81 FR 1240 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing of Proposed Rule Change To Implement Additional Price Protections in the Opening Process
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 6 (January 11, 2016)
Federal Register Volume 81, Issue 6 (January 11, 2016)
| Page Range | 1240-1244 | |
| FR Document | 2016-00249 |
[Federal Register Volume 81, Number 6 (Monday, January 11, 2016)] [Notices] [Pages 1240-1244] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-00249] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-76833; File No. SR-NASDAQ-2015-159] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing of Proposed Rule Change To Implement Additional Price Protections in the Opening Process January 5, 2016. 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 December 23, 2015, The NASDAQ Stock Market LLC (``Nasdaq'' or ``Exchange'') filed with the Securities and Exchange Commission (``SEC'' or ``Commission'') the proposed rule change as described in Items I and II, below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- [[Page 1241]] I. Self-Regulatory Organization's Statement of the Terms of the Substance of the Proposed Rule Change The Exchange proposes to add new paragraph (F) to Rule 4752(d)(2), concerning the opening process. The text of the proposed rule change is available on the Exchange's Web site at http://nasdaq.cchwallstreet.com, at the principal office of the Exchange, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of this filing is to enhance the price protections provided by Rule 4752(d) in the operation of Nasdaq Opening Cross, Nasdaq's process for opening the market for trading System securities. Background Rule 4752 concerns Nasdaq's opening process and paragraph (d) of the rule sets forth the processing of the Opening Cross. Specifically, the rule provides that the Opening Cross is initiated at 9:30 a.m. ET, at which time the System attempts to open a security at the price that maximizes the number of shares of MOO,\3\ LOO,\4\ OIO,\5\ Early Market Hours orders,\6\ and executable quotes and orders to be executed in the Nasdaq Market Center.\7\ If the System determines that more than one price exists that would maximize such quotes and orders to be executed, the Opening Cross will occur at the price that minimizes any Imbalance.\8\ If the System determines that more than one price exists that would minimize an Imbalance, the Opening Cross will occur at the entered price at which shares will remain unexecuted in the cross.\9\ If the System determines that more than one price exists whereby shares will remain unexecuted in the cross, the Opening Cross will occur at the price that minimizes the distance from the bid-ask midpoint of the inside quotation prevailing at 9:30 a.m.\10\ --------------------------------------------------------------------------- \3\ A ``Market On Open'' or ``MOO'' order is an Order Type entered without a price that may be executed only during the Nasdaq Opening Cross. Generally, MOO Orders may be entered, cancelled, and/ or modified between 4 a.m. ET and immediately prior to 9:28 a.m. ET. An MOO Order may not be cancelled or modified at or after 9:28 a.m. ET. An MOO Order shall execute only at the price determined by the Nasdaq Opening Cross. See Rule 4702(b)(8). \4\ A ``Limit On Open Order'' or ``LOO Order'' is an Order Type entered with a price that may be executed only in the Nasdaq Opening Cross, and only if the price determined by the Nasdaq Opening Cross is equal to or better than the price at which the LOO Order was entered. Subject to the qualifications provided below [sic], LOO Orders may be entered, cancelled, and/or modified between 4 a.m. ET and immediately prior to 9:28 a.m. ET. See Rule 4702(b)(9). \5\ An ``Opening Imbalance Only Order'' or ``OIO Order'' is an Order Type entered with a price that may be executed only in the Nasdaq Opening Cross and only against MOO Orders, LOO Orders, or Early Market Hours Orders (as defined in Rule 4752). OIO Orders may be entered between 4:00 a.m. ET until the time of execution of the Nasdaq Opening Cross, but may not be cancelled or modified at or after 9:28 a.m. ET. If the entered price of an OIO Order to buy (sell) is higher than (lower than) the highest bid (lowest offer) on the Nasdaq Book, the price of the OIO Order will be modified repeatedly to equal the highest bid (lowest offer) on the Nasdaq Book; provided, however, that the price of the Order will not be moved beyond its stated limit price. See Rule 4702(b)(10). \6\ An Early Market Hours Order is a Market Hours Order that is entered into the system prior to 9:28 a.m. and which is treated as an Opening Imbalance Only order [sic], as appropriate, for the purposes of the Nasdaq Opening Cross. A Market Hours Order is any order that may be entered into the system and designated with a time-in-force of MIOC, MDAY, MGTC. See Rule 4752(a)(7). See also Rules 4703(a) for a discussion of the Time in Force Order attribute, including MIOC, MDAY, and MGTC. \7\ See Rule 4752(d)(2)(A). \8\ See Rule 4752(d)(2)(B). \9\ See Rule 4752(d)(2)(C). \10\ See Rule 4752(d)(2)(D). --------------------------------------------------------------------------- When the Opening Cross price is calculated, Nasdaq applies a boundary within which the cross must execute to ensure that the price derived does not exceed a price reasonably tied to the prevailing market at the time. Specifically, Nasdaq applies a percentage based threshold (``Threshold Percentage'') to a benchmark (``Benchmark Value'') that, when applied to an individual security, determines the price range that a security may cross (``Threshold Range''), outside of which the opening price of a security may not occur.\11\ If an Opening Cross price of a security would otherwise be outside of the Threshold Range, Nasdaq will adjust the Opening Cross price of the security to a price within the Threshold Range that best satisfies the normal process for determining the Opening Cross price.\12\ This change happens automatically prior to execution of the Opening Cross, and does not involve any human intervention. All unexecuted shares designated to expire upon the conclusion of the Opening Cross,\13\ including those that fall outside of the Threshold Range, are cancelled. --------------------------------------------------------------------------- \11\ See Rule 4752(d)(2)(E). \12\ See Rules 4752(d)(2)(A)-(D). \13\ These are: MOO, LOO, OIO, and Early Market Hours Orders designated to participate in the Opening Cross. Prior to the Opening Cross, the Exchange maintains a continuous order book and an Opening Cross order book. Orders in the Opening Cross order book may execute only in the Opening Cross process, while Orders in the continuous book may execute during pre-market hours trading, in the Opening Cross, or in regular market hours trading if the Order has a time- in-force that will allow it to remain active. --------------------------------------------------------------------------- The Threshold Percentage and Benchmark Value are set by Nasdaq officials in advance and communicated to Participants.