[Federal Register Volume 87, Number 89 (Monday, May 9, 2022)]
[Notices]
[Pages 27683-27696]
[FR Doc No: 2022-09855]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94838; File No. SR-NASDAQ-2022-017]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Amendment No. 1 to Proposed Rule Change To Modify
Equity 4, Section 4120 To Add Categories of Regulatory and Operational
Halts, To Reorganize the Remaining Text of the Rule, and To Make
Conforming Changes to Related Rules

May 3, 2022.
    On February 22, 2022, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or

``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to modify Equity 4, Section 4120 to add categories
of regulatory and operational halts, to reorganize the remaining text
of the rule, and to make conforming changes to related rules. The
proposed rule change was published for comment in the Federal Register
on March 11, 2022.\3\ On April 21, 2022, pursuant to Section 19(b)(2)
of the Act,\4\ the Commission designated a longer period within which
to approve the proposed rule change, disapprove the proposed rule
change, or institute proceedings to determine whether to disapprove the
proposed rule change.\5\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 94370 (March 7,
2022), 87 FR 14071.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 94778, 87 FR 25069
(April 27, 2022). The Commission designated June 9, 2022 as the date
by which the Commission shall approve or disapprove, or institute
proceedings to determine whether to disapprove, the proposed rule
change.
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    On April 29, 2022, the Exchange filed Amendment No. 1 to the
proposed rule change, which amended and superseded the proposed rule
change as originally filed. Amendment No. 1 is 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 Amendment
No. 1 from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to modify Equity 4, Section 4120 to add
categories of regulatory and operational halts and to reorganize the
remaining text of the rule, and to make conforming changes to related
rules.
    The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, at
the principal office of the Exchange, and at the Commission's Public
Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
    In conjunction with adoption of an amended Nasdaq UTP Plan proposed
by its participants (``Amended Nasdaq UTP Plan''),\6\ Nasdaq is
amending Rule 4120 \7\ to integrate several definitions and concepts
from the Amended Nasdaq UTP Plan and to reorganize the rule in light of
Nasdaq's experience with applying the rule over fifteen years as a
national securities exchange. Nasdaq proposes to reorganize and amend
Rule 4120 entitled Limit Up-Limit Down Plan and Trading Halts. The rule
sets forth Nasdaq's authority to halt trading under various
circumstances. The Exchange is a participant of the transaction
reporting plan governing Tape C Securities (``Nasdaq UTP Plan'').\8\ As
part of these changes, Nasdaq will add categories of regulatory and
operational halts, improve the rule's clarity, adopt defined terms from
the Amended Nasdaq UTP Plan and delete parts of the rule that are no
longer needed. Last, Nasdaq is updating cross references in other rules
that are affected by the proposed changes.
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    \6\ On February 11, 2021, the Nasdaq UTP Plan participants filed
Amendment 50 to the Plan, to revise provisions governing regulatory
and operational halts. See Letter from Robert Brooks, Chairman, UTP
Operating Committee, Nasdaq UTP Plan, to Vanessa Countryman,
Secretary, Securities and Exchange Commission, dated February 11,
2021. The Nasdaq UTP Plan subsequently filed two partial amendments
to the 50th Amendment, on March 31, 2021 and on April 7, 2021. The
SEC approved the amendments on May 28, 2021. See Securities Exchange
Act Release No. 34-92071 (May 28, 2021), 86 FR 29846 (June 3, 2021)
(S7-24-89). The Amended Nasdaq UTP Plan includes provisions
requiring participant self-regulatory organizations (``SROs'') to
honor a Regulatory Halt declared by the Primary Listing Market. The
provisions in the Nasdaq UTP Plan, and the plan for consolidation of
data for non-Nasdaq-listed securities, the Consolidated Tape System
and Consolidated Quotations System (collectively, the ``CTA/CQS
Plan''), include provisions similar to the changes proposed by the
Exchange in this filing.
    \7\ References herein to Nasdaq Rules in the 4000 Series shall
mean Rules in Nasdaq Equity 4.
    \8\ Each transaction reporting plan has a securities information
processor (``SIP'') responsible for consolidation of information for
the plan's securities, pursuant to Rule 603 of Regulation NMS. The
transaction reporting plan for Nasdaq-listed securities is known as
The Joint Self-Regulatory Organization Plan Governing The
Collection, Consolidation and Dissemination of Quotation and
Transaction Information For Nasdaq-Listed Securities Traded on
Exchanges on an Unlisted Trading Privilege Basis or the ``Nasdaq UTP
Plan.'' Pursuant to the Nasdaq UTP Plan, the UTP SIP, which is
Nasdaq, consolidates order and trade data from all markets trading
Nasdaq-listed securities. The Exchange uses the term ``UTP SIP''
herein when referring specifically to the SIP responsible for
consolidation of information in Nasdaq-listed securities.
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Background
    The Exchange has been working with other SROs to establish common
criteria and procedures for halting and resuming trading in equity
securities in the event of regulatory or operational issues. These
common standards are designed to ensure that events which might impact
multiple exchanges are handled in a consistent manner that is
transparent. The Exchange believes that implementation of these common
standards will assist the SROs in maintaining fair and orderly markets.
Notwithstanding the development of these common standards, Nasdaq will
retain discretion in certain instances as to whether and how to handle
halts, as is discussed below.
    Every U.S.-listed equity security has its primary listing on a
specific stock exchange that is responsible for a number of regulatory
functions.\9\ These include confirming that the security continues to
meet the exchange's listing standards, monitoring trading in that
security and taking action to halt trading in the security when
necessary to protect investors and to ensure a fair and orderly market.
While these core responsibilities remain with the primary listing
venue, trading in the security can occur on multiple exchanges that
have unlisted trading privileges for the security \10\ or in the over-
the-counter market, regulated by the Financial Industry Regulatory
Authority, Inc. (``FINRA''). The exchanges and FINRA are responsible
for monitoring activity on the markets over which they have oversight,
but also must abide by the regulatory decisions made by the Primary
Listing Market. For example, a venue trading a security pursuant to
unlisted trading privileges must halt trading in that security during a
Regulatory Halt, which is a defined term under the proposed rules,\11\
and may only trade the security once the Primary Listing Market has
cleared the security to resume trading.
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    \9\ Nasdaq is proposing to adopt Primary Listing Market as a new
term, defined in Nasdaq UTP Plan, Section X.A.8, as follows: ``[T]he
national securities exchange on which an Eligible Security is
listed. If an Eligible Security is listed on more than one national
securities exchange, Primary Listing Market means the exchange on
which the security has been listed the longest.''
    \10\ In addition, securities may also be listed on the New York
Stock Exchange (``dually-listed''). See Rules 5005(a)(11), 5220 and
IM-5220.
    \11\ See proposed Rule 4120(a)(11).
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    All SROs have rules that require them to honor a Regulatory Halt.
Nasdaq, as a Primary Listing Market, also has rules

outlining the circumstances in which it will halt trading in its listed
securities, including situations in which such halts are for regulatory
purposes \12\--and therefore are applicable to all markets trading the
security--or for operational purposes, which would not halt trading on
other markets. However, the trading halt rules are not consistent
across SROs. Consequently, events that might constitute a Regulatory
Halt for securities listed on one Primary Listing Market theoretically
might not be grounds for a Regulatory Halt in securities listed on
another Primary Listing Market. Such inconsistency among exchange rules
could lead to confusion in circumstances such as a cross market event,
which could be deemed ``Extraordinary Market Activity.'' \13\
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    \12\ Nasdaq's current Rule 4120 establishes a limited number of
reasons for instituting a Regulatory Halt for a Nasdaq-listed
security. These reasons are: To permit the dissemination of material
news concerning a listed company (Rule 4120(a)(1)); with respect to
an American Depository Receipt (``ADR'') listed on Nasdaq, where
another U.S. or foreign exchange that lists the security or the
security underlying the ADR imposes a Regulatory Halt on the
security listed on its market (Rule 4120(a)(4)); where Nasdaq
requests information from the issuer relating to material news, the
issuer's ability to meet Nasdaq's listing standards, or to protect
investors (Rule 4120(a)(5)); in the event that extraordinary market
activity in the security is occurring, ``such as the execution of a
series of transactions for a significant dollar value at prices
substantially unrelated to the current market for the security''
that is ``likely to have a material effect on the market for the
security'' and the Exchange believes it is ``caused by the misuse or
malfunction of an electronic quotation, communication, reporting or
execution system operated by, or linked to,'' Nasdaq or another
market (Rule 4120(a)(6)); in the event of an initial public offering
(``IPO'') (Rule 4120(a)(7)); with respect to an index warrant, under
certain specified conditions, or when appropriate in the interests
of a fair and orderly market (Rule 4120(a)(8)); with respect to
certain ``Derivative Securities Products'' (defined in Rule
4120(b)(4)(A)) when certain pricing information concerning the
instrument is not available or is not being disseminated to all
market participants at the same time (Rules 4120(a)(9) and (10));
for securities not covered by the Limit Up-Limit Down Plan, in the
event a single stock trading pause is triggered (Rule 4120(a)(11));
and for securities covered by the Limit Up-Limit Down Plan, in the
event of a trading pause (Rule 4120(a)(12)).
    \13\ The proposed definition of Extraordinary Market Activity
encompasses a market event that affects multiple markets. See
proposed Rule 4120(a)(2) (incorporating by reference Nasdaq UTP
Plan, Section X.A.1. Thus, such cross-market events could be
considered Extraordinary Market Activity.
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    While the existing rule generally has worked as intended to afford
the Exchange authority to initiate a Regulatory Halt in appropriate
cases, Nasdaq's experience is that the current rule may not contemplate
some situations where a Regulatory Halt would help to maintain fair and
orderly markets. For example, the current definition of ``Extraordinary
Market Activity'' focuses on events where trading occurs significantly
away from pre-event market prices. However, there may be other
situations where trading proceeds in an orderly fashion despite a
computer error that causes duplicative orders, bad data or other
erroneous information that could impact investors' understanding of the
market or their trading activity. The Exchange believes it would
facilitate fair and orderly markets to give Primary Listing Markets
greater flexibility to consider the facts and circumstances of each
case and decide whether a Regulatory Halt is appropriate.
    The complex and interconnected market structure in the United
States also relies on consolidated market data processed and
disseminated by the SIPs. In certain circumstances, the loss of this
information or issues with the accuracy or timeliness of the
information might cause a Primary Listing Market to determine that a
trading halt is appropriate. The Exchange believes that further
guidance in the rules will assist market participants in better
understanding how various scenarios would be handled.
    The Exchange believes that the cross-market proposed changes would
address these concerns by: (1) Adopting uniform rules regarding the
trigger points for regulatory trading halts in situations most likely
to have an impact across markets and multiple listing venues; (2)
addressing more scenarios in the uniform rule where a Primary Listing
Market may need to implement a Regulatory Halt to maintain fair and
orderly markets; and (3) adding provisions that apply to SIP-related
issues to increase transparency into how these situations would be
handled.
    As noted above, the proposed changes that would be uniformly
applied across SROs are those that relate to cross-market events as set
forth in the Amended Nasdaq UTP Plan. However, there will still be
situations where personnel at the Primary Listing Market will need to
determine the impact of the cross-market event on the securities listed
on its market and use discretion in deciding whether to halt trading in
some or all securities during a cross-market event that affects
securities listed on different markets. In making a determination as to
whether to declare a Regulatory Halt for Extraordinary Market Activity,
the Primary Listing Market will consider the totality of information
available concerning the severity of the issue, its likely duration,
potential impact on members and other market participants, and it will
make a good-faith determination that the criteria for declaring a
Regulatory Halt have been satisfied and that a Regulatory Halt is
appropriate.\14\ Moreover, the Primary Listing Market will consult, if
feasible, with the affected Trading Center(s), other Plan Participants,
or the Processor, as applicable, regarding the scope of the issue and
what steps are being taken to address the issue. Exchanges may also
declare a Regulatory Halt when it determines that it is necessary to
maintain a fair and orderly market.\15\
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    \14\ The Exchange will consider these factors for all Regulatory
Halts, not simply those caused by Extraordinary Market Activity.
    \15\ See proposed Rule 4120(a)(11) and Amended Nasdaq UTP Plan,
Section X.A.10.
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    While the Exchange and the other SROs intend to harmonize certain
aspects of their trading halt rules, other elements of the rules will
continue to be unique to each market. The Exchange believes that this
is appropriate to reflect different products listed or traded on each
market and the unique relationship of the Primary Listing Market to its
listed companies. It is anticipated that these unique rules would most
likely be invoked in cases where the Primary Listing Market's decision
on whether to institute a Regulatory Halt turns on specific information
related to an individual security or issuer, such as the dissemination
of news and the issuer's ability to meet listing standards, rather than
broader market issues stemming from Extraordinary Market Activity or
loss of consolidated market data from a SIP.
    In addition to the changes noted above, the Exchange is deleting
provisions that are no longer needed and reorganizing the rule to
improve its clarity. The Exchange is also making a handful of non-
substantive changes to rule text to improve its clarity. The Exchange
will implement all of the changes proposed herein in conjunction with
other SROs implementing the necessary rule changes. The Exchange will
publish an Equity Trader alert at least 30 business days prior to
implementing the proposed changes.
Definitions
    The Exchange proposes adding a definitions section as Rule 4120(a)
to consolidate the various definitions that will be used in the Rule,
some of which are taken from the Amended Nasdaq UTP Plan. Nasdaq is
adopting the following terms from the Amended Nasdaq UTP Plan:
``Extraordinary Market Activity,'' ``Material SIP Latency,''
``Operating Committee,'' ``Operational Halt,'' ``Primary Listing

