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Federal Register / Vol. 86, No. 40 / Wednesday, March 3, 2021 / Notices
jbell on DSKJLSW7X2PROD with NOTICES

available orders at a price within or equal to the Benchmark Prices. Any unexecuted orders intended for the Closing Cross i.e., MOC, LOC, and IO
Orders, including those that fall outside of the Benchmark Prices, will be cancelled. This will be similar to the current standard Closing Cross functionality as described above. All other orders not executed in the LULD
Closing Cross will be processed according to the entering firms instructions, consistent with the current LULD Closing Cross rule.
The following illustrate how the proposed Benchmark Prices will be calculated:
Example 1: Security Enters Trading Pause Prior to 3:50 p.m.
Assume:
Symbol ABC is a Tier 1 security Last sale/reference price: $100
LULD price bands: $95 $105
NBBO updates to $94.50 $95
At 3:38 p.m., Symbol ABC enters a Trading Pause LULD Auction Collars calculated:
Upper Collar: $105
Lower Collar: $90.25
At 3:43 p.m., due to a market order imbalance, the LULD halt cross will not occur and the LULD Auction Collars 1st extension are calculated:
Upper Collar: $105
Lower Collar: $85.50
At 3:48 p.m., due to a market order imbalance, the LULD halt cross will not occur and the LULD Auction Collars 2nd extension are calculated:
Upper Collar: $105
Lower Collar: $80.75
At 3:50 p.m., the security enters a LULD
Closing Cross and the Benchmark Prices will be calculated:
Upper Benchmark Price: $105
Lower Benchmark Price: $72.68
Here, the lower Auction Collar is the collar that was widened in the last dissemination of the LULD Auction Collars message, so the Benchmark Prices will be calculated from the last updated lower Auction Collar $80.75.
The threshold amount is 8.075 10% of 80.75 = 8.075, which is subtracted from the last updated Auction Collar rounded to the nearest price increment to calculate the lower Benchmark Price of 72.68 80.758.075 = 72.675 i.e., 72.68 when rounded to the nearest price increment. The upper Benchmark Price of $105 is equal to the last updated upper Auction Collar price that was disseminated with the lower Auction Collar price used to calculate the lower Benchmark Price. Thus, $72.68 is the lowest price at which the LULD Closing
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Cross can occur, and $105 is the highest price at which the cross can occur.
Example 2: Security Enters Trading Pause After 3:50 p.m.
Assume:
Symbol ABC is a Tier 1 security Last sale/reference price: $100
LULD price bands: $95 $105
NBBO updates to $94.50 $95
At 3:53 p.m., Symbol ABC enters a Trading Pause and will go through a LULD Closing Cross.
The Benchmark Prices will be calculated:
Upper Benchmark Price: $105
Lower Benchmark Price: $85.50
Here, the security entered a Limit Down triggered pause, so the Benchmark Prices will be calculated from the Lower LULD Band $95. The threshold amount is 9.50 10% of 95 = 9.50, which is subtracted from the Lower LULD Band to calculate the lower Benchmark Price of 85.50 95 9.50 =
85.50. The upper Benchmark Price of $105 is equal to the Upper LULD Band in place at the time the Trading Pause was triggered. Thus, $85.50 is the lowest price at which the LULD Closing Cross can occur, and $105 is the highest price at which the cross can occur.
Execution Processing In connection with the changes proposed above to introduce price protections for the LULD Closing Cross, the Exchange proposes to amend the methodology for determining the LULD
cross price. Specifically, the Exchange proposes the following in new paragraph D of Rule 4754b6:
Di The LULD Closing Cross will occur at the price within the benchmark prices established pursuant to paragraph E below Benchmark Prices that maximizes the number of shares of Eligible Interest in the Nasdaq Market Center to be executed.
ii If more than one price exists under subparagraph i, the LULD Closing Cross shall occur at the price within the Benchmark Prices that minimizes any Imbalance.
iii If more than one price exists under subparagraph ii, the LULD
Closing Cross shall occur at the entered price within the Benchmark Prices at which shares will remain unexecuted in the cross.
iv If there is no price within the Benchmark Prices that satisfies the above conditions, then the LULD
Closing Cross shall occur at:
a If an Imbalance exists, a price equal to the upper lower Benchmark Price for a buy sell Imbalance; or b if no Imbalance exists, a price that minimizes the distance from the last
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published Upper Band Lower Band for a Limit Up Limit Down Trading Pause.
Today, the LULD Closing Cross price is determined by the same execution algorithm as currently used by the standard Closing Cross.17 As discussed below, the proposed execution algorithm retains many aspects of the standard cross methodology with certain intended differences.
The first tiebreaker in new paragraph Di will be substantially similar to the existing tiebreaker in Rule 4754b2A,18 except that the proposed language will specify the LULD cross price must also fall within the proposed Benchmark Prices established pursuant to new paragraph E of Rule 4754b6. In connection with this change, the Exchange also proposes to add a definition for Eligible Interest, which is currently undefined in this Rule. Specifically, the Exchange proposes to add in new paragraph Ai of Rule 4754b6 that for purposes of the LULD Closing Cross rule, Eligible Interest shall have the same meaning as Close Eligible Interest in Rule 4754a, with the addition of any new orders, with an eligible underlying Order Type and Attribute, entered during the Trading Pause. The proposed change reflects current system behavior, and indicates that there is an additional category of orders that may participate in the LULD
Closing Cross i.e., new incoming orders, with an eligible underlying Order Type and Attribute, entered during the Trading Pause, which are not fully applicable in the context of the standard close. The Exchange therefore believes that using the proposed definition throughout the LULD Closing Cross rule instead of Close Eligible Interest as currently used in the standard Closing Cross will better align the rule to the current operation of the system.
The second tiebreaker in new paragraph Dii will be based on the same principle as the existing tiebreaker in Rule 4754b2B i.e., to minimize the number of shares that cannot be matched in the cross.19 However, the new tiebreaker will specify that the LULD Closing Cross price must be within the proposed Benchmark Prices 17 See
Rule 4754b2AD.
4754b2A currently provides that the Nasdaq Closing Cross will occur at the price that maximizes the number of shares of Eligible Interest in the Nasdaq Market Center to be executed.
19 Rule 4754b2B currently provides that if more than one price exists under subparagraph A, the Nasdaq Closing Cross shall occur at the price that minimizes the number of shares of buy or sell MOC or LOC orders that cannot be matched with other MOC or LOC, Close Eligible interest, or IO
order shares.
18 Rule
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