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Regulatory Initiatives


Nasdaq is always committed to working with regulators, exchanges and market participants to ensure trading is transparent and fair. To keep you informed of the ever-changing regulatory landscape of U.S. trading, refer to the information below regarding current regulatory initiatives.

Enhancement of Self-Regulatory Organization Rulebooks

To provide transparency regarding Market Regulation and Enforcement rules, policies and procedures, Nasdaq maintains an extensive library of frequently asked questions (FAQs).

FAQs – Market Regulation

Nasdaq Reduced Value Index Options [NQX]
Description Additional Resources

NQX
Nasdaq Reduced Value Index Options [XND]
Description Additional Resources

XND
Non-standard Program Annual Report
Description Additional Resources

P.M. Settlement Pilot – Non-standard Expiration Data.
Tick Size Pilot Program
Description Additional Resources

On June 24, 2014 the SEC issued an order directing that the national securities exchanges and FINRA (collectively, “SROs”) to act jointly to develop and file an NMS plan with the SEC to implement a pilot program to study the impact of wider quoting and trading increments on trading of certain small capitalization stocks. On May 6 2015 the SEC approved an amended Tick Pilot NMS Plan. The Pilot will be two years in length. Market participants will be required to collect data to ensure the impact of the pilot can be properly studied. Data collection for the pilot will start 6 months prior to the implementation of the trading and quoting rules for the pilot. For more information please see the additional resources to the right.
Consolidated Audit Trail
Description Additional Resources

On July 11, 2012, the SEC voted to require that national securities exchanges and FINRA to establish a market-wide consolidated audit trail. The new rule requires the exchanges and FINRA to jointly submit a comprehensive plan detailing how they would develop, implement and maintain a consolidated audit trail that must collect and accurately identify every order, cancellation, modification and trade execution for all exchange-listed equities and equity options across all U.S. markets.

The Rule became effective on August 1, 2012 after it was published in the Federal Register. In March 2013 the SEC granted the SROs a temporary exemption from the deadline for filing the NMS Plan contained in Rule 613(a)(1) until December 6, 2013. On December 6th, 2013, the SEC agreed to extend the date by which the SROs must submit their NMS Plan for the CAT until September 30, 2014. The NMS Plan was submitted by the new deadline and if the Commission approves, the SROs will be required to report the required data to the central repository within one year of the effective date, and members of the SROs will be required to report within two years. Certain small broker-dealers will have up to three years to report the data.
FINRA Rule 4540 Series – CARDS
Description Additional Resources

On December 23, 2013 FINRA released Regulatory Notice 13-42 requesting comments on a concept proposal to develop the Comprehensive Automated Risk Data System (CARDS), which would allow for a standardized, automated and regular collection of certain account information. Incorporating comments received on the concept proposal, FINRA proposed its Rule 4540 Series on September 30, 2014 and is requesting comments by December 1, 2014.

 

The rule proposal incorporates two implementation phases. The first phase would limit the collection of information to only that data that resides at carrying or clearing firms. Such information would relate to securities and account transactions, holdings, account profile information (excluding personally identifiable information) and securities reference data for all accounts. The second phase would add the collection of information from fully-disclosed introducing firms for all of the firms’ introduced securities accounts.

Regulation SCI
Description Additional Resources

On March 8, 2013, the Securities and Exchange Commission ("SEC") proposed Regulation Systems Compliance and Integrity (“Regulation SCI”) and amendments to Regulation ATS under the Securities and Exchange Act of 1934.

As proposed, Regulation SCI would require “SCI entities” (e.g., certain self-regulatory organizations, alternative trading systems, plan processors and exempt clearing agencies) to comply with capacity, integrity, security and testing requirements with respect to their automated systems that support their regulated activities.

According to the SEC, Regulation SCI and the related amendments are needed to formalize current SEC inspection programs (e.g., ARP) and standardize industry efforts in this area. Regulation SCI will also address the increased use of technology in securities trading and routing and the resulting complexities in the markets, and help prevent systems related issues that can harm the fair and orderly operation of the markets.

On November 19, 2014 the SEC voted to adopt Regulation SCI. The effective date will be 60 days after the publication of the rule in the Federal Register, while the compliance date will be 9 months after the effective date. The rule was published in the Federal Register on December 5, 2014.
FINRA Rule 4552-ATS Trading Information
Description Additional Resources

Effective May 12, 2014, FINRA Rule 4552 requires each member that operates an ATS and has filed a Form ATS with the SEC to report to FINRA, within seven business days after the end of each week, the aggregate weekly trading information for each NMS stock and OTC equity security executed within each such ATS during the previous week. Trading information includes the number of shares of each NMS stock or OTC equity security executed within an ATS and the number of trades in a security executed within an ATS.
Limit Up-Limit Down
Description Additional Resources

On May 31, 2012, the SEC approved, on a pilot basis, the National Market System Plan to Address Extraordinary Market Volatility originally filed by the national securities exchanges and FINRA. On April 3, 2014, the SEC approved the Seventh Amendment to the plan, which extended the pilot period to end on February 20, 2015.

The plan established a new "limit up-limit down" mechanism to address extraordinary market volatility in U.S. equity markets. The mechanism prevents trades during regular market hours in any NMS security (rights and warrants are not included in the plan) from occurring outside of specified price bands. The price bands, calculated and disseminated by the SIPs, are set at percentage levels above and below the reference price, which is the average price of the security over the immediately preceding five-minute period. The percentage levels are doubled between 9:30-9:45 a.m. ET and 3:35-4:00 p.m. ET. The reference price will remain the same if no trades occurred in the previous five minutes or the new reference price is not at least one percent away in either direction from the current reference price. Each new reference price remains in effect for at least 30 seconds.

