exchange’s LULD and
Hybrid Closing Cross processes, thereby
VerDate Sep<11>2014
18:39 Nov 19, 2024
Jkt 265001
promoting a more consistent experience
for members and investors and reducing
any potential confusion regarding
Nasdaq’s closing processes.
While the proposed price protections
for the Hybrid Closing Cross will largely
follow the current implementation of
the protections in place today for the
LULD Closing Cross, there are certain
differences. The differences are
designed to account for inherent
differences between LULD pauses and
other trading halts and ensure that the
proposed price protections are
reasonably based on market conditions.
One of the proposed tiebreakers in Rule
4754(b)(7)(D) references the Auction
Reference Price whereas the LULD
Closing Cross rule instead refers to a
price that minimizes the distance from
the last published Upper Band (Lower
Band) for a Limit Up (Limit Down)
Trading Pause. Such difference reflects
the need for a price that is unrelated to
the LULD mechanism in the case of the
Hybrid Closing Cross given there would
not be a security-specific pricing
direction reason for the halt (or LULD
Bands). Similarly, the process for
calculating the Benchmark Prices for the
LULD Closing Cross is distinct because
it involves widening the Auction Collar
(or Band) on only one side, while the
proposed process would widen the
Auction Reference Price on both sides
for the Hybrid Closing Cross. In this
case, because there would not be a
security-specific pricing direction
reason for the halt, the Exchange
believes that it is appropriate to apply
the thresholds on both sides of the
Auction Reference Price. Finally, certain
language from the LULD Closing Cross
is omitted where it is inapplicable to the
Hybrid Closing Cross.75
Finally, the Exchange also believes it
is appropriate to make clarifying
changes in Equity 4 to remove
references to the LULD Closing Cross in
Rule 4702 and Rule 4755, clarify how
Auction Reference Prices and Auction
Collars are disseminated in Rule
4753(a)(3), add an exception regarding
cancellation of IOC Orders for halted
securities in Rule 4753(e), specify that
the Nasdaq Closing Cross shall include
the LULD Closing Cross and the Hybrid
Closing Cross in Rule 4754(a)(6), add
‘‘NOII’’ as an alternative defined term
for ‘‘Order Imbalance Indicator’’ in Rule
4754(a)(7), add ‘‘EOII’’ as an alternative
defined term for ‘‘Early Order Imbalance
Indicator’’ in Rule 4754(a)(10), amend
language related to handling of late LOC
Orders in Rule 4754(b)(6), and modify
the priority for orders participating in
the LULD Closing Cross in Rule
75 See
PO 00000
supra note 65.
Frm 00190
Fmt 4703
Sfmt 4703
91861
4754(b)(6). The proposed changes
would increase clarity and transparency
in the Rules, consistent with the public
interest and the protection of investors.
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
Exchange believes that the proposed
rule change is not designed to address
any competitive issues, but rather, is
designed to provide a measured and
transparent process for reopening
Nasdaq listed securities after certain
trading halts. The proposed rule change
is similar to the current reopening
process following a trading pause
initiated under the LULD Plan, the
process following a MWCB halt, and
processes implemented on other
exchanges for non-LULD regulatory
halts. In addition, the proposed rule
change is also designed to establish a
Hybrid Closing Cross that aligns with
the Exchange’s LULD Closing Cross to
provide for a transparent auction
process for executing member interest at
the close and promote a more consistent
experience for members and investors.
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 (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the Exchange consents,
the Commission shall: (a) by order
approve or disapprove such 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:
E:\FR\FM\20NON1.SGM
20NON1
91862
Federal Register / Vol. 89, No. 224 / Wednesday, November 20, 2024 / Notices
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
NASDAQ–2024–065 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.
khammond on DSK9W7S144PROD with NOTICES
All submissions should refer to file
number SR–NASDAQ–2024–065. 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
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–NASDAQ–2024–065 and should be
submitted on or before December 11,
2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.76
Vanessa A. Countryman,
Secretary.
[FR Doc. 2024–27019 Filed 11–19–24; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–101629; File No. SR–
NYSECHX–2024–34]
Self-Regulatory Organizations; NYSE
Chicago, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend NYSE Chicago
Rule 7.13 To Remove References to
the Chair of the Board
November 14, 2024
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on
November 8, 2024, the NYSE Chicago,
Inc. (‘‘NYSE Chicago’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. 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
The Exchange proposes to amend
NYSE Chicago Rule 7.13 to remove
references to the Chair of the Board. The
proposed rule change is available on the
Exchange’s website at www.nyse.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
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
NYSE Chicago Rule 7.13 (Trading
BILLING CODE 8011–01–P
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
76 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
18:39 Nov 19, 2024
Jkt 265001
PO 00000
Frm 00191
Fmt 4703
Sfmt 4703
Suspensions) to remove references to
the Chair of the Board of Directors of the
Exchange (‘‘Board’’).
Under current Rule 7.13,4 the Chair of
the Board or the chief executive officer
of the Exchange (the ‘‘CEO’’), or the
officer designee of the Chair or the CEO,
has the power to suspend trading on any
and all securities traded on the
Exchange whenever in his or her
opinion such suspension would be in
the public interest. No such action shall
continue longer than two days or as
soon thereafter as a quorum of Directors
can be assembled, unless the Board
approves the continuation of such
suspension.
The Exchange believes that it Is
advisable to remove the references to
the Chair in Rule 7.13 because the Chair
has not acted under Rule 7.13 since the
rule was adopted and the Exchange does
not anticipate that an independent or
non-employee Chair will have sufficient
involvement in the day-to-day
operations of the Exchange to act under
the Rule.
Moreover, the proposed changes to
Rule 7.13 would make it substantially
similar to the rule text governing
Trading Suspensions currently in place
on the Exchange’s affiliate the New York
Stock Exchange LLC (‘‘NYSE’’) in NYSE
Rule 7.13.5 The proposed changes to
Rule 7.13 therefore would harmonize
the Exchange’s rules with those of its
affiliate NYSE and provide for
consistent authority to suspend trading
across the Exchange and the NYSE.
To effectuate the change, the first
sentence of the Rule would be amended
as follows (proposed deletions
bracketed):
The [Chair of the Board or the] CEO, or the
officer designee of [the Chair or] the CEO,
shall have the power to suspend trading in
any and all securities traded on the Exchange
whenever in his or her opinion such
suspension would be in the public interest.
The requirement that no such action
continue longer than two days or as
soon thereafter as a quorum of Directors
can be assembled, unless the Board
4 The current text of Rule 7.13 was adopted in
2019 to harmonize the Exchange’s rules with those
of its affiliates NYSE American LLC, NYSE Arca,
Inc., and NYSE National, Inc. See Securities and
Exchange Act Release No. 85716 (April 25, 2019),
84 FR 18623 (May 1, 2019) (SR–NYSECHX–2019–
07) (Notice of Filing and Immediate Effectiveness of
Proposed Rule Change Regarding New Rules on
Hours of Business, Holidays and Trading Halts and
Suspensions, and Amendment of Article 20, Rule
1).
5 The difference is that the NYSE rule uses
‘‘trading on the Exchange’’ instead of ‘‘traded on the
Exchange.’’ See Securities and Exchange Act
Release No. 101477 (October 30, 2024), 89 FR 87917
(November 5, 2024) (SR–NYSE–2024–58) (Order
Approving a Proposed Rule Change to Amend
NYSE Rule 7.13).
E:\FR\FM\20NON1.SGM
20NON1
]]>Agencies
[Federal Register Volume 89, Number 224 (Wednesday, November 20, 2024)]
[Notices]
[Pages 91853-91862]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-27019]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 101620; File No. SR-NASDAQ-2024-065]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Proposed Rule Change To Amend Equity 4 To Establish
Halt Cross Price Protections and Make Other Related Changes
November 14, 2024.