\14\ Nasdaq may adjust the Threshold Percentage based on Nasdaq's experience with the Opening Cross and on unusual market conditions, such as certain options and derivatives expiration days that are heavily affected by the opening price of Nasdaq securities. Nasdaq publishes the Benchmark Value and Threshold Percentages via its public NasdaqTrader Web site, and sets the Threshold Percentage so that repricing of a security is rare.\15\ Currently, Nasdaq applies a Threshold Percentage of 10%, which is applied to the Nasdaq Best Bid and Offer (``QBBO'') midpoint and is added to the Nasdaq Offer and subtracted from the Nasdaq Bid to establish the threshold price range. For example, if the QBBO is $10.00 x $11.00, then the midpoint equals 10.50 and the Threshold Percentage is 10%, resulting in a threshold value of $1.05 (10% of $10.50 = $1.05). This value is then added to the offer and subtracted from the bid to obtain the cross's threshold range. In this example, it would result [[Page 1242]] in a lower threshold of $8.95 ($10.00 - $1.05 = $8.95) and an upper threshold of $12.05 ($11.00 + $1.05 = $12.05), thus creating a range of $8.95 to $12.05, within which the cross can occur. This means $8.95 is the lowest price at which the cross can occur and $12.05 is the highest price at which it can occur. The threshold range is dynamic; as the QBBO changes, the threshold price range changes. --------------------------------------------------------------------------- \14\ As defined by Rule 4701(c). \15\ See http://www.nasdaqtrader.com/content/ProductsServices/Trading/Crosses/openclose_faqs.pdf. --------------------------------------------------------------------------- The current price adjustment process under Rule 4752(d)(2)(E) is effective at ensuring the opening price of a security is within a certain range of the QBBO immediately prior to the initiation of the cross in the security; however, the current process does not prevent a cross from occurring at an erroneous price caused by an order or quote entered into the continuous pre-market trading book by a Participant in error that significantly skews the Opening Cross price of a security. This scenario could cause the QBBO to be excessively wide, with one side of the bid/offer significantly distant from the normal range and not representative of the true interest in the security. Nonetheless, the price adjustment process under Rule 4752(d)(2)(E) would allow the Opening Cross price to be set at an erroneous level because it would set the Benchmark Value at the midpoint between the erroneously-priced side of the market and the non-erroneously priced contra side. To illustrate, assume an extreme example as follows: if a security has a bid of $10 set by an Order to buy 100 shares at $10 in pre-market trading with no offer interest until 9:29 a.m., when a Participant erroneously enters an Order to sell 100 shares at $1100, under the current opening process the Benchmark Value of that security would be the midpoint price of $555, which would create a threshold range of $0.0001 by $1155.50.\16\ Under such extreme circumstances a mispriced open could occur, in which case the parties to an erroneous execution would have to avail themselves of the clearly erroneous trade nullification process of Rule 11890.\17\ --------------------------------------------------------------------------- \16\ The Exchange will not allow the lower threshold to be a negative amount and will set the lower range value to the lowest value possible, which is $0.0001. \17\ The terms of a transaction executed on Nasdaq are ``clearly erroneous'' when there is an obvious error in any term, such as price, number of shares or other unit of trading, or identification of the security. A transaction made in clearly erroneous error and cancelled by both parties or determined by Nasdaq to be clearly erroneous will be removed from the consolidated tape. See Rule 11890(a)(1). --------------------------------------------------------------------------- New Protection Nasdaq is proposing an additional price protection process designed to avoid mispriced Opening Crosses and the use of the clearly erroneous post-trade nullification process. Once a security has an Opening Cross price set based on the process under Rule 4752(d)(2)(A)-(E), Nasdaq will require the security to pass at least one of three new ``tests'' in order for the Opening Cross to occur. If a security does not pass any of the three tests no Opening Cross will occur in that security, all Orders in the Opening Cross \18\ will be cancelled back to the Participants, and regular market hours trading will begin. --------------------------------------------------------------------------- \18\ See note 13 above. Orders entered in the continuous book eligible to trade in the pre-market session prior to the opening of the security would not be cancelled but would rather continue to rest on the continuous book for potential participation in regular market hours trading. --------------------------------------------------------------------------- The three new tests compare the Opening Cross price as calculated under the current rule to a reference price to ensure that the Opening Cross price is reasonably related to the market and not the product of erroneous Order entry. The reference price range is calculated under each test by applying a threshold set by Nasdaq officials in advance and communicated to Participants (``Price Test Thresholds''). The Price Test Thresholds, like the current Threshold Percentage, will be published via Nasdaq's public NasdaqTrader Web site. Nasdaq may apply different Price Test Thresholds to each of the Opening Cross Price Tests. The Price Test Threshold is applied to different measures under each of the new tests to calculate the range within which the Opening Cross price must fall to pass the test (``Price Test Threshold Range''). Nasdaq is initially setting each of the Price Test Thresholds uniformly at the greater of $0.50 or 10%; however, Nasdaq may adjust