Market,'' ``Processor,'' \16\ ``Regulatory Halt,'' ``Regular Trading
Hours,'' \17\ ``SIP Halt,'' ``SIP Halt Resume Time,'' and ``SIP
Outage.'' The definitions of ``Derivatives Securities Product,''
``IPO,'' ``Pre-Market Session'' and ``Required Value'' have been moved
into the definitions section from elsewhere in the current rule without
change. The definition of ``Post-Market Session'' has been moved from
elsewhere in the rule with a minor change deleting the alternative
closing time of 4:15 p.m. as all securities traded on Nasdaq commence
their closing cross process at 4:00 p.m.\18\
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    \16\ The Exchange proposes to also define the term ``SIP'' to
have the same meaning as the term ``Processor'' as set forth in the
Amended Nasdaq UTP Plan. Because the terms ``Processor'' and ``SIP''
are also used throughout the Rules, at times, to apply to processors
of information furnished pursuant to the Consolidated Tape
Association Plan (``CTA Plan''), the term ``Processor'' may, in
those applicable circumstances, refer to the processor of
transactions in Tape A and B securities, as set forth in the CTA
Plan.
    \17\ The Exchange notes that pursuant to existing Rule
4120(b)(4), the Regular Market Session occurs until 4:00 p.m. or
4:15 p.m., and the Post-Market Session begins at 4:00 p.m. or 4:15
p.m.
    \18\ As noted above, the Exchange is adopting several new terms
that have the same meaning as those terms are defined in the Amended
Nasdaq UTP Plan. Each of the national market system plans governing
the single plan processors has identical definitions of these terms,
thus there will be uniformity in the meaning of the terms among such
plans as well as among the rules of the SROs.
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    First, the Exchange proposes to add the definition of ``Primary
Listing Market'' \19\ to Rule 4120, which will have the same meaning as
in the Amended Nasdaq UTP Plan, Section X.A.8. As is currently the case
under Rule 4120 and under the Nasdaq UTP Plan, all Regulatory Halt
decisions are made by the market on which the security has its primary
listing. This reflects the regulatory responsibility that the Primary
Listing Market has for fair and orderly trading in the securities that
list on its market and its direct access to its listed companies, which
are required to advise it of certain events and maintain lines of
communication with the Primary Listing Market. The proposed definition
makes clear that if a security is listed on more than one market (a
dually-listed security), the Primary Listing Market means the exchange
on which the security has been listed the longest. This provision
matches language used in the definition of ``Primary Listing Exchange''
in the Limit-Up Limit-Down Plan and will avoid conflict in the event of
dually-listed securities.
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    \19\ See proposed Rule 4120(a)(9).
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    Second, the Exchange proposes to replace the definition of
``Extraordinary Market Activity'' with a broader definition of the term
taken from Section X.A.1. of the Amended Nasdaq UTP Plan.\20\ The
current rule establishes a three-part test for Extraordinary Market
Activity:
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    \20\ See proposed Rule 4120(a)(2).
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    (1) Extraordinary Market Activity must be occurring in the
security--the sole example of such activity included in the rule is
``the execution of a series of transactions for a significant dollar
value at prices substantially unrelated to the current market for the
security, as measured by the national best bid and offer,'' and
    (2) The Exchange must determine that such Extraordinary Market
Activity is likely to have a material effect on the market for the
security, and
    (3) The Exchange believes that either: (i) Such activity is caused
by the misuse or malfunction of an electronic quotation, communication,
reporting or execution system operated by, or linked to, the Exchange;
(ii) after consultation with another national securities exchange
trading the security on an unlisted trading privileges basis, that such
activity is caused by the misuse or malfunction of an electronic
quotation, communication, reporting or execution system operated by, or
linked to, such other national securities exchange; or (iii) after
consultation with FINRA regarding a FINRA facility trading the
security, such activity is caused by the misuse or malfunction of such
FINRA facility or an electronic quotation, communication, reporting, or
execution system linked to such FINRA facility.
    Although the single scenario in element (1) of the test is not
exclusive, the Exchange believes that market participants would benefit
from the inclusion of other scenarios that might constitute
``Extraordinary Market Activity.'' For example, experience indicates
that significant market events do not always result in price
dislocation. In some cases, trading may remain orderly. Moreover, price
discovery--at least when measured by the absence of large price
changes--may appear to be orderly, but in fact there may be confusion
or information missing (e.g., quote or transaction information) that is
important to participants. The absence of accurate information could
make it difficult for market participants to properly confirm the
positions they own, the impact of the event, or the correct prices for
securities.
    The proposed definition of Extraordinary Market Activity is the
same definition in Section X.A.1. of the Amended Nasdaq UTP Plan.\21\
The new definition updates and consolidates the terminology and
broadens applicability of the term in comparison to the current
definition, by making it clear that Extraordinary Market Activity may
occur solely on the Exchange or multiple markets, referred to as
``Trading Centers'' in the proposed rule change. A ``Trading Center,''
which is defined in Rule 600(b)(95) of Regulation NMS, refers to a
``national securities exchange or national securities association that
operates an SRO trading facility, an alternative trading system, an
exchange market maker, an OTC market maker, or any other broker or
dealer that executes orders internally by trading as principal or
crossing orders as agent.'' The Amended Nasdaq UTP Plan definition of
Extraordinary Market Activity also explicitly refers to disruptions or
malfunctions at a SIP or a member of a Trading Center, whereas the
current rule, as discussed above, does not. To qualify as Extraordinary
Market Activity, the event must have a ``severe and continuing negative
impact'' on a market-wide basis on quoting, order, or trading activity
or the availability of market information necessary to maintain a fair
and orderly market.
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    \21\ ``Extraordinary Market Activity'' means a disruption or
malfunction of any electronic quotation, communication, reporting,
or execution system operated by, or linked to, the Processor or a
Trading Center or a member of such Trading Center that has a severe
and continuing negative impact, on a market-wide basis, on quoting,
order, or trading activity or on the availability of market
information necessary to maintain a fair and orderly market. For
purposes of this definition, a severe and continuing negative impact
on quoting, order, or trading activity includes (i) a series of
quotes, orders, or transactions at prices substantially unrelated to
the current market for the security or securities; (ii) duplicative
or erroneous quoting, order, trade reporting, or other related
message traffic between one or more Trading Centers or their
members; or (iii) the unavailability of quoting, order, or
transaction information for a sustained period.
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    The new definition of Extraordinary Market Activity also explains
what constitutes a ``severe and continuing negative impact.'' In
addition to the scenario in the current rule involving significant
price movement, the proposed change adds two new scenarios to provide
additional transparency to member firms:
     Duplicative or erroneous quoting, order trade reporting,
or other related message traffic between one or more Trading Centers or
their members; and
     The unavailability of quoting, order or transaction
information, or regulatory messages, for a sustained period.
    These problems may cause market participants to change their
trading behavior or withdraw from the market

