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Notice

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Regarding Rule 4758

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Start Preamble April 3, 2015.

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 March 30, 2015, The NASDAQ Stock Market LLC (“NASDAQ” or “Exchange”) filed with the Securities and Exchange Commission (“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 Rule 4758 (Order Routing) to (a) explain the treatment of a DOT or DOTI order designated to participate in the closing only; (b) explain the treatment of a LIST order designated to participate in the closing only; and (c) explain the treatment of a LIST order in the after-hours market.[4] The Exchange also proposes to make technical changes to further explain the language of the rule.

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 the Statutory Basis for, the Proposed Rule Change

1. Purpose

The purpose of this proposed rule change is to amend subsection (a)(1)(A) of Rule 4758 to: (a) Explain the treatment of a DOT or DOTI order designated to participate in the closing only; (b) explain the treatment of a LIST order designated to participate in the closing only; and (c) explain the treatment of a LIST order in the after-hours market. The Exchange also proposes to make technical changes to further explain the language of the rule.

NASDAQ offers its members optional routing functionality that allows them to use NASDAQ's facilities to access liquidity available on other trading venues. The functionality includes a range of defined routing algorithms—known as strategies—that determine the destinations and pattern of routing. The particular pattern of routing to other venues associated with a particular strategy is referred to in Rule 4758 as the “System routing table.” All routing is designed to be conducted in a manner consistent with the requirements of Regulation NMS.

NASDAQ currently offers a set of strategies designed to allow market participants to route orders to the primary market on which a security is listed. NASDAQ is proposing minor Start Printed Page 19100changes to these strategies to improve their functioning and make clear the language of the rule. As an example, NASDAQ currently offers the DOT strategy (which includes several variations) as a means of designating an order for routing to the New York Stock Exchange (“NYSE”) or NYSE MKT (formerly NYSE Amex) for participation in their respective opening or closing processes. DOT orders are routed directly to NYSE or NYSE MKT, as appropriate. After attempting to execute in the opening or closing process, if any shares remain unexecuted, DOT orders thereafter check the NASDAQ Market Center System for available shares and behave as SCAN or STGY orders, depending on the designation of the entering firm.[5] DOTI and LIST strategies are discussed below.

The Proposal

First, NASDAQ is proposing to modify the language of subsection (a)(1)(A) of Rule 4758 to make it clear that a DOT order may be designated to participate in the opening only or in the closing only, with different outcomes. Currently, an order entered before the open (or close) that is designated as opening only (or closing only) will likely be cancelled by the destination market after the open (or close) in accordance with its terms and therefore will not return to NASDAQ, even if not executed in full. Similarly, if NASDAQ receives a DOT order after the security has opened (or closed) and the order has been designated to participate in the opening only (or closing only), the order will nevertheless be routed to NYSE or NYSE MKT (which would be expected to reject the order based on its designation as opening only or closing only).[6] Specifically, the Exchange proposes in subsection (a)(1)(A)(i) of Rule 4758 to delete the option of a DOT order being designated to participate in the closing only at the proper time as described below, in which case a closing only order would be expected to be rejected by the destination market and would also be cancelled by NASDAQ if returned by the destination market. The Exchange proposes new language in subsection (a)(1)(A)(i) stating that if a DOT order entered in NYSE or NYSE MKT securities has been designated to participate in the closing only and is entered at 3:45 p.m. Eastern Time or later (or in the case of an early closing, is entered 15 minutes prior to the close or later), the order will be rejected.[7] A DOT order entered in non-NYSE or non-NYSE MKT securities, however, will be treated as a SCAN or STGY order depending on the designation of the firm. The Exchange believes the proposed explanation of how DOT orders will be treated makes the rule clearer and easier to follow, and should serve to minimize any potential confusion regarding its application.[8] The modifications make clear the processing logic for NYSE or NYSE MKT and non- NYSE or non-NYSE MKT orders. The modifications also make clear the processing logic for NYSE or NYSE MKT DOT orders designated to participate in the closing only and entered at 3:45 p.m. Eastern Time or later (or in the case of an early closing, entered 15 minutes prior to the close or later), which would be rejected. Also, the modifications make clear the processing logic for a non-NYSE or NYSE MKT DOT order, which would continue to be treated as SCAN or STGY orders depending on the designation of the firm.