the Price Test Thresholds independently of one another. Opening Cross Price Test A requires the Opening Cross price of a Nasdaq listed security, other than newly-listed Exchange Traded Products (``ETPs''), to be within a Price Test Threshold Range established by adding and subtracting the Price Test Threshold from the security's prior day Nasdaq Official Closing Price (``NOCP''). Non- Nasdaq listed securities must have an Opening Cross price within a Price Test Threshold Range established by adding and subtracting the Price Test Threshold from the security's prior day consolidated closing price. Unlike newly-listed company stocks that begin trading at some point after the stock market has opened, newly-listed ETPs usually begin trading in the premarket session prior to regular market hours trading on the security's initial day of trading and do not have a prior day's consolidated closing price. For such securities, the Price Test Threshold Range is established by adding and subtracting the Price Test Threshold from the offering price. If the Nasdaq Opening Cross price is higher or lower than the Price Test Threshold Range established under this test, or if a non-ETP Nasdaq listed security does not have a previous day's closing price,\19\ the security fails the test and Opening Cross Price Test B is performed. --------------------------------------------------------------------------- \19\ For example, a security may not have a NOCP due to a unit separation. --------------------------------------------------------------------------- Opening Cross Price Test B requires the Opening Cross price of a security to be within a Price Test Threshold Range established by adding and subtracting the Price Test Threshold from the security's Nasdaq last sale (either round or odd lot) occurring after 9:15 a.m. ET but prior to the Opening Cross. If the Opening Cross price is higher or lower than the Price Test Threshold Range established under this test, or if there is no Nasdaq last sale,\20\ the security fails the test and Opening Cross Price Test C is performed. --------------------------------------------------------------------------- \20\ A security may not have a Nasdaq last sale because there was no trading in the security during the premarket session. --------------------------------------------------------------------------- Opening Cross Price Test C requires the Opening Cross price to fall within the Price Test Threshold Range established by adding and subtracting the Price Test Threshold from the Nasdaq best bid (for Opening Cross prices that would be higher than the security's closing price as established in Test A) or Nasdaq best offer (for opening cross prices that would be lower than the security's closing price as established in Test A). For purposes of this test, if a security does not have a NOCP or consolidated closing price, as applicable, for the previous trading day Nasdaq will use a price of $0. If the Nasdaq Opening Cross price is higher or lower than the Opening Cross price range established under this test all Orders in the Opening Cross \21\ will be cancelled back to Participants, no Opening Cross will occur, and the security will open for regular market hours trading. --------------------------------------------------------------------------- \21\ See note 18 above. --------------------------------------------------------------------------- Using the example above where the QBBO is $10 x $11 and Opening Price Range is $8.95 to $12.05, if the Opening Cross price is calculated to be $10.50 then the security would move on to the Opening Cross eligibility test process. Under Opening Cross Price Test A, if the security had a NOCP of $12.50 then the Price Test Threshold used would be 10% (10% of $12.50 = $1.25, which is greater than $0.50) and the Price Test Threshold Range would be $11.25 to $13.75 ($12.50-$1.25 = $11.25 and [[Page 1243]] $12.50 + $1.25 = $13.75). Because the Opening Cross price is less than the lower threshold ($10.50 < $11.25), the security fails Opening Cross Price Test A and Opening Cross Price Test B is performed. Under Opening Cross Price Test B, if the last sale at 9:20 a.m. is $11.90, the Price Test Threshold would be 10% (10% of $11.90 = $1.19, which is greater than $0.50) and the Price Test Threshold Range would be $10.71 to $13.09 ($11.90 - $1.19 = $10.71 and $11.90 + $1.19 = $13.09). Because the Opening Cross price is less than the lower threshold ($10.50 < $10.71), the security fails Opening Cross Price Test B and Opening Cross Price Test C is performed. Under Opening Cross Price Test C, since the Opening Cross price is lower than the NOCP ($10.50 < $12.50), the QBBO offer price of $11 would be used to calculate the Price Test Threshold Range, which would result in a Price Test Threshold of 10% (10% of $11 = $1.10, which is greater than $0.50) and a Price Test Threshold Range of $9.90 to $12.10 ($11 - $1.10 = $9.90 and $11 + $1.10 = $12.10). Because the Opening Cross price is within the Price Test Threshold Range, the security passes the test and the Opening Cross may proceed. Accordingly, these new protections will mitigate situations in which the Opening Cross price may be erroneous. As a result, the changes will support fair and orderly markets. Implementation Nasdaq is proposing to implement the proposed change in a measured approach over the course of approximately four weeks. Although Nasdaq does not foresee any technical issues with implementation of the proposed changes, they affect a fundamental process in the operation of an orderly market. As a result, the Exchange believes it should implement the changes in stages. The Exchange will use a rollout schedule that will start with a small number of securities (e.g., 5-50) with each stage increasing the number of securities to be rolled out. The implementation details will be published via an Exchange Trader Alert and be posted on the NasdaqTrader Web site. The Exchange believes that this measured approach will minimize risk to the overall market. 2. Statutory Basis The Exchange believes that its proposal is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities exchange, and, in particular, with the requirements of Section 6(b) of the Act.