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 November 6, 2024, 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, II, and III, 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 Equity 4 to establish halt cross
price protections and make other related changes.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, 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 Exchange's
[[Page 91854]]
Rules to implement halt cross protections to prevent clearly erroneous
executions after the reopening of trading and ensure that securities
are priced within reasonable levels from their halted price. The
Exchange proposes to introduce price protections to the halt cross
process that are similar to the protections currently employed in other
auctions the Exchange conducts. In addition, the Exchange proposes to
establish a ``Hybrid Closing Cross'' and introduce related price
protections, as described below. With the proposed changes, the
Exchange's processes would be more harmonized, which the Exchange
believes would promote a more consistent experience for members and
investors participating in the Exchange's auctions.
To implement the proposed price protections, the Exchange proposes
to modify Equity 4 by: (i) adding the proposed halt cross protections
to Equity 4, Section 4120,\3\ replacing the prior procedures; (ii)
adding information about dissemination of Auction Reference Prices and
Auction Collars in Rule 4753(a)(3); and (iii) adding Rules for a
modified closing cross in Rule 4754(b)(7).
---------------------------------------------------------------------------
\3\ All of the Rule 4000 series referenced in this filing are
within Equity 4.
---------------------------------------------------------------------------
In addition, the Exchange proposes to make a number of changes in
Equity 4, including: (i) removing references to the Limit-Up-Limit-Down
(``LULD'') Closing Cross in Rule 4702 and Rule 4755; (ii) clarifying
how Auction Reference Prices and Auction Collars are disseminated in
Rule 4753(a)(3); (iii) clarifying rule language about cancellation of
IOC Orders for halted securities in Rule 4753(e); (iv) specifying that
the Nasdaq Closing Cross shall include the LULD Closing Cross and the
Hybrid Closing Cross in Rule 4754(a)(6); (v) adding ``NOII'' as an
alternative defined term for ``Order Imbalance Indicator'' in Rule
4754(a)(7); (vi) adding ``EOII'' as an alternative defined term for
``Early Order Imbalance Indicator'' in Rule 4754(a)(10); (vii) amending
language related to handling of late Limit on Close (``LOC'') Orders
\4\ in Rule 4754(b)(6); and (viii) modifying the priority for orders
participating in the LULD Closing Cross in Rule 4754(b)(6).
---------------------------------------------------------------------------
\4\ A ``Limit On Close Order'' or ``LOC Order'' is an Order Type
entered with a price that may be executed only in the Nasdaq Closing
Cross or the LULD Closing Cross, and only if the price determined by
the Nasdaq Closing Cross or the LULD Closing Cross is equal to or
better than the price at which the LOC Order was entered. See Rule
4702(b)(12).
---------------------------------------------------------------------------
Background
The Exchange currently offers price protection mechanisms in most
of the auctions it conducts during the normal course of trading
(including opening/closing auction, market-wide circuit breaker
(``MWCB'') halts,\5\ and LULD pauses \6\). In February 2023, there was
an instance where a stock was halted for pending news and reopened at a
price that was significantly away from its current market value due to
an erroneous market order. Given such event, the Exchange believes that
additional price protections specific to the halt cross process are
needed. Implementing these new protections would help to ensure that
securities reopen within a reasonable price range after the Exchange
halts a security.
---------------------------------------------------------------------------
\5\ 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.
\6\ A LULD pause is a trading pause pursuant to the Plan to
Address Extraordinary Market Volatility or ``LULD Plan''. See
https://www.luldplan.com/.
---------------------------------------------------------------------------
The Exchange proposes to implement a new price protection mechanism
to the Nasdaq Halt Cross \7\ process. In 2017, the Exchange amended its
auction process for reopening a Nasdaq listed security following a
trading pause initiated pursuant to the LULD Plan.\8\ Specifically, the
Exchange modified its Rules such that initial Auction Collars following
a trading pause are calculated based on the Price Band that triggered
the trading pause, and instituted the process for extending the auction
and further widening the collars if necessary to accommodate buy or
sell pressure outside of the collars then in effect.\9\ In 2020, the
Exchange amended its auction process for reopening a Nasdaq listed
security following a MWCB halt to follow a process similar to the
process applied for releasing a security following a trading pause
under the LULD Plan.\10\ The Exchange believes that these changes have
been effective in facilitating a fair and orderly market following
trading pauses initiated pursuant to the LULD Plan and following MWCB
halts, and proposes to implement similar functionality for certain
trading halts.\11\ The Exchange believes that the proposed changes
would promote price formation and provide a more consistent reopening
process for members and investors following such trading halts.
---------------------------------------------------------------------------
\7\ The ``Nasdaq Halt Cross'' is the process for determining the
price at which Eligible Interest shall be executed at the open of
trading for a halted security and for executing that Eligible
Interest. See Rule 4753(a)(4). ``Eligible Interest'' shall mean 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 Nasdaq Rule 4753(a)(5).
\8\ See Securities Exchange Act Release No. 79876 (January 25,
2017), 82 FR 8888 (January 31, 2017) (SR-NASDAQ-2016-131).
\9\ Id.
\10\ See Securities Exchange Act Release No. 88383 (March 13,
2020), 85 FR 15819 (March 19, 2020) (SR-NASDAQ-2020-012).
\11\ See infra note 13. The Exchange also notes that both NYSE
Arca, Inc. and Cboe BZX Exchange, Inc. implemented similar processes
for resuming trading following non-LULD regulatory halts. 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) (SRCboeBZX-2018-090).
---------------------------------------------------------------------------
The new price protection mechanism would be similar to what is
currently utilized for reopening stocks following a MWCB halt or LULD
trading pause, where pre-determined price collars would be built into
the halt cross process. As described in more detail below, the Exchange
proposes to establish a threshold of 10% below and above a reference
price, within which the price of the stock must fall to reopen. If the
price falls outside of those collars after an initial 5-minute display-
only period, the collars would be widened by the same threshold amount
as the initial collars and a subsequent 5-minute display-only period
would commence. If the price falls outside of those collars after the
second 5-minute display-only period, the collars would be widened by
20% below and above the reference price and a third 5-minute period
would commence. This process would continue (at 20%) until the price
falls within the set thresholds, after which the auction would execute
and the stock would reopen for trading.
Customers would benefit from having the new price collar
protections in place as it would ensure that executions received during
the halt cross process are filled at prices that reflect the true
market for the security. Allowing additional time for improved price
discovery could increase market participation, improving liquidity and
helping reduce price volatility.\12\
---------------------------------------------------------------------------
\12\ During 2023, there were 541 halts that would have been
subject to the proposed rule if it was in effect at the time. Of
those 540 halts, 296 of the securities would have fallen outside of
a 10% collar after the first quoting period. Example A on page 8
illustrates the proposed price protections.
---------------------------------------------------------------------------
Proposed Changes to Rule 4120 (Limit Up-Limit Down Plan and Trading
Halts)
As noted above, the Exchange proposes to introduce price
protections to the halt cross process that are similar to the
protections used today for reopening stocks following a LULD pause and
MWCB halt and would ensure that the reopening price is reasonably
related to current market conditions. The Exchange proposes to remove
the current procedure for terminating certain trading halts provided in
Rule 4120(c)(7) and replace
[[Page 91855]]
with proposed rule language describing the new procedure in proposed
Rule 4120(c)(7). The Exchange believes that the imposition of price
collars and a mechanism similar to what it currently utilized for
reopening a security following a LULD trading pause or a MWCB halt
would provide the Exchange with a price protection mechanism that is
lacking under the Exchange's current Rules. The current reopening
process 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
believes that its proposal would facilitate a fair and orderly market
by reducing the potential for significant price disparity in post-
auction trading.
Example A: The below is illustrative of the proposed price
protections to the halt cross process:
1:30p.m.: assume symbol ABC enters a regulatory halt; the
last sale/reference price is $100.00; and auction collars are
calculated at $90.00/$110.00;
1:35p.m.: the calculated auction reference price is
$114.00; the display only period is extended to 1:40pm; and the new
auction collars are $80.00/$120.00;
1:40p.m.: the calculated auction reference price is
$122.00; the display only period is extended to 1:45pm; and the new
auction collars are $60.00/$140.00;
1:45p.m.: the calculated auction reference price is
$132.00; at 1:45:01pm, there is no longer an order imbalance so the
halt cross commences and the security is released for trading.
