81 FR 7398 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing of Proposed Rule Change To Amend Rule 4120

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 28 (February 11, 2016)

[Federal Register Volume 81, Number 28 (Thursday, February 11, 2016)]
[Notices]
[Pages 7398-7400]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-02731]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77066; File No. SR-NASDAQ-2016-008]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Amend Rule 4120

February 5, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on January 29, 2016, The NASDAQ Stock Market LLC (``Nasdaq'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    Nasdaq is proposing to amend Rule 4120 and the Nasdaq process for 
commencing trading of a security that is the subject of Nasdaq and non-
Nasdaq-listed initial public offerings (``IPOs'') and trading halts.
    The text of the proposed rule change is available at http://nasdaq.cchwallstreet.com/, at the Exchange's principal office, 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
    Nasdaq is proposing to make a minor modification to the Nasdaq 
process for commencing trading of a security that is the subject of 
Nasdaq and non-Nasdaq-listed IPOs or trading halts. Specifically, the 
Exchange is proposing to modify the way in which orders are accepted 
prior to the commencement of trading for securities subject to trading 
halt or IPO. This small change will simplify the order submission 
operations for market participants during trading halts and IPOs.
    Currently, Nasdaq Rule 4120(c)(4)(B) provides that during any 
trading halt or pause for which a halt cross under Rule 4753 will not 
occur, market participants may enter orders during the trading halt or 
pause and designate such orders to be held until the termination of the 
trading halt or pause. Under this rule, such orders will be held in a 
suspended state until the termination of the halt or pause, at which 
time they will be entered into the system.
    Nasdaq Rules 4120(a)(1), (4), (5), (6), (9), (10), (11), and 
(12)(F) provide specific instances when the Exchange may halt trading 
of a security listed on Nasdaq. Nasdaq Rule 4120(c)(7)(A) establishes 
the process for lifting the

[[Page 7399]]