Second, NASDAQ is proposing similar changes to the DOTI routing strategy in subsection (a)(1)(A) of Rule 4758 to make it clear that a DOTI order may be designated to participate in the opening only but not in the closing only under certain circumstances. Currently, DOTI is a routing option for orders that the entering firm wishes to direct to the NYSE or NYSE MKT without them returning to the NASDAQ Market Center. DOTI orders check the System for available shares and then are sent to destinations on the System routing table before being sent to NYSE or NYSE MKT, as appropriate. Alternatively, the member entering the order may opt to have it check the System and then be sent directly to NYSE or NYSE MKT, without routing to destinations on the System routing table.[9] DOTI orders do not return to the NASDAQ Market Center book after routing. Specifically, the Exchange proposes in subsection (a)(1)(A)(ii)a. of Rule 4758 to delete the current option of a DOTI order being designated to participate in the closing only at the proper time as described below, in which case a closing only order would be expected to be rejected by the destination market and would also be cancelled by NASDAQ if returned by the destination market. The Exchange proposes new language in subsection (a)(1)(A)(ii)a. stating that if a DOTI order entered in NYSE or NYSE MKT securities has been designated to participate in the closing only and is entered at 3:45 p.m. Eastern Time or later (or in the case of an early closing, is entered 15 minutes prior to the close or later) it will be rejected.[10] The Exchange believes the proposed explanation of how DOTI orders will be treated makes the rule clearer and easier to follow, and should serve to minimize any potential confusion regarding its application. As is the case with DOT, the modifications make clear the processing logic for NYSE or NYSE MKT DOTI orders designated to participate in the closing only and entered at 3:45 p.m. Eastern Time or later (or in the case of an early closing, entered 15 minutes prior to the close or later), which would be rejected.

Third, NASDAQ is proposing similar changes to the LIST routing strategy in subsection (a)(1)(A) of Rule 4758 to make it clear how a LIST order designated to participate in the closing only will be handled. Currently, LIST is a routing option designed to allow orders to participate in the opening and/or closing process of the primary listing market for a security, and to follow additional routing logic as described below. A LIST order received before the security has opened on its primary listing market will be routed to the primary listing market for participation in that market's opening process. After the security has opened on its primary listing market, unexecuted shares will be returned to the NASDAQ system; the order would be returned only to the extent that the order has not been designated opening only and has not Start Printed Page 19101been fully executed, rejected, or cancelled by the destination market. Thereafter, the order will check the System for available shares and simultaneously route the remaining shares to destinations on the System routing table. Any remaining shares will be posted on the book. As with DOT and DOTI, if a LIST order is received by NASDAQ before the destination market is able to receive orders for its opening process, the order will be held until such time as the destination market can receive it. The Exchange specifically proposes new language in subsection (a)(1)(A)(x) to state that for NYSE and NYSE MKT securities, LIST orders that have been designated to participate in the closing only and are entered at the 3:45 p.m. Eastern Time cut-off or later (or in the case of an early closing, are entered 15 minutes prior to the close or later), will be rejected. This is the same as DOT and DOTI. Currently, the provision in subsection (a)(1)(A)(x) governing a LIST order that has been designated to participate in the closing only and is entered after the security has closed states that the order will nevertheless be routed to the primary listing market. The Exchange proposes to add language stating “unless the primary market for the security is NYSE or NYSE MKT.” [11] Accordingly, if a LIST order has been designated to participate in the closing only and is entered after the security has closed and the primary market for the security is other than NYSE or NYSE MKT, the order will nevertheless be routed to the primary listing market. Currently, subsection (a)(1)(A)(x) states that LIST Orders received after market close that have not been designated as closing only will check the System for available shares and simultaneously route the remaining shares to destinations on the System routing table. The Exchange proposes to add language regarding such LIST orders, stating “and are eligible, based on the orders' time-in force,[12] to participate in the after-hours market.” Accordingly, LIST Orders received after market close that have not been designated as closing only and are eligible, based on the orders' time-in force, to participate in the after-hours market will check the System for available shares and simultaneously route the remaining shares to destinations on the System routing table. Any remaining shares will be posted to the NASDAQ book. This additional language explains the processing logic if a LIST order is received after market close and is not designated to participate in the closing only.

By way of housekeeping, the Exchange also proposes additional explanatory language in respect of LIST orders. First, where currently Rule 4758(a)(1)(A)(x) states that two minutes before market close, all LIST orders on the book “will route” to the security's primary listing market for participation in its closing process, the Exchange proposes to say “will begin routing” in recognition of the fact that the sheer volume of orders will not allow all orders to route at exactly the same time. Second, where currently Rule 4758(a)(1)(A)(x) states that after the security has closed on the primary listing market, a LIST order that has not been designated as “a closing only order” and that has not been fully executed, rejected, or cancelled by the market to which it was routed will be returned to the NASDAQ System, the Exchange proposes to state “a closing only or MDAY order” in recognition of the time in force of a MDAY order.[13]

The Exchange believes that these proposed explanatory changes are non-controversial and are consistent with the Act.