entirely. When serious enough, this can affect the fair and orderly
operation of the market. In determining whether to initiate a trading
halt, Nasdaq would, as set forth in the Amended Nasdaq UTP Plan and in
proposed Rule 4120(b)(2)(D), consider the totality of information
available concerning the severity of the issue, its likely duration,
potential impact on members and other market participants, and will
make a good-faith determination that the criteria for declaring a
Regulatory Halt has been satisfied and that a Regulatory Halt is
appropriate. Therefore, the Exchange, acting as the Primary Listing
Market, in consultation with the affected trading centers, other SIP
Plan participants, or the Processor, as applicable, where feasible,
will retain discretion to evaluate the magnitude of each situation to
determine whether the event meets the definition of Extraordinary
Market Activity.
    As with the current rule, the three scenarios included by reference
in the new definition would not be exhaustive. This enables the Primary
Listing Market to act in the best interests of the market when
confronted with unexpected events. However, the Exchange believes that
the three scenarios included in the rule cover many of the most likely
events that may occur. As is currently the case, the Exchange
anticipates providing public notice of Extraordinary Market Activity as
soon as it is practicable, with updates as necessary, to assist firms
in monitoring the status of issues. These notices, coupled with the
proposed rule, will assist participants by alerting them to the
situations most likely to result in trading halts.
    The third set of new proposed definitions would be specific to
events involving the SIP. While Nasdaq recognizes that many events
involving the SIP would also meet the definition of ``Extraordinary
Market Activity,'' the Exchange believes that the critical role of the
SIPs in market infrastructure factors in favor of additional guidance
on how such events will be handled. The definitions of ``SIP Outage,''
``Material SIP Latency,'' ``SIP Halt Resume Time,'' and ``SIP Halt''
are intended to provide additional guidance and specific processes to
address this subset of potential market issues. In addition, the
Exchange is proposing to define terms related to SIP governance needed
in order to understand these definitions:
     ``Processor'' or ``SIP'' \22\ have the same meaning as the
term ``Processor'' set forth in the Nasdaq UTP Plan, namely the entity
selected by the Participants to perform the processing functions set
forth in the Plan. Because the terms ``Processor'' and ``SIP'' are also
used throughout the Rules, at times, to apply to processors of
information furnished pursuant to the CTA Plan, the term ``Processor''
and ``SIP'' may, in those applicable circumstances, refer to the
processor of transactions in Tape A and B securities, as set forth in
the CTA Plan.
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    \22\ See proposed Rule 4120(a)(10).
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     ``SIP Plan'' \23\ is defined as the Nasdaq UTP Plan.
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    \23\ See proposed Rule 4120(a)(17).
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     ``Operating Committee'' \24\ is defined as having the same
meaning as in the Nasdaq UTP Plan, namely the committee charged with
administering the Nasdaq UTP Plan.
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    \24\ See proposed Rule 4120(a)(5).
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    The Exchange is proposing to adopt a category of Regulatory Halt,
called a ``SIP Halt,'' \25\ which will have the same meaning as that
term is defined in Section X.A.11. of the Nasdaq UTP Plan, namely ``a
Regulatory Halt to trading in one or more securities that a Primary
Listing Market declares in the event of a SIP Outage or Material SIP
Latency.'' This new category of Regulatory Halt will address situations
where the Primary Listing Market declares a Regulatory Halt in one or
more securities as a result of a SIP Outage or Material SIP Latency
(each is discussed below). While a SIP Halt may be declared in a single
stock, Nasdaq anticipates that most events will impact multiple
securities or even all securities with their primary listing on a
particular market. Because of the complexities inherent in these types
of halts, the Exchange is proposing special procedures for the halting
and resuming of trading as a result of a SIP Halt. These are discussed
in more detail later.
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    \25\ See proposed Rule 4120(a)(14).
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    The Exchange is proposing to define a ``SIP Outage'' \26\ as having
the same meaning as in Section X.A.13 of the Amended Nasdaq UTP Plan.
Specifically, the Exchange is proposing to define SIP Outage to mean a
situation in which the Processor has ceased, or anticipates being
unable, to provide updated and/or accurate quotation or last sale price
information in one or more securities for a material period that
exceeds the time thresholds for an orderly failover to backup
facilities established by mutual agreement among the Processor, the
Primary Listing Market for the affected securities, and the Operating
Committee unless the Primary Listing Market, in consultation with the
Processor and the Operating Committee, determines that resumption of
accurate data is expected in the near future.
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    \26\ See proposed Rule 4120(a)(16).
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    Recent experience with events involving a loss of consolidated data
from the SIP has shown that in many cases, the least disruptive outcome
in the event of a brief interruption in data is to not halt trading in
the affected securities if the market is fair and orderly. For example,
in August 2013, Nasdaq halted trading in Nasdaq-listed securities due
to an interruption in UTP SIP data due to uncertainty about the impact
the loss of data would have on market participants. Although the UTP
SIP successfully restarted the system within its primary data center
and was operational within 17 minutes, the market remained halted for 3
hours at the request of market participants so that they could manage
their books, clear stale orders and reconnect to the system. By
contrast, the New York Stock Exchange (``NYSE''), benefitting from this
prior experience, did not halt trading during a loss of CTA/CQS data in
October 2014 and failed over to back-up facilities within 30 minutes of
the loss of SIP data. Because NYSE did not halt trading, firms did not
need to reconnect and clear order books. As a result, the duration of
the NYSE event--measured from loss of SIP data to end of the issue--was
shorter and caused less disruption to the market even though the scope
of the underlying problem that caused the loss of data from both SIPs
was comparable.
    At the direction of the Operating Committees, each processor has
invested significant money and effort into improving the resiliency of
the SIPs. This will increase the likelihood that SIPs will failover
rapidly and commence disseminating valid data. Of course, there could
still be situations where the failover does not work as expected, or
the problem is not cured despite the redundancy available in the backup
center. It is in these situations that the Exchange and the other SROs
believe that the need for a SIP Halt is most likely to arise.
    For this reason, the proposed definition focuses on the agreed time
frames for an orderly failover. Emergency procedures applicable to the
Processor provide that when a determination is made to failover to the
secondary data center, the Processor shall endeavor to complete the
failover within 10 minutes.\27\
---------------------------------------------------------------------------

    \27\ See https://www.utpplan.com/DOC/UTP_SIP_Emergency_Procedures.pdf.
---------------------------------------------------------------------------

    Accordingly, the Primary Listing Market would be expected to
consider a SIP Halt in the event of the loss of SIP

data once the loss in data extends or is anticipated to extend for a
material period that exceeds the same agreed-upon 10 minute failover
thresholds, unless the Primary Listing Market, in consultation with the
Processor and the responsible Operating Committee, determines that
resumption of accurate data is expected in the near future. The
Exchange, in consultation with the other SROs, considered and rejected
specifying a numerical time limit after which a SIP Halt would be
required. Because of the significant impact a broad trading halt can
have on market confidence, the Exchange believes Primary Listing
Markets should retain discretion to consider the facts of the incident
in evaluating a SIP Halt to avoid having to halt trading despite
knowing that the SIP is about to resume data dissemination. Instead,
the Primary Listing Market, in consultation with other SROs, SIPs and
market participants where feasible, would continually re-evaluate
whether a SIP Halt is appropriate and take action when, in its
judgment, the thresholds in the definition have been passed. The
Primary Listing Market retains discretion throughout the process to
institute a Regulatory Halt in good faith--even within the 10 minute
failover window--if trading appears disorderly, price discovery has
been impacted, or it is otherwise in the interests of a fair and
orderly market to halt trading.
    In addition to situations where a SIP is no longer disseminating
data, circumstances may arise where quotation or last sale price
information from the SIP is delayed or stale due to a significant
increase in latency. Minor latency in the data will always exist given
the nature of a consolidated feed, where data from multiple markets is
validated, normalized, consolidated and then distributed. However,
significant latency can impact trading decisions and market confidence
if participants are unsure whether data accurately reflects the current
state of the market.
    The Exchange is proposing to define ``Material SIP Latency'' \28\
as having the same meaning as in Section X.A.5 of the Amended Nasdaq
UTP Plan. Specifically, the Exchange is proposing to define Material
SIP Latency to mean a delay of quotation or last sale price information
in one or more securities between the time data is received by the
Processor and the time the Processor disseminates the data over the
Processor's vendor lines, which delay the Primary Listing Market
determines, in consultation with, and in accordance with, publicly
disclosed guidelines established by the Operating Committee, to be (a)
material and (b) unlikely to be resolved in the near future. In this
regard, SIP Emergency procedures presently state that ``SIP material
latency refers to sustained latency of 100 milliseconds or greater for
10 minutes caused by a technical issue at the Processor.'' \29\ The
Emergency Procedures have various escalation points to advise the
Primary Listing Market, the Operating Committee, and market
participants. Under the proposal, the Primary Listing Market, in
consultation with the Operating Committee, would be responsible for
determining when this latency has become a Material SIP Latency.
---------------------------------------------------------------------------

    \28\ See proposed Rule 4120(a)(4).
    \29\ See https://www.utpplan.com/DOC/UTP_SIP_Emergency_Procedures.pdf.
---------------------------------------------------------------------------

    Because guidelines are designed as an early warning system to
mobilize decision makers, many latency events that exceed the
thresholds in the guidelines would not constitute Material SIP Latency
resulting in a SIP Halt. Instead, the Primary Listing Market, in
consultation with the Operating Committee, would be expected to
evaluate the severity of the latency and its continued duration and
consider whether the issue is likely to be resolved in the near future.
As in the case of a SIP Outage, the Exchange, in consultation with
other SROs, considered adopting fixed latency metrics in the rule, but
for several reasons, it determined that this would be
counterproductive. First, it could create situations where a SIP Halt
is imposed even where resolution is imminent. Second, greater
flexibility will enable the Exchange and other Primary Listing Markets
to learn from experience about how various levels of latency affect
trading. Fixed thresholds in the rule might also become outdated over
time if latency levels drop due to system enhancements. Regardless of
the thresholds, the Primary Listing Market always retains the authority
to institute a Regulatory Halt if it determines, in good faith, a halt
to be in the interests of a fair and orderly market.
    The Exchange proposes to add a definition of ``Regulatory Halt''
\30\ as having the same meaning as in Section X.A.10 of the Amended
Nasdaq UTP Plan. Specifically, the Exchange has proposed to define
Regulatory Halt to mean a halt declared by the Primary Listing Market
in trading in one or more securities on all Trading Centers for
regulatory purposes, including for the dissemination of material news,
news pending, suspensions, or where otherwise necessary to maintain a
fair and orderly market.\31\ A Regulatory Halt includes a trading pause
triggered by Limit Up-Limit Down, a halt based on Extraordinary Market
Activity, a trading halt triggered by a Market-Wide Circuit Breaker,
and a SIP Halt. The new term Regulatory Halt consolidates the various
reasons for such a halt that are enumerated in the proposed Rule
4120(b). In addition to the specific reasons, the rule would
memorialize the Primary Listing Market's ability to implement a
Regulatory Halt where otherwise necessary to preserve a fair and
orderly market.\32\ The definition also makes clear that market-wide
circuit breakers, codified in Rule 4121, constitute a Regulatory Halt.
These circuit breakers provide for coordinated cross-market trading
halts designed to stop trading temporarily or, under extreme
circumstances, close the markets before the normal close of the trading
session.
---------------------------------------------------------------------------