\22\ Specifically, the proposal is consistent with Section 6(b)(5) of the Act,\23\ because it would promote just and equitable principles of trade, remove impediments to, and perfect the mechanism of, a free and open market and a national market system. --------------------------------------------------------------------------- \22\ 15 U.S.C. 78f(b). \23\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- The Exchange believes that the proposed change will promote just and equitable principles of trade because it will implement a process designed to prevent Opening Crosses to occur [sic] at erroneous prices. As explained, under the current process an erroneous order or quote may significantly skew the current Benchmark Value that is used to create a boundary for the Opening Cross Price. This may then lead to the Opening Cross price would result [sic] in a temporary price dislocation from normal pricing and typically the use of the clearly erroneous trade nullification process under Rule 11890. The Exchange considers that a better approach is to implement a system of tests, as proposed herein, that would not allow an erroneous order or quote affect the opening of a security. The proposed change, moreover, would mitigate the likelihood of an erroneous execution occurring in the Opening Cross, since all Orders in the Opening Cross would be cancelled. There would be no need then to use the clearly erroneous trade nullification process because no such trade would occur. Thus, the proposed rule change also protects investors, by avoiding erroneous transactions, which are disruptive to individual investors and the market overall. The proposal also promotes just and equitable principles of trade and further perfects mechanism of fair and orderly markets in that it promotes transparency and uniformity in handling erroneous trades in the Opening Cross. Finally, implementing the proposed changes in a phased approach promotes just and equitable principles of trade, further improves participating [sic] in fair and orderly markets, and serves to protect investors because it will limit the potential disruption to the market to a subset of the total number of securities in the opening cross should the Exchange experience a technical issue with the implementation. B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change implicates any competitive issues. The proposed change implements changes that will benefit all market participants by avoiding Opening Prices that are not reasonably related to bona fide market interest. Avoiding such prices will ensure that the information on which market participants make investment decisions is accurate and representative of investors' interest. As such, the proposed changes should not place a burden on competition whatsoever. 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: Electronic CommentsUse the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File No. SR-NASDAQ-2015-159 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 No. SR-NASDAQ-2015-159. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements [[Page 1244]] with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission's Public Reference Room, 100 F Street NE., Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File No. SR-NASDAQ-2015-159, and should be submitted on or before February 1, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\24\ --------------------------------------------------------------------------- \24\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Robert W. Errett, Deputy Secretary. [FR Doc. 2016-00249 Filed 1-8-16; 8:45 am] BILLING CODE 8011-01-P
![1240 Federal Register / Vol. 81, No. 6 / Monday, January 11, 2016 / Notices
acts and practices because it highlights 19b–4(f)(6) thereunder.14 Because the Commission, and all written
the parties for whom additional proposed rule change does not (i) communications relating to the
procedures are required because they do significantly affect the protection of proposed rule change between the
not maintain relationships with the end investors or the public interest, (ii) Commission and any person, other than
customer (i.e., routing brokers) and still impose any significant burden on those that may be withheld from the
requires the RMO to follow such competition, and (iii) become operative public in accordance with the
procedures to ensure that such orders for 30 days after its filing date, or such provisions of 5 U.S.C. 552, will be
qualify as Retail Orders. As proposed, shorter time as the Commission may available for Web site viewing and
however, an RMO would not be designate if consistent with the printing in the Commission’s Public
required to follow such procedures, protection of investors and the public Reference Room, 100 F Street NE.,
including obtaining annual attestations, interest, the proposed rule change has Washington, DC 20549 on official
to the extent such RMO actually knows become effective pursuant to business days between the hours of
the end customer and carries the 19(b)(3)(A) 15 of the Act and Rule 19b– 10:00 a.m. and 3:00 p.m. Copies of the
account of such customer and thus can 4(f)(6) thereunder.16 filing also will be available for
itself confirm that the orders qualify as At any time within 60 days of the
inspection and copying at the principal
Retail Orders. filing of the proposed rule change, the
office of the Exchange. All comments
The Exchange believes that the Commission summarily may
temporarily suspend such rule change if received will be posted without change;
proposed rule change will remove the Commission does not edit personal
impediments to and perfect the it appears to the Commission that such
action is: (i) Necessary or appropriate in identifying information from
mechanism of a free and open market
the public interest; (ii) for the protection submissions. You should submit only
and a national market system because it
of investors; or (iii) otherwise in information that you wish to make
will allow RMOs that carry retail
furtherance of the purposes of the Act. available publicly. All submissions
customer accounts to participate in the
Program without imposing additional If the Commission takes such action, the should refer to File Number SR–BX–
attestation requirements that the Commission shall institute proceedings 2015–086, and should be submitted on
Exchange did not initially intend to to determine whether the proposed rule or before February 1, 2016.
impose upon them. By removing should be approved or disapproved. For the Commission, by the Division of
impediments to participation in the IV. Solicitation of Comments Trading and Markets, pursuant to delegated
Program, the proposed change would authority.17
permit expanded access of retail Interested persons are invited to
Robert W. Errett,
customers to the Program. submit written data, views, and
arguments concerning the foregoing, Deputy Secretary.