The introductory language in proposed Rule 4120(c)(7) provides
that, a trading halt initiated under Rule 4120(a)(1), (4), (5), (6),
(9), (10), (11) or (14) \13\ shall be terminated when Nasdaq releases
the security for trading. It would also provide that, for any such
security listed on Nasdaq, prior to terminating the halt, there would
be a 5-minute ``Initial Display Only Period'' during which market
participants may enter quotations and orders in that security in Nasdaq
systems. This is consistent with the process employed for reopening
securities following LULD trading pauses.\14\ This is also consistent
with the process employed for reopening securities following MWCB
halts, except that in the case of a MWCB halt, the Initial Display Only
Period is 15 minutes in length (as opposed to 5) to coincide with the
entire duration of the MWCB halt.\15\ In addition, such introductory
language is consistent with current rule language, with minor
revisions. The minor revisions include referencing a ``halt'' rather
than both a ``halt or pause'' for clarification and adding a specific
defined term of ``Initial Display Only Period'' for the 5-minute period
referenced. The types of halts covered by Rule 4120(c)(7) (i.e.,
trading halt initiated under Rule 4120(a)(1), (4), (5), (6), (9), (10),
(11) or (14)) remain unchanged.
---------------------------------------------------------------------------
\13\ This covers trading halts related to dissemination of
material news for Nasdaq-listed securities (see Rule 4120(a)(1));
halts of Nasdaq-listed American Depository Receipts or other Nasdaq-
listed securities where underlying securities are halted by foreign
markets or regulators for regulatory reasons (see Rule 4120(a)(4));
halts related to Exchange requests from issuers relating to material
news, the issuer's ability to meet listing qualification
requirements, or other information necessary to protect investors
and the public interest (see Rule 4120(a)(5)); halts related to
extraordinary market activity (see Rule 4120(a)(6)); halts in
certain products where the Intraday Indicative Value or index value
is not disseminated as required (see Rule 4120(a)(9)); halts in
certain products where the net asset value is not being disseminated
to all market participants at the same time (see Rule 4120(a)(10));
halts related to large price moves for Nasdaq-listed securities not
covered by the LULD Plan (see Rule 4120(a)(11)), and halts related
to reverse stock splits (see Rule 4120(a)(14)). In 2023, 98% of
these aforementioned halts were news-related halts. The Exchange
focuses on these specific trading halts because these halts
currently not do have any price protection mechanism in place for
the reopening of securities following a halt.
\14\ See Rule 4120(c)(10).
\15\ See Rule 4121(d).
---------------------------------------------------------------------------
Proposed Rule 4120(c)(7)(A) describes the Exchange's proposed
process for establishing the ``Auction Reference Price''. The Auction
Reference Price would mean: (a) the Nasdaq last sale price (either
round or odd lot); and (b) if there is no Nasdaq last sale price, the
prior trading day's Nasdaq Official Closing Price (``NOCP'').\16\ The
Exchange proposes to use the Nasdaq last sale price \17\ (or if none,
the NOCP) as this price is reflective of the current market for the
halted security. The Exchange proposes to use Nasdaq specific prices
rather than market-wide prices, consistent with MWCB, because of the
accessibility and controllability of the Exchange data. In rare
instances where there is no Nasdaq last sale price or NOCP, Nasdaq's
MarketWatch Department (``MarketWatch'') would have discretion to set
the Auction Reference Price.\18\ The Exchange proposes to set the
Auction Reference Price in a manner similar to that which is utilized
for MWCB halts, in which the Auction Reference Price is the Nasdaq last
sale price or if none, the NOCP.\19\ However, the Exchange believes it
is important to have a mechanism by which it may set a reference price
in rare situations where there is no Nasdaq last sale price or NOCP.
Similar to MWCB, the Exchange is not proposing to use the LULD Auction
Reference Price, which is based on the Price Band that triggered the
trading pause,\20\ as the Exchange believes that a different reference
is necessary for a reopening process that is unrelated to the LULD
mechanism. LULD and halt crosses use distinctly different reference
prices in the auction pricing methodology. The reference price in a
LULD auction in all cases will be either the pre-calculated upper or
lower LULD band value that was last disseminated. In contrast, the
reference price of a regulatory halt will use the prevailing last price
or designated price in the event there is no last price. The last
prevailing price is more representative of the current value of a
security, and as such, a better reference price to use for the halt
reopening auction methodology.\21\
---------------------------------------------------------------------------
\16\ If there is no Nasdaq last sale price, the prior trading
day's NOCP is preferable for establishing the Auction Reference
Price. The NOCP, as opposed to the last sale price on another
exchange, serves as the next best reference price as it is derived
from the primary market center for the Nasdaq-listed securities.
\17\ The Nasdaq last sale price reflects the last sale price of
that trading session.
\18\ Although the proposal would allow for some discretion to
MarketWatch, the Exchange notes that such discretion is limited to
setting the Auction Reference Price in these rare instances, which
does not determine the ultimate price at which the security will
trade. In exercising such limited discretion in these rare
instances, MarketWatch would source the best estimation for the
Auction Reference Price from an external vendor.
\19\ See Rule 4121(d)(1)(A).
\20\ See Rule 4120(c)(10)(A)(i).
\21\ Further, LULD bands are published only during regular
trading hours 9:30a.m.-4:00p.m. which prevents it from being
considered as a refence price as halt auctions can occur at all
eligible trading hours 4:00a.m.-8:00p.m.
---------------------------------------------------------------------------
Proposed Rule 4120(c)(7)(A) also describes the Exchange's proposed
process for determining the upper and lower ``Auction Collar'' prices.
For securities with an Auction Reference Price of greater than $1, the
lower Auction Collar price (which is rounded to the nearest minimum
price increment \22\) is derived by subtracting $1 or 10% of the
Auction Reference Price, whichever is greater, from the Auction
Reference Price. For securities with an Auction Reference Price of $1
or less, the lower Auction Collar price (which is rounded to the
nearest minimum price increment) is derived by subtracting $0.50 or 10%
of the Auction Reference Price, whichever is greater, from the Auction
Reference Price. For securities with an Auction Reference
[[Page 91856]]
Price of greater than $1, the upper Auction Collar price (which is
rounded to the nearest minimum price increment) is derived by adding $1
or 10% of the Auction Reference Price, whichever is greater, to the
Auction Reference Price. For securities with an Auction Reference Price
of $1 or less, the upper Auction Collar price (which is rounded to the
nearest minimum price increment) is derived by adding $0.50 or 10% of
the Auction Reference Price, whichever is greater, to the Auction
Reference Price. The proposed process for calculating the upper and
lower Auction Collars is similar to the process used to calculate MWCB
Auction Collars, where initial thresholds are applied on both sides of
the Auction Reference Price.\23\ In contrast, the initial price collar
thresholds used for the LULD mechanism are determined by the direction
of the trading that invoked the trading pause and the price of the LULD
Band in place at the time the trading pause was triggered.\24\ In this
case, because there would not be a security-specific pricing direction
reason for the halt, the Exchange believes that it is appropriate to
apply the initial thresholds on both sides of the Auction Reference
Price, as is currently done in the case of a MWCB halt. While the
specific price collar thresholds used for the LULD and MWCB mechanisms
are 5% of the Auction Reference Price, the proposed rule change would
provide price collar thresholds of 10% (and 20% in the event a security
enters a third period, as described below) of the Auction Reference
Price. These price collar thresholds are appropriate as they balance
the need for price protections with the desire to promote efficient
price discovery and minimize the length of the interruption from a
trading halt. The Exchange believes it is appropriate to set the price
collar thresholds at a higher percentage as compared to the price
collar thresholds used for the LULD and MWCB mechanisms because halts
under the proposal are more likely to have a significant price impact,
warranting wider collars to allow for price discovery to happen
quicker.\25\ While the LULD and MWCB mechanisms provide a price collar
threshold of $0.15 for securities with an Auction Reference Price of $3
or less,\26\ the Exchange proposes to include minimum threshold amounts
for calculating the price collars (i.e., $0.50 for securities with an
Auction Reference Price of $1 or less and $1 for securities with an
Auction Reference Price of greater than $1) to ensure that the Auction
Collars for lower-priced securities are wide enough to allow for
reopening and effective price discovery. This approach is reasonable
because lower priced stocks can have significant price movement which
warrants a greater minimum threshold in order to allow for efficient
price discovery and a more timely reopening.