    \30\ See proposed Rule 4120(a)(11).
    \31\ The Exchange's authority to declare a Regulatory Halt to
maintain a fair and orderly market is explicitly included in the
definition of Regulatory Halt. The Exchange will institute a
Regulatory Halt if it makes a determination that it is necessary to
maintain a fair and orderly market. The Exchange believes that the
addition of this basis to declare a Regulatory Halt will protect
investors by giving the Exchange explicit authority to act in
unforeseen situations not covered by other provisions of Rule 4120.
    \32\ As provided for in the Nasdaq UTP Plan, the Proposed Rule
would permit the Exchange to declare a Regulatory Halt for a
security for which it is the Primary Listing Market, in the event of
national, regional, or localized disruption that necessitates a
Regulatory Halt to maintain a fair and orderly market.
---------------------------------------------------------------------------

    Finally, the Exchange proposes to add a definition of ``Operational
Halt,'' \33\ which is defined as having the same meaning as in Section
X.A.7 of the Amended Nasdaq UTP Plan. Specifically, the Exchange is
proposing to define Operational Halt to mean a halt in trading in one
or more securities only on the market declaring the halt. An
Operational Halt is effective only on Nasdaq; other markets are not
required to halt trading in the impacted securities. In practice, the
Exchange has always had the capacity to implement operational halts in
specified circumstances.\34\ The proposed change would provide greater
clarity on when an Operational Halt may be implemented and the process
for halting and resuming trading in the event of an

Operational Halt. An Operational Halt is not a Regulatory Halt.\35\
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    \33\ See proposed Rule 4120(a)(6).
    \34\ See By-Laws of the Nasdaq Stock Market LLC, Section 5
(``Authority to Take Action Under Emergency or Extraordinary Market
Conditions''), available at https://listingcenter.nasdaq.com/assets/rulebook/nasdaq/rules/NASDAQ_Corporate_Organization_Nasdaq_LLC.pdf.
    \35\ The Exchange notes that it proposes to amend the existing
definition of the term ``Post-Market Session'' to clarify that it is
a trading session that begins after ``Regular Trading Hours''--a
term that, in turn, is defined in the Nasdaq UTP Plan--and that such
session begins at ``approximately'' 4:00 p.m. The addition of the
term ``approximately'' reflects the fact that the Nasdaq Closing
Cross, which precedes the Post-Market Session at 4:00 p.m., is not
instantaneous. See Proposed Rule 4120(a)(7).
---------------------------------------------------------------------------

Regulatory Halt Types
    The Exchange proposes to consolidate the various types of
situations that form the basis for declaring a Regulatory Halt in Rule
4120(b). The proposed rule change would divide the situations that form
the basis of the Exchange's authority to declare a Regulatory Halt in a
security for which the Exchange is the Primary Listing Market into
three categories: (1) As provided by the SIP Plans; (2) discretionary
Regulatory Halts; and (3) mandatory Regulatory Halts.
    The first category concerns situations enumerated in the SIP Plan,
specifically related to a SIP Outage, Material SIP Latency, or
Extraordinary Market Activity.
    The second category provides the Exchange with discretion to
declare a Regulatory Halt in situations described by the proposed rule,
such as when the Exchange requests certain information from an issuer
and for a security subject to an IPO. The Exchange believes that
discretion in determining whether to impose a Regulatory Halt is
appropriate because of the many facts and circumstances that must be
considered by the Primary Listing Market in determining whether to halt
trading. A rule establishing exact standards for a mandatory halt would
risk forcing the Exchange to halt trading in circumstances where other
facts may weigh against a halt, thereby forcing the Exchange to act in
a way that is not in the best interests of the market. Alternatively,
fixed standards could also prevent the Exchange from halting in
circumstances where a Regulatory Halt would be appropriate. Instead,
the proposed change would outline the types of scenarios where the
Primary Listing Market may initiate a Regulatory Halt after consulting
with the entities specified in the Amended Nasdaq UTP Plan, where
feasible. However, there may be situations where such consultation may
not be possible due to technical issues or time sensitivity. The
proposed change would preserve the Exchange's ability to act in the
best interests of the market in these circumstances, consistent with
the Amended Nasdaq UTP Plan.
    As under the current rule, the proposed change continues to allow
the Exchange to institute a Regulatory Halt in circumstances where the
Exchange requests additional information from an issuer (current Rule
4120(a)(5) and proposed Rule 4120(b)(1)(B)(i)),\36\ to allow for the
dissemination of material news (current Rule 4120(a)(1) and new Rule
4120(b)(1)(B)(ii)); to facilitate the initiation of trading of an IPO
(current Rule 4120(a)(7) and proposed Rule 4120(b)(1)(B)(iii)) and to
protect a fair and orderly market in the trading of index warrants
(current Rule 4120(a)(8) and proposed Rule 4120(b)(1)(B)(iv)). Proposed
Rule 4120(b)(1)(B)(v), codified without material change from current
Rule 4120(a)(9), gives the Exchange discretion to halt a series of
Portfolio Depository Receipts, Index Fund Shares (as defined in Rule
5705), Index-Linked Exchangeable Notes, Equity Gold Shares, Trust
Certificates, Commodity-Based Trust Shares, Currency Trust Shares,
Commodity Index Trust Shares, Commodity Futures Trust Shares,
Partnership Units, and Managed Trust Securities (as defined in Rule
5711(a)-(h) and (j), respectively), or NextShares (as defined in Rule
5745) listed on Nasdaq if the Intraday Indicative Value (as defined in
Rule 5705), for Portfolio Depository Receipts or Index Fund Shares, for
derivative securities as defined in Rule 5711(a), (b), and (d)-(h),
Rule 5711(j) for Managed Trust Securities, or Rule 5745 for NextShares)
or the index value applicable to that series is not being disseminated
as required, during the day in which the interruption to the
dissemination of the Intraday Indicative Value or the index value
occurs. It requires the Exchange to halt trading in these instruments
no later than the beginning of trading on the day following the
interruption to the dissemination of the Intraday Indicative Value or
the index value if the interruption persists past the trading day on
which it occurs. The Exchange would also retain discretionary authority
to halt trading in a series of Portfolio Depository Receipts, Index
Fund Shares, Exchange Traded Fund Shares (as defined in Rule 5704),
Managed Fund Shares, Index-Linked Exchangeable Notes, Equity Gold
Shares, Trust Certificates, Commodity-Based Trust Shares, Currency
Trust Shares, Commodity Index Trust Shares, Commodity Futures Trust
Shares, Partnership Units, Trust Units (as defined in Rule 5711(i)),
Managed Trust Securities, Currency Warrants (as defined in Rule
5711(k)), NextShares, or Proxy Portfolio Shares (as defined in Rule
5750) based on a consideration of the following factors: (A) Trading in
underlying securities comprising the index or portfolio applicable to
that series has been halted in the primary market(s), (B) the extent to
which trading has ceased in securities underlying the index or
portfolio, or (C) the presence of other unusual conditions or
circumstances detrimental to the maintenance of a fair and orderly
market.
---------------------------------------------------------------------------

    \36\ As proposed, Rule 4120(b)(1)(B)(i) provides that the
Exchange's determination regarding a trading halt would be made
consistent with Section X.C of the Amended Nasdaq UTP Plan.
---------------------------------------------------------------------------

    Proposed Rule 4120(b)(1)(B)(vi) gives the Exchange discretion to
halt trading in an American Depository Receipt (``ADR'') or other
Nasdaq-listed security when the foreign securities exchange or market
listing the security underlying the ADR or the Nasdaq-listed security
or the regulatory authority overseeing such foreign securities exchange
or market institutes a halt for regulatory reasons. The Exchange is
deleting text that presently exists in the Rule covering ADR and other
Nasdaq-listed security halts, at Rule 4120(a)(4), which references
national securities exchanges instituting a halt for ``regulatory
reasons'' because under the proposed new rules, a Regulatory Halt will
be issued by the Primary Listing Exchange. If the other national
securities exchange is the primary listing exchange and declares a
regulatory halt, the security will be subject to a halt by the
Exchange. Thus, such a halt on the Exchange will be mandatory. The
proposed amended rule will consider only actions taken by a foreign
exchange that halts the Nasdaq-listed security, or security underlying
an ADR, on its market for regulatory reasons (foreign exchanges do not
fall within the definition of a ``primary listing market'' and
therefore their regulatory halts do not fall within the Amended Nasdaq
UTP Plan's definition of Regulatory Halts). The Exchange will then
assess the regulatory reasons underlying the halt on the foreign market
and possibly initiate a Regulatory Halt.
    Proposed Rule 4120(b)(1)(B)(vii) would permit the Exchange to
declare a Regulatory Halt for a security for which it is the Primary
Listing Market, in the event of national, regional, or localized
disruption that necessitates a Regulatory Halt to maintain a fair and
orderly market. This proposal incorporates an identical provision in
the Nasdaq UTP Plan.
    The third category of Regulatory Halts concerns situations in which
it is mandatory that the Exchange must

declare a Regulatory Halt. Proposed Rule 4120(b)(1)(C)(i) codifies
without substantive modification the existing provisions of Rule
4120(a)(10) in situations where the Exchange becomes aware that the net
asset value of a Derivative Securities Product (or the Disclosed
Portfolio in the case of Managed Fund Shares, the Composition File in
the case of NextShares, or in the case of Proxy Portfolio Securities, a
Proxy Basket, or the Fund Portfolio) is not being disseminated to all
participants at the same time. The Exchange is required to halt trading
in the Derivative Securities Product when this occurs. Similarly,
proposed Rule 4120(b)(1)(C)(ii) retains without substantive
modification the existing rule with respect to the Limit Up-Limit Down
Plan (current Rule 4120(a)(12)).\37\ The Exchange proposes to make
clear in Rule 4120(b)(1)(C)(iii) that a trading halt pursuant to
extraordinary market volatility (market-wide circuit breakers), as is
described in Rule 4121, constitutes a Regulatory Halt. Finally, the
Exchange is incorporating Rule 4120(a)(13) into proposed Rule
4120(b)(1)(C)(iv). Rule 4120(a)(13) requires Nasdaq to halt trading in
an Equity Investment Tracking Stock (as defined in Rule 5005) or
Subscription Receipt (listed under Rule 5520) whenever Nasdaq halts or
suspends trading in a security tracked by the Equity Investment
Tracking Stock or the common stock into which the Subscription Receipt
is exchangeable.
---------------------------------------------------------------------------