B. Self-Regulatory Organization’s including whether the proposed rule [FR Doc. 2016–00253 Filed 1–8–16; 8:45 am]
Statement on Burden on Competition change is consistent with the Act. BILLING CODE 8011–01–P
BX does not believe that the proposed Comments may be submitted by any of
rule change will result in any burden on the following methods:
SECURITIES AND EXCHANGE
competition that is not necessary or Electronic Comments COMMISSION
appropriate in furtherance of the
• Use the Commission’s Internet
purposes of the Act, as amended. The
comment form (http://www.sec.gov/ [Release No. 34–76833; File No. SR–
Exchange believes that the amendment,
rules/sro.shtml); or NASDAQ–2015–159]
by increasing the level of participation • Send an email to rule-
in the Program, will increase the level comments@sec.gov. Please include File
of competition around retail executions. Self-Regulatory Organizations; The
Number SR–BX–2015–086 on the NASDAQ Stock Market LLC; Notice of
The Exchange believes that the subject line.
transparency and competitiveness of Filing of Proposed Rule Change To
operating a program such as the Paper Comments Implement Additional Price Protections
in the Opening Process
Program on an exchange market would • Send paper comments in triplicate
result in better prices for retail investors to Secretary, Securities and Exchange January 5, 2016.
and benefits retail investors by Commission, 100 F Street NE.,
expanding the capabilities of Exchanges Washington, DC 20549–1090. Pursuant to Section 19(b)(1) of the
to encompass practices currently Securities Exchange Act of 1934
All submissions should refer to File
allowed on non-exchange venues. Number SR–BX–2015–086. This file (‘‘Act’’),1 and Rule 19b–4 thereunder,2
number should be included on the notice is hereby given that on December
C. Self-Regulatory Organization’s
subject line if email is used. To help the 23, 2015, The NASDAQ Stock Market
Statement on Comments on the
Commission process and review your LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed
Proposed Rule Change Received From
comments more efficiently, please use with the Securities and Exchange
Members, Participants, or Others
only one method. The Commission will Commission (‘‘SEC’’ or ‘‘Commission’’)
No written comments were either post all comments on the Commission’s the proposed rule change as described
solicited or received. Internet Web site (http://www.sec.gov/ in Items I and II, below, which Items
III. Date of Effectiveness of the rules/sro.shtml). Copies of the have been prepared by the Exchange.
The Commission is publishing this
ebenthall on DSK6SPTVN1PROD with NOTICES
Proposed Rule Change and Timing for submission, all subsequent
Commission Action amendments, all written statements notice to solicit comments on the
with respect to the proposed rule proposed rule change from interested
The Exchange has filed the proposed change that are filed with the persons.
rule change pursuant to Section
19(b)(3)(A)(iii) 13 of the Act and Rule 14 17 CFR 240.19b–4(f)(6). 17 17 CFR 200.30–3(a)(12).
15 15 U.S.C. 78s(b)(3)(A). 1 15 U.S.C. 78s(b)(1).
13 15 U.S.C. 78s(b)(3)(A)(iii). 16 17 CFR 240.19b–4(f)(6). 2 17 CFR 240.19b–4.
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I. Self-Regulatory Organization’s MOO,3 LOO,4 OIO,5 Early Market Hours Specifically, Nasdaq applies a
Statement of the Terms of the Substance orders,6 and executable quotes and percentage based threshold (‘‘Threshold
of the Proposed Rule Change orders to be executed in the Nasdaq Percentage’’) to a benchmark
Market Center.7 If the System (‘‘Benchmark Value’’) that, when
The Exchange proposes to add new determines that more than one price applied to an individual security,
paragraph (F) to Rule 4752(d)(2), exists that would maximize such quotes determines the price range that a
concerning the opening process. and orders to be executed, the Opening security may cross (‘‘Threshold Range’’),
The text of the proposed rule change Cross will occur at the price that outside of which the opening price of a
is available on the Exchange’s Web site minimizes any Imbalance.8 If the security may not occur.11 If an Opening
at http://nasdaq.cchwallstreet.com, at System determines that more than one Cross price of a security would
the principal office of the Exchange, and price exists that would minimize an otherwise be outside of the Threshold
Imbalance, the Opening Cross will occur Range, Nasdaq will adjust the Opening
at the Commission’s Public Reference
at the entered price at which shares will Cross price of the security to a price
Room.
remain unexecuted in the cross.9 If the within the Threshold Range that best
II. Self-Regulatory Organization’s System determines that more than one satisfies the normal process for
Statement of the Purpose of, and price exists whereby shares will remain determining the Opening Cross price.12
Statutory Basis for, the Proposed Rule unexecuted in the cross, the Opening This change happens automatically
Change Cross will occur at the price that prior to execution of the Opening Cross,
minimizes the distance from the bid-ask and does not involve any human
In its filing with the Commission, the midpoint of the inside quotation intervention. All unexecuted shares
Exchange included statements prevailing at 9:30 a.m.10 designated to expire upon the
concerning the purpose of and basis for When the Opening Cross price is conclusion of the Opening Cross,13
the proposed rule change and discussed calculated, Nasdaq applies a boundary including those that fall outside of the
any comments it received on the within which the cross must execute to Threshold Range, are cancelled.
proposed rule change. The text of these ensure that the price derived does not The Threshold Percentage and
statements may be examined at the exceed a price reasonably tied to the Benchmark Value are set by Nasdaq
places specified in Item IV below. The prevailing market at the time. officials in advance and communicated
to Participants.14 Nasdaq may adjust the
Exchange has prepared summaries, set 3 A ‘‘Market On Open’’ or ‘‘MOO’’ order is an Threshold Percentage based on Nasdaq’s
forth in sections A, B, and C below, of Order Type entered without a price that may be experience with the Opening Cross and
the most significant aspects of such executed only during the Nasdaq Opening Cross.