2. Statutory Basis

The Exchange believes the proposed rule change is consistent with the Act and the rules and regulations thereunder, including the requirements of Section 6(b) of the Act.[14] In particular, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) [15] requirements that the rules of an exchange be designed to promote just and equitable principles of trade, to prevent fraudulent and manipulative acts and practices, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, to remove impediments to and to perfect the mechanism for a free and open market and a national market system, and, in general, to protect investors and the public interest.

NASDAQ believes that the changes will make clear to market participants that they may not designate DOT and DOTI orders to participate in the closing only of a primary listing venue under certain circumstances. In addition, NASDAQ proposes to clearly explain to market participants how orders designated to participate in the closing only and are entered at 3:45 p.m. Eastern Time or later (or in the case of an early closing, are entered 15 minutes prior to the close or later) will be handled. Collectively, the changes discussed in the proposal facilitate transactions in securities and perfect the mechanism of a free and open market and a national market system by providing NASDAQ members with greater explanation regarding the routing of their orders. The Exchange believes the changes make clear the language to Rule 4758 and make it easier to follow, and should serve to minimize any potential confusion regarding its application. The majority of the changes are explanatory, and some are technical in nature.

As noted, the Exchange believes that the changes proposed are explanatory and non-controversial in nature.

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 that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange does not believe that the proposed rule change will have any impact on competition.

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

Because the foregoing proposed rule change does not: (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section Start Printed Page 1910219(b)(3)(A)(ii) of the Act [16] and subparagraph (f)(6) of Rule 19b-4 thereunder.[17]

At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or 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

Paper Comments

  • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2015-031. 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 such 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-2015-031 and should be submitted on or before April 30, 2015.

Start Signature

For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.18

Brent J. Fields,

Secretary.

End Signature End Preamble

Footnotes

4.  For a description of market sessions and hours on the Exchange, see Rule 4120(b)(4). DOT, DOTI, and LIST orders are defined below.

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5.  STGY is a routing option under which orders check the System for available shares and simultaneously route the remaining shares to destinations on the applicable System routing table. If shares remain un-executed after routing, they are posted on the NASDAQ book. Once the order is on the book, if the order is subsequently locked or crossed by another accessible market center, the System routes the order to the locking or crossing market center. SCAN behaves similarly, but once the order is on the NASDAQ book, the System will not route the order to a locking or crossing market center. Although both options are described in Rule 4758 as variations of the DOT strategy, NASDAQ's system specifications refer to the SCAN option as either “DOTA” or “DOTD” and refer to the STGY option as “DOTM.”

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6.  In the event that an opening or closing only order was returned to NASDAQ after the time of the open or close on the destination market, NASDAQ would cancel the order.

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7.  NYSE and NYSE MKT rules do not permit the entry of on close orders after 3:45 p.m. Eastern Time unless they are offsetting an imbalance. Since the Exchange is a pass through for these purposes and does not read imbalances, the System is set to reject at the 3:45 p.m. Eastern Time cut-off or later (or in the case of an early closing, to reject 15 minutes prior to the close or later), so that the Exchange is in synch with the rules of NYSE and NYSE MKT. As discussed, the Exchange adds language to ensure that the noted orders are rejected if there is an early market close. This is similar for DOT, DOTI, and LIST.

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8.  For additional explanation and clarity in subsection (a)(1)(A)(i), the Exchange proposes to add the phrase “if applicable” following “after attempting to execute in the opening or closing process.”

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9.  This option is referred to in system specifications as “DOTZ”.

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10.  See also supra note 6.

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11.  Based on its designation as closing only, this type of eligible LIST order will nevertheless be routed to the primary listing market; based on its designation as closing only, such an order would be expected to be rejected by the destination market, and would also be cancelled by NASDAQ if returned by the destination market. Rule 4758(a)(1)(A)(x). If the primary market for the security is NYSE or NYSE MKT, the order will be rejected because the cutoff is at 3:45 p.m. Eastern Time or later (or in the case of an early closing, is at 15 minutes prior to the close or later). See also supra note 6.

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12.  For example, orders with a time in force that is valid for extended hours trading.

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13.  “Market Hours Day” or “MDAY” shall mean for orders so designated, that if after entry into the System, the order is not fully executed, the order (or unexecuted portion thereof) shall remain available for potential display and/or execution until 4:00 p.m. Eastern Time, unless canceled by the entering party, after which it shall be returned to the entering party. MDAY Orders shall be available for entry from 4:00 a.m. until 4:00 p.m. Eastern Time and for potential execution from 9:30 a.m. until 4:00 p.m. Eastern Time. Rule 4751(h)(6).

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16.  15 U.S.C. 78s(b)(3)(a)(ii).

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17.  17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement.

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[FR Doc. 2015-08109 Filed 4-8-15; 8:45 am]

BILLING CODE 8011-01-P