    \37\ Current Rule 4120(a)(12)(G) (``If the Exchange is unable to
reopen trading due to a systems or technology issue, it shall notify
the Processor immediately'') will be incorporated into proposed Rule
4120(b)(4)(A)(i)e.6. (``If the Exchange is unable to reopen trading
due to a systems or technology issue, it shall notify the SIP
immediately'').
---------------------------------------------------------------------------

    The Exchange is proposing to move or delete certain elements in the
current list of situations that form the basis for declaring a
Regulatory Halt in Rule 4120(a). First, the Exchange is deleting the
current definition of Extraordinary Market Activity in Rule 4120(a)(6),
which it proposes to replace with the updated and more extensive
definition previously discussed. Second, the Exchange is proposing to
delete current Rule 4120(a)(11), which establishes a trading pause in
the event of large price moves in securities not covered by the Limit
Up-Limit Down Plan.\38\ As the Limit Up-Limit Down Plan is now fully
implemented, this subsection is no longer necessary. In addition, the
Exchange proposes moving existing Rule 4120(a)(2) and (a)(3) to
proposed Rule 4120(b)(3) covering declaration of a Regulatory Halt by a
Primary Listing Market other than Nasdaq. These provisions are
discussed in more detail below.
---------------------------------------------------------------------------

    \38\ By its terms, Rule 4120(a)(11) does not apply to rights and
warrants, which are the only Nasdaq-listed securities that are not
covered by the Limit Up-Limit Down Plan.
---------------------------------------------------------------------------

Initiating a Regulatory Halt
    In coordination with the other SROs, the Exchange developed
proposed Rule 4120(b)(2) to provide detailed and consistent rules on
how a Primary Listing Market will initiate a Regulatory Halt. The
process for initiating a Regulatory Halt is set forth in Section X.D of
the Amended Nasdaq UTP Plan. First, the proposed rule makes clear that
the start time of a Regulatory Halt is the time the Primary Listing
Market declares the Halt, regardless of whether communications issues
impact the dissemination of notice of the Halt. The Exchange's
experience in prior events is that market participants need certainty
on the official start time of the Halt. Under the proposed rule, the
start time is fixed by the Primary Listing Market; it is not dependent
on whether notice is disseminated immediately. This will avoid possible
disagreement if the Halt time were tied to dissemination or receipt of
notification, which may occur at different times. The Exchange
recognizes that in situations where communication is interrupted,
trades may continue to occur until news of the Halt reaches all Trading
Centers. However, a fixed ``official'' Halt time will allow SROs to
revisit trades after the fact and determine in a consistent manner
whether specific trades should stand.
    Currently, many Trading Centers and other market participants rely
on automated, machine-readable trade halt messages disseminated by the
SIP to automatically halt their order matching and order dissemination
systems. While the Exchange disseminates these messages in other
formats and posts the messages on its website, Nasdaq's experience is
that these alternative means of communication have not been relied on
by many market participants. Proposed Rule 4120(b)(2)(B) would provide
advance notice in the manner set forth in the Amended Nasdaq UTP Plan.
The Amended Nasdaq UTP Plan requires the Primary Listing Market to
notify all other participants and the SIP using such protocols and
other emergency procedures as may be mutually agreed to between the
Operating Committee and the Exchange. The Exchange also must take
reasonable steps to provide notice to market participants if the SIP
Processor is unable to disseminate notice of the Halt or the Primary
Listing Market is not open for trading. In such case, the notice would
include:
     Proprietary data feeds containing quote and last sale
information that the Primary Listing Market also sends to the
applicable SIP that is unable to disseminate the halt notices;
     Posting on a publicly available Exchange website; or
     System status messages that are disseminated to market
participants who choose to sign up for the service.
    The Exchange believes that market participants will benefit from
additional sources of halt notifications that include machine readable
and easily accessible communications for human traders and Nasdaq
recommends that participants be prepared in advance to monitor multiple
sources. Although it may take longer for participants to react to
messages received in less automated formats, the use of multiple forms
of dissemination will increase the likelihood that participants receive
important information. It will also assist participants who do not
subscribe to the Exchange's proprietary feeds in getting regulatory
notices. As noted above, in situations where communication is
interrupted the Exchange and other SROs would retain the ability to
break trades that occurred after the start of the Regulatory Halt in
appropriate circumstances (pursuant to rules governing clearly
erroneous trades, at Equity 11, Rule 11890), thereby lessening the
potential impact on participants that were delayed in halting trading.
Plan participants must monitor several sources of regulatory notices so
that they are aware of the imposition of a Regulatory Halt in
situations where communication is interrupted; however, the failure of
a Plan participant to do so will not prevent the Exchange from
initiating a Regulatory Halt.
    Proposed Rule 4120(b)(2)(C) also makes clear that, consistent with
the Amended Nasdaq UTP Plan, except in exigent circumstances, the
Primary Listing Market will not declare a Regulatory Halt retroactive
to a time earlier than the notice of such halt. Feedback from market
participants has been that it is very disruptive to trading when the
Primary Listing Market sets the start of a trading halt for a time
earlier than the notice of the halt.\39\ Therefore, in almost all
situations the trading halt will start at the time of the notice or at
a point in time thereafter. However, the Exchange retains the authority
to implement a retroactive halt to deal with unexpected and significant
situations that represent exigent

circumstances. While it is difficult in advance to provide an
exhaustive list of when retroactive application of a trading halt would
be in the public interest, one situation where a halt was applied
retroactively was when the Primary Listing Market erroneously lifted a
Regulatory Halt. In that case, the Primary Listing Market instituted a
Regulatory Halt retroactively so that it coincided with the time the
original halt was lifted in error.
---------------------------------------------------------------------------

    \39\ As noted previously, the start of a Regulatory Halt is
measured as the point in time when the Primary Listing Market
declares the halt, regardless of whether there is a delay in
dissemination of the notice or in receipt of the notice by
participants.
---------------------------------------------------------------------------

    Consistent with Section X.C.2 of the Amended Nasdaq UTP Plan,
Proposed Rule 4120(b)(D) states that in making a determination to
declare a Regulatory Halt in trading any security for which the
Exchange is the Primary Listing Market, the Exchange will consider the
totality of information available concerning the severity of the issue,
its likely duration, and potential impact on Members and other market
participants and will make a good-faith determination that the criteria
for declaring the Regulatory Halt have been satisfied and that a
Regulatory Halt is appropriate. The Exchange will consult, if feasible,
with the affected Trading Center(s), other SIP Plan Participants, or
the Processor, as applicable, regarding the scope of the issue and what
steps are being taken to address the issue.
    Finally, consistent with Section X.C.2 of the Amended Nasdaq UTP
Plan, Proposed Rule 4120(b)(2)(E) states that once a Regulatory Halt
has been declared, the Exchange will continue to evaluate the
circumstances to determine when trading may resume in accordance with
its Rules.
    Nasdaq notes that except as otherwise stated, the proposed
procedures for initiating Regulatory Halts replace those set forth in
current Rule 4120(c).
Regulatory Halt Initiated by Other Markets
    The Exchange believes that consolidating all subsections concerning
a Regulatory Halt declared by other Primary Listing Markets in Rule
4120(b)(3) would add clarity to the rule. As is the case under the
current rule, the Exchange would honor a Regulatory Halt.
     Current Rule 4120(a)(2), which states that the Exchange
may halt trading on Nasdaq in any security it trades on an unlisted
trading privileges basis, if the Primary Listing Market declares a
Regulatory Halt in the security to permit dissemination of material
news, would become proposed Rule 4120(b)(3)(A)(i). Consistent with
Section X.G of the Nasdaq UTP Plan, the proposed Rule will more broadly
require Nasdaq to halt trading of a UTP security if the Primary Listing
Market declares a Regulatory Halt in that security.
    Current Rule 4120(b), which governs trading halts in certain
Derivative Securities Products traded on the Exchange pursuant to
unlisted trading privileges, would become proposed Rule
4120(b)(3)(A)(ii). Subsection (b)(3)(A)(ii) would replace the term
``Regular Market Session'' with the term ``Regular Trading Hours'' to
stay consistent with other portions of the proposed rule. The change is
non-substantive and would still refer to the period between 9:30 a.m.
and 4:00 p.m. Eastern Time on days when the Exchange is open for
trading. No other changes have been made to this subsection.
Resumption of Trading After a Regulatory Halt
    The SROs have jointly developed processes to govern the resumption
of trading in the event of a Regulatory Halt. While the actual process
of re-launching trading will remain unique to each exchange (for
example, trading in Nasdaq-listed securities resumes on the Exchange in
most cases through a Halt Cross pursuant to Rule 4753), the proposed
rule would harmonize certain common elements of the reopening process
that would benefit from consistency across markets. These common
elements include the primacy of the Primary Listing Market in
resumption decisions, the requirement that the Primary Listing Market
make its determination to resume trading in good faith,\40\ and certain
parts of the complex process of reopening trading after a SIP Halt.
With respect to a SIP Halt, common elements of the reopening process
include the interaction among SROs (including the Primary Listing
Market with the SIP), the requirement that the Primary Listing Market
terminate a SIP Halt with a notification that specifies a SIP Halt
Resume Time, the minimum quoting times before resumption of trading,
the cutoff time after which trading would not resume during Regular
Trading Hours, and the time when trading may resume if the Primary
Listing Market does not open a security within the amount of time
specified in its rules after the SIP Halt Resume Time.
---------------------------------------------------------------------------

    \40\ See Partial Amendment No. 1 of Trading Halt Amendments to
the UTP Plan, dated March 31, 2021.
---------------------------------------------------------------------------