halt and commencing trading. It provides that a trading halt or pause 
initiated under the rules listed above is terminated by the Exchange 
once it releases the security for trading. For any such security listed 
on the Exchange, prior to terminating the halt or pause, there will be 
a 5-minute ``Display Only Period'' during which market participants may 
enter quotations and orders in that security in Nasdaq systems.
    Additionally, when a trading halt is in effect prior to the 
commencement of the Display Only Period, market participants may enter 
orders in a security that is the subject of the trading halt on the 
Exchange and designate such orders to be held until the beginning of 
the Display Only Period. Such orders will be held in a suspended state 
until the beginning of the Display Only Period, at which time they will 
be entered into the system.
    Nasdaq Rule 4120(a)(7) provides that the Exchange may halt trading 
in a security that is the subject of an IPO on Nasdaq. Nasdaq Rule 
4120(c)(8)(A) establishes the process for lifting the halt and 
commencing trading. Under this rule, prior to terminating the halt, 
there is a 15-minute Display-Only Period during which market 
participants may enter quotes and orders into the Nasdaq Market Center. 
Additionally, beginning at 4:00 a.m. (EST), market participants may 
enter orders in a security that is the subject of an IPO on the 
Exchange and designate such orders to be held until the beginning of 
the Display Only Period. Such orders will be held in a suspended state 
until the beginning of the Display Only Period, at which time they will 
be entered into the system. At the conclusion of the Display-Only 
Period, the security will enter a ``Pre-Launch Period'' of 
indeterminate duration. The Pre-Launch Period ends and the security is 
released for trading by the Exchange once the conditions described in 
paragraphs (c)(8)(A)(i), (ii), and (iii) of Nasdaq Rule 4120 are all 
met.
    The process of holding orders in a suspended state prior to the 
commencement of the Display Only Period is functionality that is 
utilized by just a small portion of orders. The Exchange believes that 
the proposed rule change will simplify this process for market 
participants by making it easier for them to enter orders prior to the 
release of an IPO or halted security for trading on the Exchange.
    The proposed rule change is to amend Nasdaq Rule 4120(c)(4)(B), 
Nasdaq Rule 4120(c)(7)(A), and Nasdaq Rule 4120(c)(8)(A) pertaining to 
the Nasdaq process for commencing trading of a security that is subject 
to Nasdaq and non-Nasdaq-listed IPOs and trading halts.
    For Nasdaq-listed securities, Nasdaq proposes amending Nasdaq Rule 
4120(c)(7)(A) and (c)(8)(A). Nasdaq Rule 4120(c)(8)(A) functionality 
was added in 2012 to make it easier for firms to enter orders during 
halts or IPOs for Nasdaq-listed securities, without regard for the 
security being in a Display Only Period or having resumed trading.\3\ 
The process required special settings on participant ports and, as 
mentioned above, the orders are held in a suspended state. With this 
change, orders for Nasdaq-listed securities will be immediately 
accepted and entered into the system without any special port settings 
and will no longer be held in a suspended state. Such orders will be 
eligible for cross execution and will remain on the book after the 
auction if the order's Time in Force allows.\4\ As mentioned above, 
this simplification will streamline the process and make it easier for 
firms to submit orders to the Exchange prior to the commencement of 
trading in an IPO or halted security.
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    \3\ See Securities Exchange Act Release No. 66652 (March 23, 
2012), 77 FR 19044 (March 29, 2012) (SR-NASDAQ-2012-038); see also 
Securities Exchange Act Release No. 69563 (May 13, 2013), 78 FR 
29187 (May 17, 2013) (SR-NASDAQ-2013-073). Both filings were 
designated by the Exchange and accepted by the Commission as filings 
submitted under Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6) 
thereunder.
    \4\ Certain orders' Time in Force allows the order to remain on 
the Exchange book after the auction (See e.g., MDAY, MGTC, SDAY and 
SGTC in Nasdaq Rule 4703(a)).
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    For non-Nasdaq-listed securities, the functionality will revert 
back to what had been done previously, which is that the Exchange will 
not accept any order entered during a trading halt prior to its release 
on the primary market.\5\ Nasdaq notes that this will reduce confusion 
about where to send orders for IPO or halt auctions. Market 
participants that want to participate in the IPO auction or halt 
resumption for non-Nasdaq-listed securities may use Nasdaq routing 
strategies that submit orders to the primary listing exchange for 
auctions or submit their orders directly to the primary listing 
exchange. The Exchange proposes that Nasdaq Rule 4120(c)(4)(B) be 
revised to simply state that during any trading halt or pause for which 
a halt cross under Rule 4753 will not occur, which would be the case 
for a security not listed on Nasdaq that is subject to a halt or pause, 
Nasdaq will not accept orders entered by market participants during the 
trading halt or pause.
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    \5\ Any order subject to instructions that it be directed to 
another exchange as described in Nasdaq Rule 4758 will be forwarded 
to the exchange as per the member's instructions.
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    Both the changes for non-Nasdaq-listed securities and for Nasdaq-
listed securities will clarify references to instances where a trading 
halt is in effect prior to the commencement of the Display Only Period 
and that market participants may enter orders in a security that is the 
subject of the trading halt on the Exchange. Specifically, for both 
Nasdaq Rule 4120(c)(7)(A) and (c)(8)(A), the subsections will be 
amended by deleting language referencing that orders will be held until 
the beginning of the Display Only Period. Nasdaq Rule 4120(c)(7)(A) 
will be amended further by deleting language referencing that orders 
will be held in a suspended state until the beginning of the Display 
Only Period. For both subsections, this language will be replaced with 
language that states such orders will now be accepted and entered into 
the system.
    The Exchange has also notified FINRA of the proposed rule change 
and that Nasdaq would treat the quotes collected during the halt in the 
same manner that the Exchange handles the pre-existing quotes (i.e., by 
disseminating these quotes in a non-tradable state where they are 
clearly identified as being closed and are in fact non-actionable). As 
a result, the Exchange believes that the proposed rule change would not 
violate Nasdaq Rule 3340 \6\ or the similar FINRA Rule 5260.\7\
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    \6\ See Nasdaq Rule 3340. Prohibition on Transactions, 
Publication of Quotations, or Publication of Indications of Interest 
During Trading Halts.
    \7\ See FINRA Rule 5260. Prohibition on Transactions, 
Publication of Quotations, or Publication of Indications of Interest 
During Trading Halts.
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    The implementation of the existing functionality for accepting 
orders prior to the commencement of the Display Only Period has not 
been widely used and the Exchange believes the proposed rule change 
will both improve and simplify the Nasdaq process for market 
participants.\8\ The Exchange will issue an Equity Trader Alert 
notifying Exchange member firms of the changes.
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    \8\ The New York Stock Exchange LLC (``NYSE'') may accept orders 
at any time prior to an IPO for NYSE-listed and NYSE MKT LLC-listed 
securities. See https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Opening_and_Closing_Auctions_Fact_Sheet.pdf.
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2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\9\ in general, and with Section 
6(b)(5) of the