---------------------------------------------------------------------------
\22\ 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 Equity 1, Section 1(a)(13).
\23\ See Rule 4121(d)(1)(B).
\24\ See Rule 4120(c)(10)(A)(ii). In the LULD context, the
initial price collar thresholds are asymmetrically updated because
direction of the order imbalance (buyer/seller imbalances) are known
at the time of the pause. In the halt cross context, the direction
of the order imbalance (buyer/seller imbalances) is not known at the
time of the halt. Accordingly, the initial price collar thresholds
need to be applied symmetrically before arriving at the price at
which the security will trade.
\25\ For example, a news driven halt related to a drug
announcement may warrant a significant price movement in a short
period of time and a wider collar would allow the stock to reopen in
a reasonable period.
\26\ See Rule 4120(c)(10)(A)(ii); Rule 4121(d)(1)(B).
---------------------------------------------------------------------------
Proposed Rule 4120(c)(7)(B) describes what would happen at the end
of the Initial Display Only Period, the circumstances when the Exchange
would extend the Display Only Period, and how the Exchange would adjust
the Auction Collars for an extension. At the conclusion of the Initial
Display Only Period, the security would be released for trading unless,
at the end of an Initial Display Only Period, Nasdaq detects an order
imbalance \27\ in the security. In that case, Nasdaq would extend the
Display Only Period for an additional 5-minute period (``Extended
Display Only Period''), and the Auction Collar prices would be adjusted
as follows: The new lower Auction Collar price is derived by
subtracting $1 or 10% of the initial Auction Reference Price, whichever
is greater, from the previous lower Auction Collar price for securities
with an Auction Reference Price of greater than $1 or $0.50 or 10% of
the initial Auction Reference Price, whichever is greater, from the
previous lower Auction Collar price for securities with an Auction
Reference price of $1 or less. The new upper Auction Collar price is
derived by adding $1 or 10% of the initial Auction Reference Price,
whichever is greater, to the previous upper Auction Collar price for
securities with an Auction Reference Price of greater than $1 or $0.50
or 10% of the initial Auction Reference Price, whichever is greater, to
the previous upper Auction Collar price for securities with an Auction
Reference price of $1 or less. The proposed process for initiating
extensions is similar to the process currently used for extending
trading pauses or halts under LULD \28\ and MWCB,\29\ with a couple
differences. First, the proposed minimum thresholds and percentages
used to calculate the Auction Collars during the Extended Display Only
Period are consistent with that of the Initial Display Only Period and
continue to differ from the LULD and MWCB mechanisms in that regard, as
discussed above. Second, the proposed process for calculating the upper
and lower Auction Collars during the Extended Display Only Period is
similar to the process used to calculate Auction Collars during the
Initial Display Only Period, where thresholds are applied on both sides
of the Auction Reference Price. In contrast, the price collar
thresholds used for the LULD and MWCB mechanisms are applied only in
the direction that caused extension of the Display Only Period.\30\ In
this case, the Exchange believes that it is appropriate to continue to
apply the thresholds on both sides of the Auction Reference Price to
accommodate price swings in either direction and to increase the
likelihood of resolving order imbalances.
---------------------------------------------------------------------------
\27\ The definition of an order imbalance is described below and
included in proposed Rule 4120(c)(7)(E).
\28\ See Rule 4120(c)(10)(B).
\29\ See Rule 4121(d)(2).
\30\ See Rule 4120(c)(10)(B); Rule 4121(d)(2).
---------------------------------------------------------------------------
Proposed Rule 4120(c)(7)(C) explains what would happen at the end
of the Extended Display Only Period. At the conclusion of the Extended
Display Only Period, the security would be released for trading unless,
at the end of the Extended Display Only Period, Nasdaq detects an order
imbalance in the security. In that case, Nasdaq would further extend
the Display Only Period for an additional 5-minute period (``Third
Period''), and the Auction Collar prices would be adjusted as follows:
The new lower Auction Collar price is derived by subtracting $1 or 20%
of the initial Auction Reference Price, whichever is greater, from the
previous lower Auction Collar price for securities with an Auction
Reference Price of greater than $1 or $0.50 or 20% of the initial
Auction Reference Price, whichever is greater, from the previous lower
Auction Collar price for securities with an Auction Reference price of
$1 or less. The new upper Auction Collar price is derived by adding $1
or 20% of the initial Auction Reference Price, whichever is greater, to
the previous upper Auction Collar price for securities with an Auction
Reference Price of greater than $1 or $0.50 or 20% of the initial
Auction Reference Price, whichever is greater, to the previous upper
Auction Collar price for securities with an Auction Reference price of
$1 or less. Nasdaq would release the
[[Page 91857]]
security for trading at the first point \31\ there is no order
imbalance.\32\ The Exchange believes it is appropriate to widen the
collars by 20% instead of 10% to the extent a security has not reopened
after the Extended Display Only Period because the order imbalance may
be indicative that a significant price movement in the security is
warranted based on the news announcement (or otherwise). If the
security has not been released for trading by the conclusion of the
Third Period, Nasdaq will continue to adjust the Auction Collar prices
every five minutes in the manner described in this Rule 4120(c)(7)(C)
until the security is released for trading. Other than the change in
the percentage by which the Exchange will widen the collars, the
process in proposed Rule 4120(c)(7)(C) is consistent with that of the
LULD and MWCB mechanisms.\33\
---------------------------------------------------------------------------
\31\ The ``first point'' there is no order imbalance would occur
after the next NOII message dissemination.
\32\ Unlike the Initial Display Only Period and the Extended
Display Only Period, the security could be released for trading
prior to the end of the Third Period. For example, assume ABC
security enters a regulatory halt at 1:30 p.m. The last sale/
reference price is $100. The auction collars are $90 and $110. At
1:35 p.m., the calculated price at which the security would be
released for trading is $122. The display only period is extended
until 1:40. The new auction collars are $80 and $120. At 1:40 p.m.,
the calculated price at which the security would be release for
trading is still $122. The Third Period commences at 1:40 p.m. The
new auction collars are $60 and $140. At 1:40:01 p.m., the system
detects that there is no longer an Order Imbalance so the Halt Cross
commences and the security is released for trading.
\33\ See Rule 4120(c)(10)(C); Rule 4121(d)(3).
---------------------------------------------------------------------------
Proposed Rule 4120(c)(7)(D) explains that, notwithstanding Rule
4120(c)(7)(A)-(C), a trading halt that exists at or after 3:50 p.m.\34\
in a stock shall reopen via a Hybrid Closing Cross pursuant to Rule
4754(b)(7). As described in more detail below, the Hybrid Closing Cross
would provide an alternative process for executing closing trades on
the Exchange. Proposed Rule 4120(c)(7)(D) is consistent with the LULD
mechanism, where a stock reopens via a LULD Closing Cross where a
trading pause exists at or after 3:50 p.m.\35\
---------------------------------------------------------------------------
\34\ All times referenced in this filing are Eastern Time.
\35\ See Rule 4120(c)(10)(D).
---------------------------------------------------------------------------
Proposed Rule 4120(c)(7)(E) explains when an order imbalance
exists. Specifically, it provides that, for purposes of Rule
4120(c)(7), upon completion of the cross calculation an order imbalance
shall be established as follows: the calculated price at which the
security would be released for trading is above (below) the upper
(lower) Auction Collar price; or (ii) all market orders would not be
executed in the cross. This is the same manner in which an order
imbalance is established under the current reopening process for
trading pauses and MWCB halts.\36\
---------------------------------------------------------------------------
\36\ See Rule 4120(c)(10)(E); Rule 4121(d)(4).