    Proposed Rule 4120(b)(4) provides the process to be followed when
resuming trading upon the conclusion of a Regulatory Halt. The new
rule, which incorporates Section X.E, and .F of the Amended Nasdaq UTP
Plan, is divided into the following three subsections concerning
resumption of trading: (A) After a Regulatory Halt other than an IPO or
SIP Halt; \41\ (B) after a SIP Halt; and (C) after an IPO Halt.\42\ The
Exchange's proposed rule would make clear that Nasdaq, as the Primary
Listing Market, is responsible for declaring a resumption of trading
when it makes a good faith determination that trading may resume in a
fair and orderly manner and in accordance with its rules. The Exchange
expects that other SROs will propose the same concept. Similarly, the
Exchange may resume trading in a non-Nasdaq-listed security; \43\
subject to a Regulatory Halt after the Exchange receives notification
from the Primary Listing Market that the Regulatory Halt has been
terminated. The Exchange does not run Halt Crosses in securities listed
on another exchange and, therefore, the resumption of trading in these
securities will occur once notice from the Primary Listing Market is
received. Proposed Rule 4120(b)(4)(A)(ii) sets forth the mechanics of
how the resumption would occur for these non-Nasdaq-listed securities
and is consistent with current practice.
---------------------------------------------------------------------------

    \41\ When resuming trading in a halted security, the current
Rule states that trading shall resume at the time specified by
Nasdaq in a notice posted on a publicly available Nasdaq website.
Consistent with the Amended Nasdaq UTP Plan, the Proposed Rule will
provide that the Exchange will notify all participants and the SIP
that a Regulatory Halt has been lifted using such protocols and
other emergency procedures as may be mutually agreed to between the
Operating Committee and the Exchange.
    \42\ The Exchange proposes to change an obsolete reference in
the provision of the Rules pertaining to resumptions after IPO
Halts. The Exchange proposes to replace the phrase ``member
organizations'' with the word ``Member'' to reflect the fact that
the Rules refer to Exchange participants as Members.
    \43\ Companies that are dually-listed on Nasdaq and NYSE have
one Primary Listing Market. See proposed amended IM-5220. Thus, if
Nasdaq is not the Primary Listing Market for a dually-listed
security, it will resume trading after receiving notice from NYSE
that the Regulatory Halt has been terminated.
---------------------------------------------------------------------------

    The existing resumption process incorporating the Halt Cross is
being moved to proposed Rule 4120(b)(4)(A)(i)a.-c.\44\ This process
will apply to any type of a Regulatory Halt except for halts related to
the launch of IPOs and a SIP Halt (which does not exist under the
current rule) or an LULD Halt. The existing process for launching IPOs
has also been incorporated in the proposed rule without substantive
modification as proposed Rule 4120(b)(4)(C).
---------------------------------------------------------------------------

    \44\ As proposed, Rule 4120(b)(4)(A)(i)a. will apply to all
Regulatory Halts other than an IPO Halt or a SIP Halt.

---------------------------------------------------------------------------

    Proposed Rule 4120(b)(4)(A)(i)d. states that during any trading
halt or pause for which a halt cross under Rule 4753 will not occur (as
in the case of a Regulatory Halt for securities where Nasdaq is not the
Primary Listing Market), orders entered during the Regulatory Halt or
pause will not be accepted, unless subject to instructions that the
order will be directed to another exchange as described in Rule 4758.
    The Exchange proposes to add Rule 4120(b)(4)(A)(i)e. that will
address the re-opening process following a Limit Up-Limit Down pause.
The Exchange is proposing to move the Limit Up-Limit Down trading pause
termination process to Rule 4120(b)(4)(A)(i)e. unchanged from current
Rule 4120(c)(10).
    For a SIP Halt, proposed Rule 4120(b)(4)(B) establishes the process
by which Nasdaq, as the Primary Listing Market, determines to resume
trading. The SROs' experience with such events is that communication
among SROs, SIPs and market participants is the best way to ensure that
the Primary Listing Market has access to available information and to
coordinate the reopening of trading in an orderly manner. In addition,
the SROs anticipate that market participants and other impacted
entities will have access to information about the issue causing the
SIP Halt, the duration of the halt and the resumption process through
updated communications from the SIP, Operating Committee and Primary
Listing Market. The Operating Committees have policies and procedures
that, among other things, establish industry notice protocols for
various SIP-related events.\45\
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    \45\ See https://www.utpplan.com/DOC/UTP_SIP_Emergency_Procedures.pdf.
---------------------------------------------------------------------------

    Under the proposal, for the resumption of trading after a SIP Halt
initiated by the Exchange, the Exchange, as the Primary Listing Market,
will make a good-faith determination of the SIP Halt Resume Time, after
considering the totality of information as to whether resuming trading
would promote a fair and orderly market. Nasdaq would solicit input
from the Processor, the Operating Committee, or the operator of the
system in question (as well as any Trading Center(s) to which such
system is linked), regarding operational readiness to resume trading.
The Primary Listing Market retains discretion to delay the SIP Halt
Resume Time if it has reason to believe that trading will not resume in
a fair or orderly manner.
    When resuming trading after a SIP Halt as the Primary Listing
Market, Nasdaq will use the same Halt Cross as other Regulatory Halt
types, except for a Regulatory Halt related to the launch of an IPO or
an LULD Halt. Whereas the Halt Cross for other Regulatory Halt types
(except for a Regulatory Halt related to the launch of an IPO or an
LULD Halt, in which Nasdaq will extend the Display Only Period if an
order imbalance exists at its conclusion) have a fixed five-minute
Display Only Period during which the Exchange is open for quoting but
not trading, the complexities in resuming trading after a SIP Halt
require additional flexibility to assist market participants in events
that may involve hundreds or even thousands of securities. As a result,
proposed Rule 4120(b)(4)(B)(i)b. and c. sets a minimum five-minute
Display Only Period that can be extended at the discretion of Nasdaq to
ensure a fair and orderly reopening of trading. It is anticipated that
Nasdaq will consider input from other SROs, the SIP and market
participants in reaching this conclusion. The SROs considered setting a
fixed-length Display Only Period, including a longer such period of ten
or fifteen minutes, but it determined that a flexible time period would
better serve the markets in that it could be five minutes, or longer if
deemed appropriate to facilitate a fair and orderly reopening. Nasdaq
would, of course, be expected to communicate the duration of the
Display Only Period to market participants (i.e., in the resumption
notice) sufficiently in advance of resumption to allow them to prepare
their systems for trading.
    Proposed Rule 4120(b)(4)(B)(i)a. gives Nasdaq, as the Primary
Listing Market, discretion to delay the SIP Halt Resume Time if it
believes that trading will not resume in a fair and orderly manner.
Moreover, proposed Rule 4120(b)(4)(B)(i)b allows Nasdaq to stagger the
SIP Halt Resume Times for multiple securities in order to reopen in a
fair and orderly manner. For example, this discretion could be used to
open trading in a small number of symbols to ensure that systems are
operating normally before resuming trading in the remaining symbols.
    In addition, the proposed rule would establish the last SIP Halt
Resume Time as 20 minutes before the end of Regular Trading Hours
(e.g., 3:40 p.m. ET)--which is the latest time by which Nasdaq believes
that it could conduct an orderly Halt Cross process before the end of
Regular Trading Hours and without impacting the Closing Cross. If
trading has not resumed by that time, Nasdaq would establish its
closing price in halted securities using its contingency closing
process. The Exchange's contingent closing process is memorialized in
Rule 4754(b)(7).
    Proposed Rule 4120(b)(4)(B)(i)c. provides that, for a SIP Halt
initiated by Nasdaq, the reopening process shall be the same as for a
non-IPO Regulatory Halt pursuant to proposed Rule 4120(b)(4)(A)(i)a.-
c., except that the Display Only Period will be a minimum of five
minutes, but may be extended at the discretion of Nasdaq pursuant to
proposed Rule 4120(b)(4)(B)(i)a.&b.
    Proposed Rule 4120(b)(4)(B)(i)d. states that, for a SIP Halt
initiated by Nasdaq, if during Regular Trading Hours, Nasdaq does not
resume trading in a security for which it is the Primary Listing Market
within 10 minutes after the SIP Halt Resume Time, then other markets
may resume trading in that security. Nasdaq notes that this 10 minute
time period corresponds to a similar 10 minute time period set forth in
the Limit Up-Limit Down Plan after which the Processor may update price
bands for paused securities if the primary listing market for such
security is unable to reopen trading following a trading pause due to a
systems or technology issue.\46\
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    \46\ See Plan to Address Extraordinary Market Volatility
Submitted to the Securities and Exchange Commission Pursuant to Rule
608 of Regulation NMS under the Securities Exchange Act of 1934, as
amended (``Limit Up-Limit Down Plan''), Section VII(B)(4), at
https://assets.website-files.com/5fd0e55ae5f254cd291b2d35/5fd10d8e4c53d2024dd15f4f_LULD_Plan%20Amendment_20.pdf.
---------------------------------------------------------------------------

    Proposed Rule 4120(b)(4)(B)(ii) provides that, for a SIP Halt
initiated by another exchange that is the Primary Listing Market,
during Regular Trading Hours, Nasdaq may resume trading after trading
has resumed on the Primary Listing Market or notice has been received
from the Primary Listing Market that trading may resume. Proposed Rule
4120(b)(4)(B)(ii) provides that, for a SIP Halt initiated by a market
other than Nasdaq, during Regular Trading Hours, if the Primary Listing
Market does not open a security within the amount of time listed by the
rules of the Primary Listing Market, Nasdaq may resume trading in that
security. Under Proposed Rule 4120(b)(4)(B)(ii), Outside of Regular
Trading Hours, Nasdaq may resume trading immediately after the SIP Halt
Resume Time.\47\
---------------------------------------------------------------------------

    \47\ See Partial Amendment No. 2 of Trading Halt Amendments to
the UTP Plan, dated April 7, 2021.
---------------------------------------------------------------------------