A security enters a limit state if the National Best Offer equals the lower price band and does not cross the National Best Bid, or vice versa. Trading for the security exits a limit state if, within 15 seconds of entering the limit state, all limit state quotations were executed or cancelled in their entirety. To accommodate more fundamental price moves, there would be a 5 minute trading pause if trading is unable to exit the limit state within 15 seconds. No trades in the security could occur during the trading pause, but all bids and offers may be displayed.
Market-Wide Circuit Breakers
Description Additional Resources

On May 31, 2012, the SEC approved, on a pilot basis, the national securities exchanges' and FINRA's proposal to revise the market-wide circuit breakers. Changes to the market-wide circuit breakers were implemented on April 8th, 2013, resulting in a reduction in the market decline percentages, a shortened duration of the halts and a replacement of the DJIA with the broader S&P 500 Index as the pricing reference to measure the market declines. In summary, the proposal revised the market-wide circuit breakers by:

  • Using the broader S&P 500 Index as the pricing reference to measure the market decline, rather than the DJIA.
  • Recalculating the trigger thresholds daily rather than quarterly.
  • Reducing the market decline percentage thresholds necessary to trigger a circuit from 10, 20, and 30 percent to 7, 13, and 20 percent from the previous day's closing price.
  • Shortening the duration of the resulting trading halts that do not close the market for the day from 30, 60, or 120 minutes to 15 minutes.
  • Simplifying the structure from six to two relevant trigger time periods - those before 3:25 p.m. and those at or after 3:25 p.m.

On April 3, 2014, the SEC approved an amendment to the NMS Plan to Address Extraordinary Market Volatility that extended the end of the market-wide circuit breaker pilot period from April 8, 2014 to February 20, 2015.

Clearly Erroneous Process Improvements
Description Additional Resources

On June 17, 2010, U.S. exchanges filed with the SEC rule amendments intended to improve the transparency of filings for clearly erroneous transactions following large market-wide events and trading pauses. The rules have been amended several additional times since the original filing, with the latest update occurring on June 19, 2014. This latest amendment provides that a series of transactions in a particular security on one or more trading days may be viewed as one event if all such transactions were effected based on the same fundamentally incorrect or grossly misinterpreted issuance information resulting in a severe valuation error for all such transactions. Additionally, the latest amendment addresses transactions to be nullified due to certain events associated with trading pauses.

On March 24, 2014 the SEC approved a proposal to extend the pilot period of amendments concerning clearly erroneous transactions to coincide with the pilot period for the NMS Plan to Address Extraordinary Market Volatility, which is set to expire on February 20, 2015.

Large Trader Reporting
Description Additional Resources

On July, 27th, 2011, the SEC approved Rule 13h-1 and a corresponding Form 13H to establish a new large trader reporting system, which would require large traders to self-identify and file reports with the SEC. Additionally, broker-dealers have recordkeeping, reporting and monitoring responsibilities with respect to large traders for which the broker-dealers maintain accounts. After extensions were granted for compliance with certain aspects of the rule, the majority of requirements of Rule 13h-1 became effective as of November 1, 2013. There remains an exemption from recordkeeping and reporting requirements for certain broker-dealers until November 1, 2015. The temporarily exempted broker-dealers include those that are large traders but do not self-clear, as well as those effecting transactions for large traders whose accounts are carried by non-broker-dealers.

Rule 15c3-5 – Market Access Rule
Description Additional Resources

On November 3, 2010, the SEC adopted Rule 15c3-5, "Risk Management Controls for Brokers or Dealers with Market Access" ("Market Access Rule" or "Rule"). The Market Access Rule requires broker-dealers to establish, document and maintain a system of risk management controls and supervisory procedures that are reasonably designed to systematically limit the financial exposure of the broker-dealer that could arise as a result of market access and ensure compliance with all regulatory requirements that are applicable in connection with market access. The Rule became effective on July 14, 2011, subject to certain extensions of the effective date that were approved by the Commission. The full rule became effective on November 30, 2011.

In accordance with SEC Rule 15c3-5, Nasdaq Execution Services, the routing broker-dealer facility of Nasdaq, BX and PSX began applying credit limits to all routable orders on November 30, 2011. Each Nasdaq, BX or PSX MPID has been assigned a base credit limit. Credit Limits are applied based on historical activity and may be modified from time to time if such modifications are deemed appropriate by Nasdaq Execution Services. As routable orders are entered, the amount of available credit decreases; as orders are cancelled, the amount of available credit for incoming orders increases. Should a credit limit be breached, new orders will be rejected. Nasdaq Execution Services may modify credit limits after consultation with the participant.

Amendments to Reg SHO
Description Additional Resources

The SEC adopted amendments to Regulation SHO with a compliance date of February 28, 2011. Among the rule changes, the SEC introduced Rule 201 (the alternative uptick rule), a short sale-related circuit breaker that, when triggered, imposes a restriction on prices at which securities may be sold short. Specifically, when a security has triggered a circuit breaker by experiencing a price decline of at least 10% from the prior day’s closing price, short sales in that security for the remainder of the trading day and the following day are only permitted if the price of the security is above the current national best bid. The SEC also issued guidance for broker-dealers wishing to mark certain qualifying orders "short exempt."
Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues
Description Additional Resources

On February 18, 2011, the Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues released a summary report titled "Recommendations Regarding Regulatory Responses to the Market Events of May 6, 2010."
Equity Market Structure Concept Release Comment Letter
Description Additional Resources

After collecting valuable insight and feedback from buy-side and sell-side firms, Nasdaq submitted a comment letter to the SEC regarding the U.S. Equity Market Structure Concept Release.
Questions

Any questions relating to the contents of this page or other market structure initiatives please contact Christopher Radtke at +1 212 231 5333 or contact Global Trading and Market Services at +1 800 846 0477.