---------------------------------------------------------------------------
Proposed Rule 4120(c)(7)(F) provides that, if the Exchange is
unable to reopen trading due to a systems or technology issue, it shall
notify the securities information processor immediately. This is
consistent with the Exchange's notification process for LULD.\37\
---------------------------------------------------------------------------
\37\ See Rule 4120(a)(12)(G).
---------------------------------------------------------------------------
In sum, the proposed changes to Rule 4120(c)(7) would establish a
price protection mechanism for the halt cross process for securities
halted under the provisions noted above.\38\ The proposed price
protection mechanism is similar to what is currently utilized for
reopening stocks following a LULD trading pause or MWCB halt. Price
collars would be built into the halt cross process and if the price
falls outside of those collars after an initial 5-minute display only
period, the collars would be widened by the same threshold amount as
the initial collars and a subsequent 5-minute display only period would
commence. If the price falls outside of those collars after the second
5-minute display only period, the collars would be widened by a wider
amount and a subsequent, third period would commence. This process
would continue until the price falls within the set thresholds, after
which the auction would execute and the stock would reopen for trading.
Customers would benefit from having the new price collar protections in
place as it would ensure that executions received during the halt cross
process are filled at prices that reflect the true market for the
security. Allowing additional time for improved price discovery could
increase market participation, improving liquidity and helping reduce
price volatility.
---------------------------------------------------------------------------
\38\ Supra note 13.
---------------------------------------------------------------------------
Proposed Changes to Rule 4702 (Order Types)
The Exchange proposes to amend Rule 4702 by deleting references to
the LULD Closing Cross from Rule 4702(b)(12) (Limit on Close (LOC)
Orders) and Rule 4702(b)(17) (Extended Trading Close (ETC) Orders). The
Exchange believes that the LULD Closing Cross \39\ as well as the
proposed Hybrid Closing Cross \40\ should be included in the definition
of the Nasdaq Closing Cross because the LULD Closing Cross and the
Hybrid Closing Cross are alternative processes for executing closing
trades on the Exchange and therefore do not need to be specifically
referenced in the Rules where the Nasdaq Closing Cross is already
referenced, thereby simplifying the rule language. For clarification,
the Exchange also proposes to specify that the Nasdaq Closing Cross
includes the LULD Closing Cross and Hybrid Closing Cross in the
definition of the Nasdaq Closing Cross in Rule 4754(a)(6), as described
below.
---------------------------------------------------------------------------
\39\ The LULD Closing Cross is the Exchange's auction process
for executing closing trades in Nasdaq-listed securities when a
trading pause pursuant to Rule 4120(a)(12) exists at or after 3:50
p.m. and before 4:00 p.m. See Rule 4754(b)(6).
\40\ As described below, the Exchange proposes to establish the
Hybrid Closing Cross in Rule 4754(b)(7). The Hybrid Closing Cross
would be the Exchange's auction process for executing closing trades
in Nasdaq-listed securities when a trading halt pursuant to Rules
4120(a)(1), (4), (5), (6), (9), (10), (11), or (14) exists at or
after 3:50 p.m. and before 4:00 p.m.
---------------------------------------------------------------------------
Proposed Changes to Rule 4753 (Nasdaq Halt Cross)
First, the Exchange proposes to clarify that Auction Reference
Prices and Auction Collars are not included in the Order Imbalance
Indicator, but instead are disseminated in a separate message. For
purposes of LULD and MWCB, the Rules incorrectly state that the Auction
Reference Prices and Auction Collars are included in the Order
Imbalance Indicator and the Exchange proposes to correct such
inaccuracies by modifying Section (F) and (G) in Rule 4753(a)(3)
accordingly.
The Exchange also proposes to add section (H) in Rule 4753(a)(3).
This section (H) would provide that, for purposes of a trading halt
initiated under Rule 4120(a)(1), (4), (5), (6), (9), (10), (11) or
(14), the Exchange will disseminate a separate message with Auction
Reference Prices and Auction Collars, as defined in Rule
4120(c)(7)(A).\41\ This is consistent with dissemination of Auction
Reference Prices and Auction Collars for purposes of LULD pauses and
MWCB halts.
---------------------------------------------------------------------------
\41\ Dissemination will take place on Nasdaq's proprietary feed,
Nasdaq TotalView-ITCH. As is the case with MWCB halts and to be
consistent with current Exchange processes, the Exchange will not
send auction information to the SIP, including price collars and the
number of extensions. While auction information for LULD pauses is
disseminated to the SIP per plan requirements, the Exchange does not
disseminate auction information to the SIP for other halts.
---------------------------------------------------------------------------
Rule 4753(e) currently states that any IOC Order for a halted
security that is entered prior to the Nasdaq Closing Cross and for
which the halt remains in effect at the commencement of the Nasdaq
Closing Cross, shall be cancelled immediately after the Nasdaq Closing
Cross. With the introduction of the Hybrid Closing Cross, as described
further below, if the quoting period has
[[Page 91858]]
commenced at any time prior to 4 p.m. IOC orders for halted securities
would execute in the Hybrid Closing Cross. Similarly, IOC orders could
also execute in the LULD Closing Cross. Therefore, the Exchange
proposes to clarify, in Rule 4753(e), that any IOC Order for a halted
security that is entered prior to the Nasdaq Closing Cross and for
which the halt remains in effect at the commencement of the Nasdaq
Closing Cross, shall either execute in the Nasdaq Closing Cross or be
cancelled immediately after the Nasdaq Closing Cross.
Proposed Changes to Rule 4754 (Nasdaq Closing Cross)
First, the Exchange proposes to amend the definition of ``Nasdaq
Closing Cross'' in Rule 4754(a)(6). As noted above, the Exchange
believes that the LULD Closing Cross and Hybrid Closing Cross should be
included in the definition of Nasdaq Closing Cross because they are
types of closing crosses. The Exchange therefore proposes to clarify
that the Nasdaq Closing Cross shall include the LULD Closing Cross and
the Hybrid Closing Cross in Rule 4754(a)(6). Such change would allow
the Exchange to simplify its rule language and prevent the Exchange
from needing to list the LULD Closing Cross and Hybrid Closing Cross
where the Nasdaq Closing Cross is referenced in the Rules.
Second, the Exchange proposes to add ``NOII'' as an alternative
defined term for ``Order Imbalance Indicator'' in Rule 4754(a)(7). NOII
is currently referenced in the Rules and the Exchange proposes to add
references to NOII in the proposed rule change; however, NOII is not
currently defined in the Rules. The Exchange is not proposing to make
any substantive changes to the meaning of NOII or Order Imbalance
Indicator. Rather, the Exchange wishes to provide clarity regarding the
definition of NOII.
Third, the Exchange proposes to add ``EOII'' as an alternative
defined term for ``Early Order Imbalance Indicator'' in Rule
4754(a)(10). EOII is currently referenced in the Rules and the Exchange
proposes to add references to EOII in the proposed rule change;
however, EOII is not currently defined in the Rules. The Exchange is
not proposing to make any substantive changes to the meaning of EOII or
Early Order Imbalance Indicator. Rather, the Exchange wishes to provide
clarity regarding the definition of EOII.
Fourth, the Exchange proposes to make two changes to Rule
4754(b)(6), which relates to the LULD Closing Cross Following Limit-Up-
Limit-Down Trading Pause. In part, Rule 4754(b)(6)(F)(ii) sets forth
Rules as to how the Exchange would handle LOC Orders entered between
3:55 p.m. and immediately prior to 3:58 p.m. The Exchange wishes to
make a clarifying change to specify that the relevant timeframe is
after the NOII immediately following 3:55 p.m. and immediately prior to
3:58 p.m. In other words, instead of stating ``between 3:55 p.m. ET and
immediately prior to 3:58 p.m. ET,'' the Exchange proposes to state,
``after the NOII immediately following 3:55 p.m. ET and immediately
prior to 3:58 p.m. ET'' to ensure the Rule is precise. In addition, the
Exchange wishes to modify in Rule 4754(b)(6)(G) that orders
participating in the LULD Closing Cross shall be executed in price/
display/time priority rather than just price/time priority as the
current rule language states. This modification would be consistent
with how the Exchange generally assigns priority with the execution of
Displayed Orders and interest before Non-Displayed Orders.