    Nasdaq notes that except as otherwise stated, the proposed
procedures for terminating Regulatory Halts replace those set forth in
current Rule 4120(c).
Operational Halt
    The Exchange proposes in Rule 4120(c) to address Operational Halts,

which are non-regulatory in nature and apply only to the exchange that
calls the halt. The ability to call an Operational Halt has existed for
a long time, although in the Exchange's experience, such halts have
rarely been initiated. As part of Nasdaq's assessment with the other
SROs of the halting and resumption of trading, the Exchange believes
that the markets would benefit from greater clarity regarding when an
Operational Halt may be appropriate. In part, the proposed change is
designed to cover situations similar to those that might constitute a
Regulatory Halt, but where the impact is limited to a single market.
For example, just as a market disruption might trigger a Regulatory
Halt for Extraordinary Market Activity if it affects multiple markets,
so a disruption at the Exchange, such as a technical issue affecting
trading in one or more securities, could impact trading on the Exchange
so significantly that an Operational Halt is appropriate in one or more
securities. In such an instance, it would be in the public interest to
institute an Operational Halt to minimize the impact of a disruption
that, if trading were allowed to continue, might negatively affect a
greater number of market participants. An Operational Halt does not
implicate other trading centers.
    As is currently the case in existing Rule 4120(a)(3)(B), proposed
Rule 4120(c)(1)(C) gives discretion to the Exchange to impose an
Operational Halt in a security listed on Nasdaq when a Primary Listing
Market imposes an Operational Halt in a security that is a derivative
or component of the Nasdaq-listed security. As discussed in relation to
Derivative Securities Products, Nasdaq does not automatically halt
trading--through either a Regulatory Halt or an Operational Halt--when
component or derivative securities are halted. However, proposed Rule
4120(c)(1)(C), like the current rule, gives the Exchange authority to
halt a security listed on Nasdaq if the impact of the component or
derivative security on price discovery or the fair and orderly market
in the Nasdaq-listed security is significant enough to warrant a
trading halt. Factors would include whether trading in the security
listed on Nasdaq is fair and orderly, the nature of the issue that
triggered the Operational Halt(s) on the Primary Listing Market(s) in
the component or derivative securities and whether the security that is
subject to the Operational Halt continues to trade on other Trading
Centers.
    Proposed Rule 4120(c) also would authorize the Exchange to
implement an Operational Halt for any security trading on Nasdaq,
including a security listed elsewhere:
     If it is experiencing Extraordinary Market Activity on
Nasdaq; or
     when otherwise necessary to maintain a fair and orderly
market or in the public interest.
    The Exchange is proposing to delete Rule 4120(a)(3)(A) that
authorizes the Exchange to institute an ``operational trading halt'' in
a security listed on another exchange when that exchange imposes a
trading halt because of an order imbalance or influx. The Exchange
believes this language could restrict its ability to follow an
Operational Halt imposed by another market to a limited set of fact
patterns. The Exchange believes that the broader language provided by
the definition of Extraordinary Market Activity and the ability to
initiate an Operational Halt when necessary to maintain a fair and
orderly market will better serve the interests of investors by allowing
the Exchange to act where appropriate.
    Proposed Rule 4120(c)(2) provides the process for initiating an
Operational Halt. Under the proposed rule, the Exchange must notify the
SIP if it has concerns about its ability to collect and transmit
Quotation Information or Transaction Reports, or if it has declared an
Operation Halt or suspension of trading in one or more Eligible
Security, pursuant to the procedures adopted by the Operating
Committee.
    Proposed Rule 4120(c)(3) will clarify how the Exchange resumes
trading after an Operational Halt. Proposed Rule 4120(c)(3) provides
that the Exchange would resume trading when it determines that trading
may resume in a fair and orderly manner consistent with the Exchange's
rules. Proposed Rule 4120(c)(3) includes one change from the current
rule. Under the current rule, the Halt Cross process is used to resume
trading after all halts in Nasdaq-listed securities, whether the halt
is a Regulatory Halt or an Operational Halt. The Exchange is proposing
to modify the process for an Operational Halt to give the Exchange
discretion to open trading without a Halt Cross if it determines such
action to be in the best interests of the market. During the July 8,
2015 suspension of trading by NYSE in all securities due to an
operational issue, many market participants requested that NYSE resume
trading without an auction to avoid any impact on Regulation NMS
compliance and mispricing because trading continued on other markets.
NYSE determined that its rules (NYSE Rule 7.35A) allow it to reopen
without an auction process, and this decision was well received.
Indeed, Nasdaq agrees that a Halt Cross in such a circumstance might
prove to be disruptive or result in trade-throughs. Nasdaq's current
rules would not permit it to reopen after an Operational Halt without a
Halt Cross auction process. The Exchange proposes modifying its rules
to provide it the same flexibility.
    For Nasdaq-listed securities where a Halt Cross is conducted, the
Exchange will use the same Halt Cross process for resumption outlined
in Rule 4120(b)(4)(A)(i)a.-c. as it does for most Regulatory Halt
types. The proposed rule notes that Nasdaq may determine to open
trading without a Halt Cross if it determines such action to be in the
best interests of the market. Where the Exchange decides not to hold a
Halt Cross for a security subject to a halt or pause, the Exchange
proposes to amend Rule 4753 to clarify that market hours trading will
resume when Nasdaq releases the security. Moreover, where trading halt
or pause for which a halt cross will not occur (such as in the case of
an Operational Halt for securities where Nasdaq is not the Primary
Listing Market), orders entered during the Operational Halt will not be
accepted, unless subject to instructions that the order will be
directed to another exchange as described in Rule 4758.\48\ When the
Nasdaq is not the Primary Listing Market, when halting trading based on
an Operational Halt, initiated by the Primary Listing Market, Nasdaq
shall resume trading once it has determined the trading may be resumed
in a fair and orderly manner.
---------------------------------------------------------------------------

    \48\ The Exchange notes that it does not plan to carry over a
portion of the existing Rule text that permits Nasdaq, in the event
that it halts trading pursuant to an operational trading halt
imposed by another exchange, to commence quotations and trading at
any time following initiation of operational trading halts, without
regard to regular procedures for resuming trading. This language
will be replaced.
---------------------------------------------------------------------------

Conforming Changes to Other Rules
    The Exchange is proposing to modify a number of other rules that
cross reference Rule 4120 in light of the reorganization of these
rules. Updated cross references are proposed for the following rules:
     Rule 4702(a) (Order Types) will be modified to update
cross references to the Rule that governs Limit-Up-Limit-Down
procedures. Rule 4702(b)(16)(A) will be modified to update the cross-
reference to the provision within Rule 4120 that is used to set the
price of a Company Direct Listing Order.
     Rule 4753(a)(3) (Nasdaq Halt Cross) will be updated to
make conforming changes to cross-references to IPO Halt procedures, a
Trading Pause initiated pursuant to the Limit Up-Limit Down

procedure, and the definition of the terms ``Auction Reference Prices''
and ``Auction Collars.''
     Rule 4753(b) (Nasdaq Halt Cross) will be modified to
update the references to subsections of Rule 4120 to reflect the
reorganization of Rule 4120. Going forward, the Exchange will generally
refer to Rule 4120 in the proposed amended Rule, rather than to
specific subsections, to reflect the intended comprehensive scope of
Rule 4753 to the halts described in Rule 4120.\49\ The Exchange also
updates a cross-reference to Rule 4120 discussed when describing the
role of a ``financial advisor.'' \50\
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    \49\ At a future date, the Exchange intends to submit a rule
filing proposal to conform Rules in the 5000 Series which describe
trading halts for certain products and Rule 4120.
    \50\ As discussed earlier, the Exchange also proposes to amend
Rule 4753(b) to state that for Nasdaq-listed securities that are the
subject of a trading halt or pause initiated pursuant to Rule 4120,
the Nasdaq Halt Cross shall occur at the time specified under Rule
4120, unless Nasdaq determines not to hold a Halt Cross, pursuant to
proposed Rule 4120(c)(3)(A). The proposed amendments also clarify
that market hours trading will commence when the Nasdaq Halt Cross
concludes, or in the case of a security for which Nasdaq determines
not to hold a Halt Cross, when Nasdaq releases the security.
---------------------------------------------------------------------------

     Rule 4753(c) (Nasdaq Halt Cross) will be modified to
update a cross reference to Rule 4120.
     Rule 4754(b)(6) (Nasdaq Closing Cross related to the Limit
Up-Limit Down Plan) will be modified to reflect the new subsections of
Rule 4120 that govern LULD Halts.
     IM-5315-2, IM-5405-1, and IM-5505-1 will be modified to
reflect updated cross-references to provisions of Rule 4120 that the
Exchange is proposing to relocate.
    In addition, the Exchange is proposing to amend several rules that
rely on the definition of ``Regular Market Session'' in current Rule
4120(b)(4)(D). Regular Market Session is defined as ``the trading
session from 9:30 a.m. until 4:00 p.m. or 4:15 p.m.'' The Exchange is
proposing to replace the references to Regular Market Session in Rule
5710 (Securities Linked to the Performance of Indexes and Commodities
(Including Currencies)) and 5711 with references to Regular Trading
Hours as proposed in Rule 4120(a)(12). The term ``Regular Trading
Hours'' would be consistent with the existing application of the
definition of ``Regular Market Session'' and obviate the need for
multiple definitions for the regular trading day. As previously
discussed, no securities traded on Nasdaq currently close at 4:15 p.m.
and, therefore, the alternative closing time in the current Regular
Market Session definition is not needed.
    The Exchange also is proposing to modify IM-5220, which covers
dually-listed securities, to reflect the changes proposed to Rule 4120.
The proposed rule makes clear that the Primary Listing Market is the
market on which the security has been listed longest. This clear
statement has eliminated the need for the more specific citations to
various subsections of Rule 4120 currently contained in IM-5220 because
proposed Rule 4120 distinguishes between those securities for which
Nasdaq is the Primary Listing Market and those securities for which
Nasdaq is not. The Exchange is also eliminating language from the rule
that references the Intermarket Trading System, which no longer exists.
These changes are not substantive.
    Finally, the Exchange proposes to amend certain references in Rule
5711, which governs the trading of certain derivative securities. The
references to Regular Market Session would be changed to Regular
Trading Hours throughout Rule 5711. This is consistent with changes
made in other rules referring to Regular Market Session. The reference
in subsection (i)(v)(B)(2) to the trading pauses contained in Rule
4120(a)(11) has been replaced with a citation to the Limit Up-Limit
Down Plan, which now applies to these instruments (rather than Rule
4120(a)(11), which as discussed above, is obsolete). The reference in
Rule 5711(j)(vi)(B)(5) to halting a series of Managed Trust Securities
traded on the Exchange pursuant to unlisted trading privileges will be
updated to reference the applicable section of the proposal, Rule
4120(b)(3)(A)(ii).
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.\51\ Specifically, the
proposal is consistent with Section 6(b)(5) of the Act \52\ 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, and, in general, protect investors and
the public interest.
---------------------------------------------------------------------------

