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Wednesday, January 27, 2016

Equity Trader Alert #2016 - 16
Nasdaq To Implement Additional Price Protections to the Opening Cross Process

Category:

  • New Functionality

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Subject to SEC approval, Nasdaq is introducing additional price protections for the opening auction cross process. These new protections are designed to mitigate the potential for price dislocations at market open. The changes will be phased in with groups of symbols beginning March 15, 2016.

Currently, Nasdaq bounds the opening and closing crosses by calculating 10% of the Nasdaq Best Bid/Offer midpoint price and subtracting that from the bid and adding it to the offer to create an allowable opening price range for the opening cross. The execution price of the cross will be within this boundary at all times.

In addition to this current price protection, Nasdaq will add three new price checks to improve price protections in the cross process. These three new checks will be performed sequentially in each security to validate the calculated opening cross price. If a securities calculated opening cross price fails the opening price validation parameters Nasdaq will cancel all On-Open orders in that security.

  • Check A: The opening cross price must be within an acceptable range of the close from the previous night (NOCP for Nasdaq listed stocks and consolidated close for non- Nasdaq listed stocks)
  • Check B: The opening cross price must be within an acceptable range of the last Nasdaq trade (round or odd lot) after 9:15 am
  • Check C: The opening cross price must be within an acceptable range of the Nasdaq Best Bid for Opening Cross prices higher than previous close or the Nasdaq Best Offer for Opening Cross prices lower than previous close

If the cross price fails check A, B, and C all orders in the opening cross book for that given symbol will be cancelled back to customers with a new reason code of “X”. This includes Limit On Open (LOO), Market On Open (MOO), Imbalance Only open orders and Market Day orders (MDAY) that were calculated to participate in the cancelled opening cross. Any orders that are already acknowledged on the continuous book will remain on the book and closing cross orders will not be cancelled.

Nasdaq will use a threshold of the greater of $0.50 or 10% for checks A, B, and C. Nasdaq may elect to change the threshold value in the future. Any changes in the threshold values will be posted on Nasdaq’s webpage and communicated to participants via an Equities Trader Alert.

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Nasdaq (Nasdaq: NDAQ) is a leading global provider of trading, clearing, exchange technology, listing, information and public company services. Through its diverse portfolio of solutions, Nasdaq enables customers to plan, optimize and execute their business vision with confidence, using proven technologies that provide transparency and insight for navigating today's global capital markets. As the creator of the world's first electronic stock market, its technology powers more than 90 marketplaces in 50 countries, and 1 in 10 of the world's securities transactions. Nasdaq is home to approximately 3,900 total listings with a market value of approximately $13 trillion. To learn more, visit: business.nasdaq.com.

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