Wednesday, June 13, 2012

UTP Vendor Alert #2012 - 3
UTP Message Format Release to Support Limit Up-Limit Down and Market Wide Circuit Breaker Proposals

What is Limit Up-Limit Down?

The Securities and Exchange Commission (SEC) recently approved a proposal by the national securities exchanges and the Financial Industry Regulatory Authority (FINRA) to address extraordinary volatility in individual securities by creating a new Limit Up-Limit Down mechanism. The new rule is designed to prevent trades in individual listed equity securities from occurring outside of a specified price band, which would be set at a percentage level above and below the average price of the security over the immediately preceding five-minute period. For more liquid securities — those in the S&P 500 Index, Russell 1000 Index and certain exchange-traded products — the level will be 5 percent, and for other listed securities the level will be 10 percent. The percentages will be doubled during the opening and closing periods and broader price bands will apply to securities priced $3 per share or less.

To accommodate more fundamental price moves, there will be a five-minute trading pause, similar to the pause triggered by the single stock circuit breakers, if trading is unable to occur within the price band for more than 15 seconds.

Under the new plan, all trading centers, including exchanges, automated trading venues and broker-dealers executing trades internally, must establish policies and procedures to prevent trades from occurring outside the applicable price bands, honor any trading pause and otherwise comply with the procedures set forth in the plan.

The Limit Up-Limit Down rule is scheduled to be implemented on February 4, 2013, on a one-year pilot basis. For details, refer to the approval order on the SEC website.

What format changes will the UTP SIP be implementing for Limit Up-Limit Down?

In support of Limit Up-Limit Down, the UTP SIP will:

• Introduce a new administrative message to relay Limit Up-Limit Down Price Bands: This new Category A – Type P message format will be calculated and disseminated by the UTP SIP via UQDF, UTDF and OMDF during normal market hours.
• Introduce new UTP Participant Best Bid and Offer (BBO) Quotation message formats with Limit Up-Limit Down Indicator and SIP Generated Update fields: Designed to replace the existing message formats, the UTP Participant BBO Short Form Quotation will be identified as Category Q – Type E and the UTP Participant BBO Long Form Quotation will be Category Q – Type F.
• Modify the Trading Action – Cross SRO message format to support new Action and Reason code values associated with Limit Up-Limit Down. In the event of a trading pause, the UTP SIP is asking the primary market center to send a new action code of "P" (Pause) and a new reason code of "LULDP". From a processing perspective, the UTP SIP will not wipe out UTP participant quotes if it receives the "P" action code.

For messaging details, refer to the UTP data feed specifications.

What is the Market Wide Circuit Breaker and how is it changing?

The U.S. equity, options and futures exchanges have established procedures for coordinated cross-market trading halts in the event of a severe market price decline. These procedures, known as market wide circuit breakers, may halt trading temporarily or, under extreme circumstances, close the markets before the normal close of the trading session.

The SEC recently approved a joint exchange plan to modify the market wide circuit breaker rules in the following manner:

• Reduce the market decline percentage thresholds needed to trigger a circuit breaker to 7%, 13% and 20% from the prior day's closing price, rather than declines of 10, 20 or 30 percent.
• Simplify the market circuit breaker rules by reducing the number of relevant trigger time periods and trading halt durations.
• Use the broader S&P 500 Index (rather than the Dow Jones Industrial Average) as the pricing reference to measure a market decline and require that the trigger thresholds be recalculated daily (rather than quarterly).

The revised Market Wide Circuit Breaker rule is scheduled to be implemented on February 4, 2013. For messaging details, refer to the approval order on the SEC website.

What format changes will the UTP SIP be implementing for the Market Wide Circuit Breaker?

In support of the revised Market Wide Circuit Breaker rule, the UTP SIP will:

• Introduce a new Market Wide Circuit Breaker Decline Level message to relay the current day's trigger threshold values to UTP market participants. The new Category A – Type C message, which will reflect the 7%, 13% and 20% trigger thresholds for the S&P 500, will be disseminated via UQDF, UTDF and OMDF prior to the market open.
• Introduce a new Market Wide Circuit Breaker Status message to relay when a trigger threshold has been breached. The new Category A – Type D message format would be disseminated by the UTP SIP if the S&P 500 Index falls below the trigger points.
• Modify the Trading Action – Cross SRO message format to support new Reason codes for Market Wide Circuit Breakers. In the event of a Market Wide Circuit Breaker, The NASDAQ Stock Market will be responsible for sending out Trading Action messages for its listed securities as appropriate. To differentiate market wide circuit breakers from other trading actions, NASDAQ is expected to populate the Reason field in the Trading Action message with a "MWCB" value.

Please note that the new Market Wide Circuit Breaker messaging will replace the existing Emergency Market Condition messaging on the UTP data feeds as of February 4, 2013. For details, refer to the UTP data feed specifications.

What is the Retail Interest Indicator?

Pending SEC approval, the New York Stock Exchange (NYSE) and NYSE MKT (formerly NYSE Amex) plan to introduce a new Retail Liquidity Program. For details, refer to the NYSE ruling filing on the SEC website.

What format changes will the UTP SIP be making for the Retail Interest Indicator?

In preparation for the new NYSE and NYSE MKT rule, the UTP SIP will be adding a new Retail Interest Indicator field to the UTP Participant BBO Long Form Quotation message. As noted above, the UTP Participant BBO Long Form message format will be identified as Category Q – Type F for the upcoming release.

Please note that NYSE and NYSE MKT may begin to populate the Retail Interest Indicator field in the UTP Participant BBO Long Form message format on the UQDF release date if it has received the necessary SEC approval.

When will the new UTP SIP messages available for testing and production use?

The UTP SIP is tentatively targeting a hot cut release for the new UTP Participant BBO Quotation message format in October 2012. The UTP SIP plans to support both evening and weekend testing opportunities for UQDF direct data feed subscribers.

The UTP SIP is now working to finalize the release schedule and SIP will post a follow-up news item with the format testing and release dates.

Where can I find additional information?

Please refer to the UTP data feed specification documents for additional processing information:

• UTP Quotation Data Feed^SM (UQDF^SM)
• UTP Trade Data Feed^SM (UTDF^SM)
• OTC Montage Data Feed^SM (OMDF^SM)

For questions regarding the UTP Data Feeds please contact NASDAQ OMX Global Data Products at +1 301 978 5307 (Option #4).