[[Page 7400]]

Act,\10\ in particular, in that the proposal is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest.
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    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(5).
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    Nasdaq believes that the proposed rule change will remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system through an improved and simplified Nasdaq 
process for commencing trading of a security that is the subject of 
Nasdaq and non-Nasdaq-listed IPOs and trading halts.
    The current functionality for accepting orders prior to the 
commencement of the Display Only Period is used infrequently and 
consequently the proposed rule change will have little impact on 
customers. To the extent that there is any impact, it will be that 
accepting orders immediately rather than holding them in a suspended 
state will clarify the state of participant orders, which will reduce 
confusion for market participants in times of increased activity such 
as during a halt or IPO. This simpler Nasdaq process will make it 
easier for market participants by streamlining the process for entering 
orders in securities subject to an IPO or halt prior to the 
commencement of the Display Only Period. Additionally, returning to the 
functionality of not accepting orders prior to the resumption of 
trading that was previously in place for non-Nasdaq-listed securities 
prior to 2013,\11\ will reduce confusion for market participants about 
where to send orders for IPO or halt auctions. Orders sent to Nasdaq 
will not be accepted unless they are designated to use one of the 
routing options that may be sent to the primary listing market.\12\
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    \11\ See Securities Exchange Act Release No. 66652 (March 23, 
2012), 77 FR 19044 (March 29, 2012) (SR-NASDAQ-2012-038); see also 
Securities Exchange Act Release No. 69563 (May 13, 2013), 78 FR 
29187 (May 17, 2013) (SR-NASDAQ-2013-073).
    \12\ For example, the LIST routing option sends orders in non-
Nasdaq-listed securities to the primary listing exchange for 
auctions--open, close, IPOs, halts, pauses, etc. See Nasdaq Rule 
4758(a)(1)(A)(x).
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    The proposed rule change also will remove impediments to and 
perfect the mechanism of a free and open market through competition. 
Specifically, the proposed rule change will enhance competition by 
increasing Nasdaq's attractiveness as a venue for trading securities 
and as a primary listing exchange for securities issuers.

B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq does not believe that the proposed rule change will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended. Nasdaq believes 
that the proposed rule change will result in an improved and simplified 
process for market participants, which in turn will reduce confusion 
during important market events. Nasdaq believes that this change will 
enhance competition by increasing its attractiveness as a venue for 
trading securities.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2016-008 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-2016-008. 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 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 the filing will also 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 Number SR-NASDAQ-2016-008, and should 
be submitted on or before March 3, 2016.
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    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
Brent J. Fields,
Secretary.
[FR Doc. 2016-02731 Filed 2-10-16; 8:45 am]
BILLING CODE 8011-01-P