Specifically, Rule 4754(b)(3)(B) prescribes that, in the Closing Cross,
the Exchange prioritizes as a group the execution of Displayed Orders
and interest, with price as the primary priority, and then within each
price level, with time as the secondary priority.\42\ Accordingly, the
Exchange proposes to update the rule to reflect this current behavior,
whereby displayed orders are executed ahead of hidden orders. Such
change would provide more specificity in the Rule for accuracy.
---------------------------------------------------------------------------
\42\ See Rule 4754(b)(3)(B); see also Securities Exchange Act
Release No. 34-97973 (July 25, 2023), 88 FR 49522 (July 31, 2023)
(Notice of Filing and Immediate Effectiveness of File No. SR-NASDAQ-
2023-024 to Amend Equity 4, Rules 4752, 4753, and 4754).
---------------------------------------------------------------------------
Lastly, in proposed Rule 4754(b)(7), the Exchange proposes to adopt
a modified closing cross (defined as the ``Hybrid Closing Cross'') that
the Exchange would conduct for Nasdaq-listed securities when a trading
halt pursuant to Rule 4120(a)(1), (4), (5), (6), (9), (10), (11) or
(14) exists at or after 3:50 p.m. and before 4:00 p.m.\43\ Today, the
Exchange has not needed to handle a halt reopening auction at or after
3:50 p.m. and before 4:00 p.m. due to the current policy of MarketWatch
not scheduling any reopening of a security past 3:30 p.m. The Exchange
in practice does not want to negatively impact the price discovery
process because of the possibility of a conflict between a halt cross
reopening and the official closing cross in the closing minutes of the
trading day. Under the Exchange's halt cross protection proposal,
however, and its advent of collars and extensions, it is possible for a
stock to be scheduled for reopening well ahead of the 4:00 p.m. close
and have its quoting period extended multiple times past 3:50 p.m. due
to its reference price falling outside of the established collars. As
such, our proposed Hybrid Closing Cross process eliminates the
possibility of a conflicting cross and allows the Exchange to ensure
that it can establish an efficient price discovery process for the
closing price upon the market close at 4:00 p.m. The Hybrid Closing
Cross provides an alternative process for executing closing trades on
Nasdaq for when certain trading halts \44\ exist at or after 3:50 p.m.
and before 4:00 p.m. (if the Display Only Period has begun for a halted
security). The Exchange believes that the price protections for the
LULD Closing Cross have been effective at facilitating price discovery
and ensuring that the closing price of a security is reasonably based
on current market conditions in the security, and therefore proposes to
adopt similar price protections for its Hybrid Closing Cross.
---------------------------------------------------------------------------
\43\ In contrast, today, such halts would typically not be
scheduled to resume trading during such period, avoiding
interference with the closing cross.
\44\ See supra note 13.
---------------------------------------------------------------------------
Under the proposal, a halted security would only be eligible to
resume trading via the Hybrid Closing Cross after the Display Only
Period begins.\45\ The Exchange proposes to define ``Auction Reference
Price'', ``Eligible Interest'', and ``Imbalance'' in Rule 4754(b)(7)(A)
for purposes of Rule 4754(b)(7). ``Auction Reference Price'' would have
the same meaning as defined in Rule 4120(c)(7)(A), discussed above.
``Eligible Interest'' would have the same meaning as ``Close Eligible
Interest'' in Rule 4754(a),\46\ with the addition of any new orders
with an eligible underlying Order Type and Attribute, entered during
the trading halt. ``Imbalance'' would mean the number of shares of buy
or sell Market on Close (``MOC''),\47\ LOC Orders, or Eligible Interest
that cannot
[[Page 91859]]
be matched with other MOC, LOC, or Imbalance Only (``IO'') Order shares
or Eligible Interest at a particular price at any given time. These
proposed definitions are consistent with the definitions of Eligible
Interest and Imbalance used for purposes of the LULD Closing Cross.\48\
---------------------------------------------------------------------------
\45\ A halted stock that has not entered the Display Only Period
at or after 3:50 and before 4:00 p.m. would not participate in the
Hybrid Closing Cross and would remain halted.
\46\ ``Close Eligible Interest'' means 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. The System
will delay processing any full cancellation request for Close
Eligible Interest made during the Nasdaq Closing Cross until such
time as the Nasdaq Closing Cross concludes, except for securities in
a halt or pause. During a halt or pause, the System will process any
full or partial cancellation request for Close Eligible Interest
made for such halted or paused security during the Nasdaq Closing
Cross. See Rule 4754(a)(1).
\47\ A ``Market On Close Order'' or ``MOC Order'' is an Order
Type entered without a price that may be executed only during the
Nasdaq Closing Cross. See Rule 4702(b)(11).
\48\ See Rule 4754(b)(6)(A).
---------------------------------------------------------------------------
In proposed Rule 4754(b)(7)(B), the Exchange proposes to specify
the timing of the Hybrid Closing Cross and After Hours Trading, as well
as what happens if there is insufficient trading in the System to
execute a Hybrid Closing Cross. For trading halts existing at or after
3:50 and before 4:00 p.m., the Hybrid Closing Cross would occur at 4:00
p.m. After Hours Trading would commence after the Hybrid Closing Cross
executes. If there is insufficient trading interest in the Nasdaq
system to execute a Hybrid Closing Cross, Nasdaq would not conduct a
cross in that security and would instead use the last sale on Nasdaq as
the NOCP in that security for that trading day. After Hours Trading
would commence after Nasdaq publishes the NOCP. Such procedures are
consistent with that of the LULD Closing Cross.\49\
---------------------------------------------------------------------------
\49\ See Rule 4754(b)(6)(B).
---------------------------------------------------------------------------
Proposed Rule 4754(b)(7)(C) provides information about
dissemination of the EOII \50\ and NOII \51\ and about the price at
which the Hybrid Closing Cross would execute. Specifically, Nasdaq
proposes to continue disseminating the EOII and the NOII pursuant to
Rule 4754(b)(1) until After Hours Trading begins. The Near Clearing
Price \52\ and Reference Prices contained in the EOII and the NOII, as
applicable, would represent the price at which the Hybrid Closing Cross
would execute should the cross conclude at that time, bounded by the
Threshold Prices (defined below), and the Far Clearing Price \53\ would
represent the price at which the Hybrid Closing Cross would execute
should the cross conclude at that time, if it were not bounded by the
Threshold Prices (defined below). Such procedures are similar to that
of the LULD Closing Cross.\54\
---------------------------------------------------------------------------
\50\ See Rule 4754(a)(10).
\51\ See Rule 4754(a)(7).
\52\ See Rule 4754(a)(7)(E)(ii).
\53\ See Rule 4754(a)(7)(E)(i).
\54\ See Rule 4754(b)(6)(C).
---------------------------------------------------------------------------
Proposed Rule 4754(b)(7)(D) would specify that the Hybrid Closing
Cross would occur at the price within the threshold prices established
pursuant to Rule 4754(b)(7)(E) (``Threshold Prices'') that maximizes
the number of shares of Eligible Interest, MOC, LOC, and IO \55\ Orders
in the Nasdaq Market Center to be executed. If more than one price
exists, the Hybrid Closing Cross would occur at the price within the
Threshold Prices that minimizes any Imbalance. If more than one price
still exists, the Hybrid Closing Cross would occur at the entered price
\56\ within the Threshold Prices at which shares will remain unexecuted
in the cross. If there is no price within the Threshold Prices that
satisfies the above conditions, then the Hybrid Closing Cross would
occur at: (a) if an Imbalance exists, a price equal to the upper
(lower) Threshold Price for a buy (sell) Imbalance; or (b) if no
Imbalance exists, a price equal to the Auction Reference Price. The
proposed tiebreakers in Rule 4754(b)(7)(D) are consistent with the
tiebreakers used for determining the LULD Closing Cross price with one
exception.\57\ Specifically, if there is no price within the Threshold
Prices that satisfies the conditions mentioned above and no Imbalance
exists, the Hybrid Closing Cross would occur at a price equal to the
Auction Reference Price \58\ whereas the LULD Closing Cross occurs at a
price that minimizes the distance from the last published Upper Band
(Lower Band) for a Limit Up (Limit Down) Trading Pause.\59\ Such
difference reflects the need for a price that is unrelated to the LULD
mechanism in the case of the Hybrid Closing Cross given there would not
be a security-specific pricing direction reason for the halt (or LULD
Bands).