on unusual market conditions, such as
statements. Generally, MOO Orders may be entered, cancelled,
and/or modified between 4 a.m. ET and certain options and derivatives
A. Self-Regulatory Organization’s immediately prior to 9:28 a.m. ET. An MOO Order expiration days that are heavily affected
may not be cancelled or modified at or after 9:28 by the opening price of Nasdaq
Statement of the Purpose of, and a.m. ET. An MOO Order shall execute only at the
Statutory Basis for, the Proposed Rule price determined by the Nasdaq Opening Cross. See securities. Nasdaq publishes the
Change Rule 4702(b)(8). Benchmark Value and Threshold
4 A ‘‘Limit On Open Order’’ or ‘‘LOO Order’’ is Percentages via its public NasdaqTrader
1. Purpose an Order Type entered with a price that may be Web site, and sets the Threshold
executed only in the Nasdaq Opening Cross, and
only if the price determined by the Nasdaq Opening
Percentage so that repricing of a security
The purpose of this filing is to is rare.15 Currently, Nasdaq applies a
Cross is equal to or better than the price at which
enhance the price protections provided the LOO Order was entered. Subject to the Threshold Percentage of 10%, which is
by Rule 4752(d) in the operation of qualifications provided below [sic], LOO Orders applied to the Nasdaq Best Bid and
Nasdaq Opening Cross, Nasdaq’s may be entered, cancelled, and/or modified
between 4 a.m. ET and immediately prior to 9:28
Offer (‘‘QBBO’’) midpoint and is added
process for opening the market for a.m. ET. See Rule 4702(b)(9). to the Nasdaq Offer and subtracted from
trading System securities. 5 An ‘‘Opening Imbalance Only Order’’ or ‘‘OIO the Nasdaq Bid to establish the
Order’’ is an Order Type entered with a price that threshold price range. For example, if
Background may be executed only in the Nasdaq Opening Cross the QBBO is $10.00 × $11.00, then the
and only against MOO Orders, LOO Orders, or Early
Rule 4752 concerns Nasdaq’s opening Market Hours Orders (as defined in Rule 4752). OIO midpoint equals 10.50 and the
process and paragraph (d) of the rule Orders may be entered between 4:00 a.m. ET until Threshold Percentage is 10%, resulting
sets forth the processing of the Opening
the time of execution of the Nasdaq Opening Cross, in a threshold value of $1.05 (10% of
but may not be cancelled or modified at or after $10.50 = $1.05). This value is then
Cross. Specifically, the rule provides 9:28 a.m. ET. If the entered price of an OIO Order
to buy (sell) is higher than (lower than) the highest added to the offer and subtracted from
that the Opening Cross is initiated at
bid (lowest offer) on the Nasdaq Book, the price of the bid to obtain the cross’s threshold
9:30 a.m. ET, at which time the System the OIO Order will be modified repeatedly to equal range. In this example, it would result
attempts to open a security at the price the highest bid (lowest offer) on the Nasdaq Book;
that maximizes the number of shares of provided, however, that the price of the Order will 11 See Rule 4752(d)(2)(E).
not be moved beyond its stated limit price. See Rule 12 See
4702(b)(10). Rules 4752(d)(2)(A)–(D).
13 These are: MOO, LOO, OIO, and Early Market
6 An Early Market Hours Order is a Market Hours
Order that is entered into the system prior to 9:28 Hours Orders designated to participate in the
Opening Cross. Prior to the Opening Cross, the
a.m. and which is treated as an Opening Imbalance
Exchange maintains a continuous order book and
Only order [sic], as appropriate, for the purposes of
an Opening Cross order book. Orders in the
the Nasdaq Opening Cross. A Market Hours Order
Opening Cross order book may execute only in the
ebenthall on DSK6SPTVN1PROD with NOTICES
is any order that may be entered into the system and
Opening Cross process, while Orders in the
designated with a time-in-force of MIOC, MDAY, continuous book may execute during pre-market
MGTC. See Rule 4752(a)(7). See also Rules 4703(a) hours trading, in the Opening Cross, or in regular
for a discussion of the Time in Force Order market hours trading if the Order has a time-in-
attribute, including MIOC, MDAY, and MGTC. force that will allow it to remain active.
7 See Rule 4752(d)(2)(A).
14 As defined by Rule 4701(c).
8 See Rule 4752(d)(2)(B).
15 See http://www.nasdaqtrader.com/content/
9 See Rule 4752(d)(2)(C).
ProductsServices/Trading/Crosses/
10 See Rule 4752(d)(2)(D). openclose_faqs.pdf.
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![Federal Register / Vol. 81, No. 6 / Monday, January 11, 2016 / Notices 1243
$12.50 + $1.25 = $13.75). Because the requirements of Section 6(b) of the reasonably related to bona fide market
Opening Cross price is less than the Act.22 Specifically, the proposal is interest. Avoiding such prices will
lower threshold ($10.50 < $11.25), the consistent with Section 6(b)(5) of the ensure that the information on which
security fails Opening Cross Price Test Act,23 because it would promote just market participants make investment
A and Opening Cross Price Test B is and equitable principles of trade, decisions is accurate and representative
performed. remove impediments to, and perfect the of investors’ interest. As such, the
Under Opening Cross Price Test B, if mechanism of, a free and open market proposed changes should not place a
the last sale at 9:20 a.m. is $11.90, the and a national market system. burden on competition whatsoever.
