Nasdaq Market Center Systems Description
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In the Nasdaq Opening Cross, Nasdaq’s matching engine algorithmically evaluates all eligible prices at which an Opening Cross can occur and identifies the price or prices at which the maximum shares would be executed. If more than one price would result in the same number of shares being executed, the matching engine evaluates those prices only and determine which price would minimize the imbalance of on open orders. If more than one price still qualifies, the matching engine identifies the single price that would minimize the distance from a crossing price to the previous Nasdaq official closing price.
If the Nasdaq Opening Cross price is selected and fewer than all quotes and orders that are available for automatic execution in the Nasdaq Market Center would be executed, the system will execute quotes and orders in the following priority:
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MOO and Early Regular Hours market orders, with time as the secondary priority; •
displayed quotes and reserve interest priced more aggressively than the Nasdaq Opening Cross price with time as the secondary priority; •
orders, displayed interest of limit orders, and displayed interest of quotes at the Nasdaq Opening Cross price with time as the secondary priority; •
Nasdaq Opening Cross price with time as the secondary priority; and •
Late Regular Hours orders in strict time priority.
Unexecuted MOO, LOO, and OIO orders are canceled. The Opening Cross occurs at 9:30. All orders that are executable are executed at the Nasdaq Opening Cross price, reported to Nasdaq’s trade reporting system with SIZE as the contra party on both sides of the trade, and then transmitted to the consolidated tape. The Nasdaq Opening Cross price and the associated paired volume are then disseminated via data feeds. While the Opening Cross occurs, all entry of quotes and orders is suspended. When the Opening Cross concludes, normal trading commences.
Not all Nasdaq securities participate in the Nasdaq Opening Cross. For those that do not, Nasdaq has developed an improved procedure to ensure that all stocks open with an unlocked inside market. The process “wakes up” orders that are eligible for execution beginning at 9:30, and processes them in an orderly fashion to prevent the creation of locks and crosses.
The process has several steps each of which occur in strict time priority. First, limit orders that have a time-in-force of Day or GTC wake-up. Of those, orders whose limit price does not lock or cross the book will be added to the book. Orders whose limit price does lock or cross the book will be placed in an “In Queue” state in strict time priority. Second, reverse Pegged orders wake up. If the price created by the reverse Pegged order does not lock or cross the book, the order is placed on the book. If the price
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created by the reverse Pegged order would lock or cross the book, the order is placed in “In Queue” status. Third, regular Pegged orders wake up in strict time priority. The In Queue orders also include market and IOC orders in strict time priority. At this point, all eligible orders that would not lock or cross the market will be on the Nasdaq Market Center book and all other eligible orders will be In Queue.
After the wake-up process has been completed, the system will process the “In Queue” orders, including market orders, in strict time priority order regardless of order type. IOC orders that are not executable will be canceled as is currently done. Orders with a time in force of DAY and GTC that are not executable will be added to the book in strict time priority. Once this process is complete, the system will resume processing the input queue as normal.
X. Closing Cross
There are three components of the Nasdaq Closing Cross: (1) On Close and Imbalance Only order types; (2) the dissemination of an order imbalance indicator via a Nasdaq proprietary data feed; and (3) closing cross processing in the Nasdaq Market Center at 4:00:00 that will execute the maximum number of shares at a single, representative price that will be the Nasdaq Official Closing Price. Each component is described in detail below.
The closing process begins with market participants entering On-Close and Imbalance Only order types in the Nasdaq Market Center. On-Close orders can be un- priced and entered as market-on-close (“MOC”), or priced and entered as limit-on-close (“LOC”). On-Close orders can be entered, cancelled, and corrected between 9:30:01 a.m. EST and 3:50:00 p.m. but they are not displayed in the Nasdaq Order Display Facility or disseminated via any data feed. On-Close orders, both MOC and LOC, execute only at the price determined by the closing Nasdaq cross. Thus, LOC orders will be subject to price improvement if the buy (sell) order is greater than (less than) the closing price.
Imbalance Only orders (“IO”) supplement the liquidity provided by On Close orders and will execute only within the closing cross against any imbalance in liquidity. Imbalance Only order types must be priced limit orders. Like On Close orders, IO orders are not displayed in the Nasdaq Order Display Facility or disseminated via any data feed. IO orders can be entered until 3:59:59, but they cannot be cancelled or modified after 3:50:00 except to increase the number of shares or to increase (decrease) the buy (sell) limit price. IO sell orders only execute at or above the 4:00:00 Nasdaq inside offer, and IO buy orders will only execute at or below the 4:00:00 Nasdaq inside bid. On Close and IO orders constitute the “Nasdaq Closing Orders” which, as described below, serve as the basis for the Closing Cross Order Imbalance Indicator.
At 3:50:00, Nasdaq begins the closing auction calculation and disseminates an order imbalance indicator on Nasdaq’s proprietary data feed. Imbalance Information includes several pieces of information regarding the closing cross: (1) the number of shares represented by MOC, LOC, and IO orders that are paired at the current Nasdaq
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