---------------------------------------------------------------------------
\55\ An ``Imbalance Only Order'' or ``IO Order'' is an Order
entered with a price that may be executed only in the Nasdaq Closing
Cross and only against MOC Orders or LOC Orders. See Rule
4702(b)(13).
\56\ The ``entered price'' refers to the price of the cross
eligible order interest at which shares would remain unexecuted in
the Hybrid Closing Cross.
\57\ See Rule 4754(b)(6)(D).
\58\ See Rule 4754(b)(7)(A)(i).
\59\ See Rule 4754(b)(6)(D)(iv)(b).
---------------------------------------------------------------------------
The Exchange proposes to introduce price protections to the Hybrid
Closing Cross that are similar to the protections used today for the
LULD Closing Cross and will ensure that the Hybrid Closing Cross price
is reasonably related to current market conditions. Proposed Rule
4754(b)(7)(E) would describe the Threshold Prices within which the
Hybrid Closing Cross price must fall. The upper (lower) Threshold Price
would be established by adding (subtracting) $1 or a certain percentage
of the initial Auction Reference Price, whichever is greater, to the
upper (or from the lower) Auction Collar price that was last
disseminated pursuant to 4120(c)(7)(A)(ii) for securities with an
Auction Reference Price of greater than $1. The upper (lower) Threshold
Price would be established by adding (subtracting) $0.50 or a certain
percentage of the initial Auction Reference Price, whichever is
greater, to the upper (or from the lower) Auction Collar price that was
last disseminated pursuant to 4120(c)(7)(A)(ii) for securities with an
Auction Reference price of $1 or less. Nasdaq management would set and
modify the thresholds from time to time upon prior notice to market
participants. This is similar to the discretion provided to Nasdaq
management in connection with the opening cross, closing cross, and
LULD Closing Cross, where Nasdaq management has discretion to set and
modify thresholds used in determining the Benchmark Prices.\60\
Although the proposed price protections are similar in nature to those
used for the LULD Closing Cross, the process for calculating the
Benchmark Prices for the LULD Closing Cross is distinct because it
involves widening the Auction Collar (or Band) on only one side,\61\
while the proposed process would widen the Auction Reference Price on
both sides for the Hybrid Closing Cross. In this case, because there
would not be a security-specific pricing direction reason for the halt,
the Exchange believes that it is appropriate to apply the thresholds on
both sides of the Auction Reference Price.
---------------------------------------------------------------------------
\60\ See Rule 4752(d)(2)(E)(Opening Cross); Rule
4754(b)(2)(E)(Closing Cross); Rule 4754(b)(6)(E)(LULD Closing
Cross).
\61\ Rule 4754(b)(6)(E)(LULD Closing Cross).
---------------------------------------------------------------------------
Proposed Rule 4754(b)(7)(F) sets forth the orders that would be
eligible to participate in the Hybrid Closing Cross, including all
orders entered into the system and placed on the continuous book prior
to the trading halt. Such orders may be modified or cancelled up until
the time of the Hybrid Closing Cross. During the halt and prior to 4:00
p.m., new orders may be entered, modified, and cancelled and may
participate in the Hybrid Closing Cross. MOC, LOC and IO Orders may be
entered, modified, and cancelled pursuant to Rules 4702(b)(11),
4702(b)(12), and 4702(b)(13).\62\ If the security entered a trading
halt prior and up to 3:50 p.m., the System would not accept late LOC
Orders.\63\ For purposes
[[Page 91860]]
of Hybrid Closing Cross price selection, buy (sell) IO orders are re-
priced to one minimum price increment below (above) the initial Auction
Reference Price. Such rules are consistent with the LULD mechanism,\64\
except that the proposed rules do not include certain inapplicable
language from the LULD Closing Cross processes.\65\
---------------------------------------------------------------------------
\62\ Though other order types are also applicable, the Exchange
calls out MOC, LOC and IO Orders to make it clear that, for these
order types, there may be exceptions to the general rule that
``During the halt and prior to 4:00 p.m., new orders may be entered,
modified, and cancelled and may participate in the Hybrid Closing
Cross.'' As such, the Exchange proposes to make it clear that Rules
4702(b)(11), 4702(b)(12), and 4702(b)(13) prevail.
\63\ The System would not accept late LOC orders in this
scenario because if a security entered a trading halt prior and up
to 3:50 p.m. ET, there would be no relevant reference prices, upon
which such orders depend.
\64\ See Rule 4754(b)(6)(F).
\65\ Trading halts subject to the Hybrid Closing Cross would not
be entered between 3:50 and 4 p.m. and therefore certain procedures
included in the LULD Closing Cross Rules are inapplicable to the
Hybrid Closing Cross. See, e.g., Rule 4754(b)(6)(F)(ii)(b)-(c).
---------------------------------------------------------------------------
Proposed Rule 4754(b)(7)(G) provides that orders participating in
the Hybrid Closing Cross would be executed in price/display/time
priority order and for purposes of determining priority, eligible IO
orders would be priced to the closing price and executed in time
priority with other orders at that price. This clarification would be
consistent with how the Exchange generally assigns priority with the
execution of Displayed Orders and interest before Non-Displayed Orders.
In addition, Proposed Rule 4754(b)(7)(G) provides that any order not
executed in the Hybrid Closing Cross would be processed according to
the entering firm's instructions. This is consistent with how orders
execute in the LULD Closing Cross.\66\
---------------------------------------------------------------------------
\66\ See Rule 4754(b)(6)(G).
---------------------------------------------------------------------------
Finally, the Exchange would renumber current Rule 4754(b)(7) as
Rule 4754(b)(8) and update a related reference in such Rule.
Proposed Changes to Rule 4755 (Extended Trading Close)
Similar to the revisions made to Rule 4702 (Order Types), the
Exchange proposes to delete references to the LULD Closing Cross from
Rule 4755 because the Exchange proposes to include the LULD Closing
Cross and the Hybrid Closing Cross in the definition of the Nasdaq
Closing Cross, thereby making the specific references to the LULD
Closing Cross in Rule 4755 unnecessary.
Implementation
The Exchange will issue an Equities Trader Alert not less than 7
days prior to implementing the proposed changes.
On February 22, 2022, the Exchange submitted a proposal to amend
its Rules related to halts (``Halts Proposal'') for the purpose of
implementing UTP Plan amendments and establishing common criteria and
procedures for halting and resuming trading in equity securities in the
event of regulatory or operational issues.\67\ The Halts Proposal was
approved on June 8, 2022.\68\ The Exchange intends to implement the
Halts Proposal in conjunction with other SROs. Because the Exchange
continues to await an industry-wide implementation and wishes to
implement the proposed enhancements to its halt cross process in the
meantime, the Exchange intends to file a proposed rule change in the
future in order to incorporate the changes herein with those changes in
the Halts Proposal. As such, the proposed rule changes described herein
reflect changes to the Exchange's currently operative rule language.
---------------------------------------------------------------------------
\67\ See Securities Exchange Act Release No. 94370 (March 7,
2022), 87 FR 14071 (March 11, 2022). Nasdaq filed an amendment to
the proposal on April 29, 2022. See Securities Exchange Act Release
No. 94838 (May 3, 2022), 87 FR 27683 (May 9, 2022).