    \51\ 15 U.S.C. 78f(b).
    \52\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    As described above, the Exchange and other SROs are seeking to
adopt harmonized rules related to halting and resuming trading in U.S.-
listed equity securities. The Exchange believes that the proposed rules
will provide greater transparency and clarity with respect to the
situations in which trading will be halted and the process through
which that halt will be implemented and terminated. Particularly, the
proposed changes seek to achieve consistent results for participants
across U.S. equities exchanges while maintaining a fair and orderly
market, protecting investors and protecting the public interest. Based
on the foregoing, the Exchange believes that the proposed rules are
consistent with Section 6(b)(5) of the Act \53\ because they will
foster cooperation and coordination with persons engaged in regulating
and facilitating transactions in securities.
---------------------------------------------------------------------------

    \53\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    As discussed previously, the Exchange believes that the various
provisions of the proposed rules that will apply to all SROs are
focused on the type of cross-market event where a consistent approach
will assist market participants and reduce confusion during a crisis.
Because market participants often trade the same security across
multiple venues and trade securities listed on different exchanges as
part of a common strategy, the Exchange believes that the proposed
rules will lessen the risk that market participants holding a basket of
securities will have to deal with divergent outcomes depending on where
the securities are listed or traded. Conversely, the proposed rules
would still allow individual SROs to react differently to events that
impact various securities or markets in different ways. This avoids the
``brittle market'' risk where an isolated event at a single market
forces all markets trading equities securities to halt or halts trading
in all securities where the issue impacted only a subset of securities.
By addressing both concerns, the Exchange believes that the proposed
rules further the Act's goal of maintaining fair and orderly markets.
    The Exchange believes that the proposed rules' focus of
responsibility on the Primary Listing Market for decisions related to a
Regulatory Halt and the resumption of trading is consistent with the
Act, which itself imposes obligations on exchanges with respect to
issuers that are listed. As is currently the case, the Primary Listing
Market would be responsible for the many regulatory functions related
to its listings, including the determination of when to declare a
Regulatory Halt. While these core responsibilities remain with the
Primary Listing Market, trading

in the security can occur on multiple exchanges that have unlisted
trading privileges for the security or in the over-the-counter market,
regulated by FINRA. These other venues are responsible for monitoring
activity on their own markets, but also have agreed to honor a
Regulatory Halt.
    The proposed changes relating to Regulatory Halts would ensure that
all SROs handle the situations covered therein in a consistent manner
that would prevent conflicting outcomes in cross-market events and
ensure that all Trading Centers recognize a Regulatory Halt declared by
the Primary Listing Market. The changes are consistent with and
implement the Amended Nasdaq UTP Plan. While the proposed rules
recognize one Primary Listing Market for each security, the rules do
not prevent an issuer from switching its listing to another national
securities exchange that would thereafter assume the responsibilities
of Primary Listing Market for that security. Similarly, the proposed
rules set forth a fair and objective standard to determine which
exchange will be the Primary Listing Market in the case of dually-
listed securities: The exchange on which the security has been listed
the longest.
    The Exchange believes that the other definitions in the proposed
rules are also consistent with the Act. For example, existing rules of
the Exchange allow it to take action to halt the market in the event of
Extraordinary Market Activity. The proposed rules would expand the
scope of what constitutes Extraordinary Market Activity, consistent
with the amended definition of that term in the Amended Nasdaq UTP
Plan, thereby furthering the Act's goal of promoting fair and orderly
markets. The Exchange is also proposing to adopt definitions for ``SIP
Outage,'' ``Material SIP Latency'' and ``SIP Halt,'' to explicitly
address situations that may disrupt the markets, and these definitions
are identical to the definitions in the Amended Nasdaq UTP Plan. The
proposed rules provide guidance on when the Exchange should seek
information from the Operating Committee, other SROs and market
participants as well as means for dissemination of important
information to the market, consistent with the Amended Nasdaq UTP Plan.
The Exchange believes these provisions strike the right balance in
outlining a process to address unforeseen events without preventing
SROs from taking action needed to protect the market.
    The Exchange believes that the proposed rules, which make halts
more consistent across exchange rules, is consistent with the Act in
that it will foster cooperation and coordination with persons engaged
in regulating the equities markets. In particular, the Exchange
believes it is important for SROs to coordinate when there is a
widespread and significant event, as multiple Trading Centers are
impacted in such an event. Further, while the Exchange recognizes that
the proposed rule will not guarantee a consistent result on every
market in all situations, the Exchange does believe that it will assist
in that outcome. While the proposed rules relating to Regulatory Halts
focuses primarily on the kinds of cross-market events that would likely
impact multiple markets, individual SROs will still retain flexibility
to deal with unique products or smaller situations confined to a
particular market. To that end, the Exchange has retained existing
elements of Rule 4120 that focus on its unique products and the
processes it has developed over time to interact with its issuers.
    Also consistent with the Act, and with the Amended Nasdaq UTP Plan,
is the Exchange's proposal in Rule 4120(c) to address Operational
Halts, which are non-regulatory in nature and apply only to the
exchange that calls the halt. As noted earlier, the Exchange presently
has the ability to call an Operational Halt, but does so rarely. The
Exchange believes that the markets would benefit from greater clarity
regarding when an Operational Halt may be appropriate. In part, the
proposed change is designed to cover situations similar to those that
might constitute a Regulatory Halt, but where the impact is limited to
a single market. For example, just as a market disruption might trigger
a Regulatory Halt for Extraordinary Market Activity if it affects
multiple markets, so could a disruption at the Exchange, such as a
technical issue affecting trading in one or more securities, impact
trading on the Exchange so significantly that an Operational Halt is
appropriate in one or more securities. In such an instance, it would be
in the public interest to institute an Operational Halt to minimize the
impact of a disruption that, if trading were allowed to continue, might
negatively affect a greater number of market participants. An
Operational Halt does not implicate other trading centers.
    As is currently the case in existing Rule 4120(a)(3)(B), proposed
Rule 4120(c)(1)(C) gives discretion to the Exchange to impose an
Operational Halt in a security listed on Nasdaq when a Primary Listing
Market imposes an Operational Halt in a security that is a derivative
or component of the Nasdaq-listed security. As discussed in relation to
Derivative Securities Products, Nasdaq does not automatically halt
trading--through either a Regulatory Halt or an Operational Halt--when
component or derivative securities are halted. However, proposed Rule
4120(c)(1)(C), like the current rule, gives the Exchange authority to
halt a security listed on Nasdaq if the impact of the component or
derivative security on price discovery or the fair and orderly market
in the Nasdaq-listed security is significant enough to warrant a
trading halt. Factors would include whether trading in the security
listed on Nasdaq is fair and orderly, the nature of the issue that
triggered the Operational Halt(s) on the Primary Listing Market(s) in
the component or derivative securities and whether the security that is
subject to the Operational Halt continues to trade on other Trading
Centers.
    Proposed Rule 4120(c) also would authorize the Exchange to
implement an Operational Halt for any security trading on Nasdaq,
including a security listed elsewhere: (i) If it is experiencing
Extraordinary Market Activity on Nasdaq; or (ii) when otherwise
necessary to maintain a fair and orderly market or in the public
interest.
    The Exchange believes that it is consistent with the Act to delete
Rule 4120(a)(3)(A), which authorizes the Exchange to institute an
``operational trading halt'' in a security listed on another exchange
when that exchange imposes a trading halt because of an order imbalance
or influx. The Exchange believes this language could restrict its
ability to follow an Operational Halt imposed by another market to a
limited set of fact patterns. The Exchange believes that the broader
language provided by the definition of Extraordinary Market Activity in
proposed Rule 4120(c) will better serve the interests of investors by
allowing the Exchange to act where appropriate.

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

    The Exchange believes the proposal is consistent with Section
6(b)(8) of the Act \54\ in that it does not impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act as explained below.
---------------------------------------------------------------------------

    \54\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    Importantly, the Exchange believes the proposal will not impose a
burden on intermarket competition but will rather alleviate any burden
on competition because it is the result of a collaborative effort by
all SROs to harmonize and improve the process related to the halting
and resumption of

trading in U.S.-listed equity securities, consistent with the Amended
Nasdaq UTP Plan. In this area, the Exchange believes that all SROs
should have consistent rules to the extent possible in order to provide
additional transparency and certainty to market participants and to
avoid inconsistent outcomes that could cause confusion and erode market
confidence. The proposed changes would ensure that all SROs handle the
situations covered therein in a consistent manner and ensure that all
Trading Centers handle a Regulatory Halt consistently. The Exchange
understands that all other Primary Listing Markets intend to file
proposals that are substantially similar to this proposal.
    The Exchange does not believe that its proposals concerning
Operational Halts impose an undue burden on competition. Under the
existing Rules, the Exchange already possesses discretionary authority
to impose Operational Halts for various reasons, including because of
an order imbalance or influx that causes another national securities
exchange to impose a trading halt in a security, or because another
national securities exchange imposes an operational halt in a security
that is a derivative or component of a security listed on Nasdaq. As
described earlier, the proposed Rule change clarifies and broadens the
circumstances in which the Exchange may impose such Halts, and
specifies procedures for both imposing and lifting them. The Exchange
does not intend for these proposals to have any competitive impact
whatsoever. Indeed, the Exchange expects that other exchanges will
adopt similar rules and procedures to govern operational halts, to the
extent that they have not done so already.
    The Exchange does not believe that the proposed rule change imposes
a burden on intramarket competition because the provisions apply to all
market participants equally. In addition, information regarding the
halting and resumption of trading will be disseminated using several
freely accessible sources to ensure broad availability of information
in addition to the SIP data and proprietary data feeds offered by the
Exchange and other SROs that are available to subscribers.
    In addition, the proposals include several provisions related to
the declaration and timing of trading halts and the resumption of
trading designed to avoid any advantage to those who can react more
quickly than other participants. The proposed rule gives the Exchanges
the ability to declare the timing of a Regulatory Halt immediately. The
SROs retain the discretion to cancel trades that occur after the time
of the Regulatory Halt. The proposals also allow for the staggered
resumption of trading to assist firms in reentering the market after a
SIP Halt affecting multiple securities, in order to reopen in a fair
and orderly manner. In addition, the proposals encourage early and
frequent communication among the SROs, SIPs and market participants to
enable the dissemination of timely and accurate information concerning
the market to market participants.

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. 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-2022-017 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-2022-017. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (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 website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NASDAQ-2022-017 and should be submitted
on or before May 31, 2022.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\55\
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    \55\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-09855 Filed 5-6-22; 8:45 am]
BILLING CODE 8011-01-P