Price Test Threshold would be 10% The Exchange believes that the
(10% of $11.90 = $1.19, which is greater proposed change will promote just and C. Self-Regulatory Organization’s
than $0.50) and the Price Test equitable principles of trade because it Statement on Comments on the
Threshold Range would be $10.71 to will implement a process designed to Proposed Rule Change Received From
$13.09 ($11.90 ¥ $1.19 = $10.71 and prevent Opening Crosses to occur [sic] Members, Participants, or Others
$11.90 + $1.19 = $13.09). Because the at erroneous prices. As explained, under No written comments were either
Opening Cross price is less than the the current process an erroneous order solicited or received.
lower threshold ($10.50 < $10.71), the or quote may significantly skew the
security fails Opening Cross Price Test current Benchmark Value that is used to III. Date of Effectiveness of the
B and Opening Cross Price Test C is create a boundary for the Opening Cross Proposed Rule Change and Timing for
performed. Price. This may then lead to the Commission Action
Under Opening Cross Price Test C, Opening Cross price would result [sic]
since the Opening Cross price is lower Within 45 days of the date of
in a temporary price dislocation from publication of this notice in the Federal
than the NOCP ($10.50 < $12.50), the normal pricing and typically the use of
QBBO offer price of $11 would be used Register or within such longer period (i)
the clearly erroneous trade nullification as the Commission may designate up to
to calculate the Price Test Threshold process under Rule 11890.
Range, which would result in a Price 90 days of such date if it finds such
The Exchange considers that a better
Test Threshold of 10% (10% of $11 = longer period to be appropriate and
approach is to implement a system of
$1.10, which is greater than $0.50) and publishes its reasons for so finding or
tests, as proposed herein, that would not
a Price Test Threshold Range of $9.90 to (ii) as to which the Exchange consents,
allow an erroneous order or quote affect
$12.10 ($11 ¥ $1.10 = $9.90 and $11 + the Commission shall: (a) By order
the opening of a security. The proposed
$1.10 = $12.10). Because the Opening approve or disapprove such proposed
change, moreover, would mitigate the
Cross price is within the Price Test rule change, or (b) institute proceedings
likelihood of an erroneous execution
Threshold Range, the security passes the to determine whether the proposed rule
occurring in the Opening Cross, since
test and the Opening Cross may change should be disapproved.
all Orders in the Opening Cross would
proceed. be cancelled. There would be no need IV. Solicitation of Comments
Accordingly, these new protections then to use the clearly erroneous trade
will mitigate situations in which the nullification process because no such Interested persons are invited to
Opening Cross price may be erroneous. trade would occur. Thus, the proposed submit written data, views, and
As a result, the changes will support fair rule change also protects investors, by arguments concerning the foregoing,
and orderly markets. avoiding erroneous transactions, which including whether the proposed rule
are disruptive to individual investors change is consistent with the Act.
Implementation Comments may be submitted by any of
and the market overall.
Nasdaq is proposing to implement the The proposal also promotes just and the following methods:
proposed change in a measured equitable principles of trade and further
approach over the course of Electronic Comments
perfects mechanism of fair and orderly
approximately four weeks. Although markets in that it promotes transparency • Use the Commission’s Internet
Nasdaq does not foresee any technical and uniformity in handling erroneous comment form (http://www.sec.gov/
issues with implementation of the trades in the Opening Cross. rules/sro.shtml); or
proposed changes, they affect a Finally, implementing the proposed • Send an email to rule-
fundamental process in the operation of changes in a phased approach promotes comments@sec.gov. Please include File
an orderly market. As a result, the just and equitable principles of trade, No. SR–NASDAQ–2015–159 on the
Exchange believes it should implement further improves participating [sic] in subject line.
the changes in stages. The Exchange fair and orderly markets, and serves to
will use a rollout schedule that will start protect investors because it will limit Paper Comments
with a small number of securities (e.g., the potential disruption to the market to • Send paper comments in triplicate
5–50) with each stage increasing the a subset of the total number of securities to Secretary, Securities and Exchange
number of securities to be rolled out. in the opening cross should the Commission, 100 F Street NE.,
The implementation details will be Exchange experience a technical issue Washington, DC 20549–1090.
published via an Exchange Trader Alert with the implementation.
and be posted on the NasdaqTrader Web All submissions should refer to File No.
site. The Exchange believes that this B. Self-Regulatory Organization’s SR–NASDAQ–2015–159. This file
measured approach will minimize risk Statement on Burden on Competition number should be included on the
to the overall market. The Exchange does not believe that subject line if email is used. To help the
the proposed rule change implicates any Commission process and review your
ebenthall on DSK6SPTVN1PROD with NOTICES
2. Statutory Basis competitive issues. The proposed comments more efficiently, please use
The Exchange believes that its change implements changes that will only one method. The Commission will
proposal is consistent with the benefit all market participants by post all comments on the Commission’s
requirements of the Act and the rules avoiding Opening Prices that are not Internet Web site (http://www.sec.gov/
and regulations thereunder that are rules/sro.shtml). Copies of the
applicable to a national securities 22 15 U.S.C. 78f(b). submission, all subsequent
exchange, and, in particular, with the 23 15 U.S.C. 78f(b)(5). amendments, all written statements
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![1244 Federal Register / Vol. 81, No. 6 / Monday, January 11, 2016 / Notices
with respect to the proposed rule Appendix F requires a broker-dealer (b) the accuracy of the Commission’s
change that are filed with the choosing to register, upon Commission estimates of the burden of the proposed
Commission, and all written approval, as an OTC derivatives dealer collection of information; (c) ways to
communications relating to the to develop and maintain an internal risk enhance the quality, utility, and clarity
proposed rule change between the management system based on Value-at- of the information collected; and (d)
Commission and any person, other than Risk (‘‘VaR’’) models. It is anticipated ways to minimize the burden of the
those that may be withheld from the that a total of one (1) broker-dealer collection of information on
public in accordance with the registering as an OTC derivatives dealer respondents, including through the use
provisions of 5 U.S.C. 552, will be will spend 1,000 hours on a one-time of automated collection techniques or
available for Web site viewing and basis complying with the system other forms of information technology.
printing in the Commission’s Public development requirements of Rule Consideration will be given to
Reference Room, 100 F Street NE., 15c3–1f, for an estimated one-time comments and suggestions submitted in
Washington, DC 20549 on official initial startup burden of approximately writing within 60 days of this
business days between the hours of 1,000 hours. Appendix F also requires publication.