\68\ See Securities Exchange Act Release No. 95069 (June 8,
2022), 87 FR 36018 (June 14, 2022).
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\69\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\70\ 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.
---------------------------------------------------------------------------
\69\ 15 U.S.C. 78f(b).
\70\ 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
certain trading halts \71\ to be more closely aligned with the process
currently implemented for halt auctions following a trading pause under
the LULD Plan and the process for halt auctions following a MWCB halt.
The current reopening process following a trading pause and following a
MWCB halt have been generally successful in facilitating a fair and
orderly process for reopening securities. The Exchange has therefore
decided to propose a similar process for halt auctions following other
types of halts, as specified above. The Exchange believes that its
proposal would benefit investors by facilitating price discovery and
promoting more consistency in how the Exchange conducts the reopening
process following trading halts and pauses. While auctions cannot
prevent price volatility, auctions should facilitate ongoing trading
and afford market participants with ample time to participate in the
auction price discovery process. Accordingly, this proposal balances
transparency and timeliness to ensure efficient price discovery.
Furthermore, because there are no price protection mechanisms specific
to the halt cross process today, the Exchange believes that there is
little risk \72\ in adopting the proposal.
---------------------------------------------------------------------------
\71\ See supra note 13.
\72\ There is a risk of a delayed reopening if the price of the
halted security is fluctuating.
---------------------------------------------------------------------------
While the proposed reopening process would largely follow the
reopening process in place today for trading pauses under the LULD Plan
and/or MWCB halts, there would be several differences. These
differences are primarily designed to ensure that suitable Auction
Collars are utilized for the reopening process. The Exchange proposes
to use the Nasdaq last sale price (or if none, the NOCP) as the Auction
Reference Price, similar to the Auction Reference Price under a MWCB
halt.\73\ However, the Exchange also proposes to provide MarketWatch
authority to set an Auction Reference Price in rare situations where
there is no Nasdaq last sale price or NOCP.\74\ In addition, the
Exchange believes that it is appropriate to calculate both upper and
lower Auction Collars that are a specified percentage or dollar amount
from the reference price because the halts covered in the proposal do
not involve security specific buy or sell pressure. With extensions,
the Exchange also believes that it is appropriate to widen the collars
on both sides to accommodate price swings in either direction and to
increase the likelihood of resolving order imbalances. The proposal
would utilize price collar thresholds of 10% (and 20% after the first
two display only periods) of the Auction Reference Price, as compared
to price collar thresholds of 5% of the Auction Reference Price used
for the LULD and MWCB mechanisms, to ensure that the parameters are
appropriately set to ensure securities are priced within a reasonable
range of their halted price but are also not so restrictive as to
prevent effective price discovery. These price collar thresholds are
appropriate as they balance the need for price protections with the
desire to promote efficient price discovery and minimize the length of
the interruption from a trading halt. Finally, the Exchange proposes to
include minimum threshold amounts for calculating the price collars
(i.e., $0.50 for securities with an Auction Reference Price of $1 or
less and $1 for securities with an Auction Reference Price of greater
than $1) to ensure that the Auction Collars
[[Page 91861]]
for lower-priced securities are wide enough to allow for reopening and
effective price discovery. This approach is reasonable because lower
priced stocks can have significant price movement which warrants a
greater minimum threshold in order to allow for efficient price
discovery and a more timely reopening.
---------------------------------------------------------------------------
\73\ Supra note 16.
\74\ Supra note 18.
---------------------------------------------------------------------------
Otherwise, the proposed reopening process is consistent with the
current LULD and/or MWCB reopening process. Similar to the current LULD
and MWCB 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. Furthermore, the Exchange believes that the
standardized procedures to extend 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 satisfied within the applicable collars, or if
the reopening 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.
The Exchange also believes that its proposal to establish a Hybrid
Closing Cross and implement price protections for the Hybrid Closing
Cross that are similar to the protections used today for the LULD
Closing Cross would promote just and equitable principles of trade. For
purposes of the LULD Closing Cross, the Exchange currently calculates
and applies a price threshold to a benchmark value that, when applied
to an individual security, determines the price threshold range within
which the security must execute in the LULD Closing Cross. The Exchange
believes that this mechanism has been effective in facilitating a fair
and orderly price discovery process at the close and ensuring that the
cross price derived does not exceed a price reasonably tied to the
prevailing market at the time. The Exchange has therefore determined to
adopt a Hybrid Closing Cross and apply similar protections to such
Hybrid Closing Cross. The Exchange believes that its proposal would
facilitate a fair and orderly close. Additionally, the Exchange
believes that the proposed rule change would benefit investors by
harmonizing the Exchange's LULD and Hybrid Closing Cross processes,
thereby promoting a more consistent experience for members and
investors and reducing any potential confusion regarding Nasdaq's
closing processes.
While the proposed price protections for the Hybrid Closing Cross
will largely follow the current implementation of the protections in
place today for the LULD Closing Cross, there are certain differences.
The differences are designed to account for inherent differences
between LULD pauses and other trading halts and ensure that the
proposed price protections are reasonably based on market conditions.
One of the proposed tiebreakers in Rule 4754(b)(7)(D) references the
Auction Reference Price whereas the LULD Closing Cross rule instead
refers to a price that minimizes the distance from the last published
Upper Band (Lower Band) for a Limit Up (Limit Down) Trading Pause. Such
difference reflects the need for a price that is unrelated to the LULD
mechanism in the case of the Hybrid Closing Cross given there would not
be a security-specific pricing direction reason for the halt (or LULD
Bands). Similarly, the process for calculating the Benchmark Prices for
the LULD Closing Cross is distinct because it involves widening the
Auction Collar (or Band) on only one side, while the proposed process
would widen the Auction Reference Price on both sides for the Hybrid
Closing Cross. In this case, because there would not be a security-
specific pricing direction reason for the halt, the Exchange believes
that it is appropriate to apply the thresholds on both sides of the
Auction Reference Price. Finally, certain language from the LULD
Closing Cross is omitted where it is inapplicable to the Hybrid Closing
Cross.\75\
---------------------------------------------------------------------------
\75\ See supra note 65.
---------------------------------------------------------------------------
Finally, the Exchange also believes it is appropriate to make
clarifying changes in Equity 4 to remove references to the LULD Closing
Cross in Rule 4702 and Rule 4755, clarify how Auction Reference Prices
and Auction Collars are disseminated in Rule 4753(a)(3), add an
exception regarding cancellation of IOC Orders for halted securities in
Rule 4753(e), specify that the Nasdaq Closing Cross shall include the
LULD Closing Cross and the Hybrid Closing Cross in Rule 4754(a)(6), add
``NOII'' as an alternative defined term for ``Order Imbalance
Indicator'' in Rule 4754(a)(7), add ``EOII'' as an alternative defined
term for ``Early Order Imbalance Indicator'' in Rule 4754(a)(10), amend
language related to handling of late LOC Orders in Rule 4754(b)(6), and
modify the priority for orders participating in the LULD Closing Cross
in Rule 4754(b)(6). The proposed changes would increase clarity and
transparency in the Rules, consistent with the public interest and the
protection of investors.
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 Exchange believes that the
proposed rule change is not designed to address any competitive issues,
but rather, is designed to provide a measured and transparent process
for reopening Nasdaq listed securities after certain trading halts. The
proposed rule change is similar to the current reopening process
following a trading pause initiated under the LULD Plan, the process
following a MWCB halt, and processes implemented on other exchanges for
non-LULD regulatory halts. In addition, the proposed rule change is
also designed to establish a Hybrid Closing Cross that aligns with the
Exchange's LULD Closing Cross to provide for a transparent auction
process for executing member interest at the close and promote a more
consistent experience for members and investors.
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 (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) by order approve
or disapprove such 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:
[[Page 91862]]
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-2024-065 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-2024-065. 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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-NASDAQ-2024-065 and should
be submitted on or before December 11, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\76\
---------------------------------------------------------------------------
\76\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-27019 Filed 11-19-24; 8:45 am]
BILLING CODE 8011-01-P