10:00 a.m. and 3:00 p.m. Copies of such the OTC derivatives dealer to maintain An agency may not conduct or
filing also will be available for its system model according to certain sponsor, and a person is not required to
inspection and copying at the principal prescribed standards. It is anticipated respond to, a collection of information
office of the Exchange. All comments that the four (4) OTC derivatives dealers under the PRA unless it displays a
received will be posted without change; currently registered with the currently valid OMB control number.
the Commission does not edit personal Commission will each spend 1,000 Please direct your written comments
identifying information from hours per year maintaining the system to: Pamela Dyson, Director/Chief
submissions. You should submit only model required by Rule 15c3–1f, for an Information Officer, Securities and
information that you wish to make estimated recurring annual burden of Exchange Commission, c/o Remi Pavlik-
available publicly. All submissions approximately 4,000 hours. It is Simon, 100 F Street NE., Washington,
should refer to File No. SR–NASDAQ– anticipated that the one (1) broker- DC 20549 or send an email to:
2015–159, and should be submitted on dealer registering as an OTC derivatives PRA_Mailbox@sec.gov.
or before February 1, 2016. dealer will spend 1,000 hours
Dated: January 5, 2016.
For the Commission, by the Division of
maintaining the system model required
Robert W. Errett,
Trading and Markets, pursuant to delegated by Rule 15c3–1f in each year following
its registration. Thus, the total industry- Deputy Secretary.
authority.24
wide burden is estimated to be [FR Doc. 2016–00256 Filed 1–8–16; 8:45 am]
Robert W. Errett,
Deputy Secretary. approximately 5,000 hours (4,000 hours BILLING CODE 8011–01–P
+ 1,000 hours) for the first year and
[FR Doc. 2016–00249 Filed 1–8–16; 8:45 am]
5,000 hours for each subsequent year.1
BILLING CODE 8011–01–P
The records required to be kept SECURITIES AND EXCHANGE
pursuant to Appendix F and results of COMMISSION
SECURITIES AND EXCHANGE periodic reviews conducted pursuant to [Investment Company Act Release No.
COMMISSION Rule 15c3–4 generally must be 31952; File No. 812–14519]
preserved under Rule 17a–4 of the
[SEC File No. 270–440, OMB Control No. Exchange Act (17 CFR 240.17a–4) for a Northern Lights Fund Trust, et al.;
3235–0496] period of not less than three years, the Notice of Application
first two years in an easily accessible
Proposed Collection; Comment January 4, 2016.
place. The Commission will not
Request AGENCY: Securities and Exchange
generally publish or make available to
any person notices or reports received Commission (‘‘Commission’’).
Upon Written Request, Copies Available
From: Securities and Exchange pursuant to the Rule. The statutory basis ACTION: Notice of an application for an
Commission, Office of FOIA Services, for the Commission’s refusal to disclose order under section 12(d)(1)(J) of the
100 F Street NE., Washington, DC such information to the public is the Investment Company Act of 1940 (the
20549–2736. exemption contained in Section (b)(4) of ‘‘Act’’) for an exemption from sections
the Freedom of Information Act (5 12(d)(1)(A), (B), and (C) of the Act and
Extension:
Appendix F to Rule 15c3–1. U.S.C. 552), which essentially provides under sections 6(c) and 17(b) of the Act
that the requirement of public for an exemption from sections 17(a)(1)
Notice is hereby given that pursuant and (2) of the Act. The requested order
dissemination does not apply to
to the Paperwork Reduction Act of 1995 would permit certain registered open-
commercial or financial information
(44 U.S.C. 3501 et seq.) (‘‘PRA’’), the end investment companies to acquire
which is privileged or confidential.
Securities and Exchange Commission Written comments are invited on: (a) shares of certain registered open-end
(‘‘Commission’’) is soliciting comments Whether the proposed collection of investment companies, registered
on the existing collection of information information is necessary for the proper closed-end investment companies,
provided for in Appendix F to Rule performance of the functions of the business development companies, as
15c3–1 (‘‘Appendix F’’ or ‘‘Rule 15c3– Commission, including whether the defined in section 2(a)(48) of the Act,
1f’’) (17 CFR 240.15c3–1f) under the information shall have practical utility; and unit investment trusts (collectively,
Securities Exchange Act of 1934 (15
ebenthall on DSK6SPTVN1PROD with NOTICES
‘‘Underlying Funds’’) that are within
U.S.C. 78a et seq.). The Commission 1 The Commission estimates that a total of five and outside the same group of
plans to submit this existing collection entities will be registered as OTC derivatives investment companies as the acquiring
of information to the Office of dealers at the end of the next three years, consisting investment companies, in excess of the
Management and Budget (‘‘OMB’’) for of the four current OTC derivatives dealers and one
anticipated registrant. This is in contrast with the limits in section 12(d)(1) of the Act.
extension and approval. prior estimate of eight OTC derivatives dealers,
consisting of four current OTC derivatives dealers Applicants: Northern Lights Fund
24 17 CFR 200.30–3(a)(12). and four anticipated registrants. Trust (the ‘‘Trust’’), a Delaware statutory
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Document Created: 2016-01-16 01:04:23
Document Modified: 2016-01-16 01:04:23
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 81 FR 1240 |
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