Nasdaq Market Center Systems Description
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crossed by the displayed quote of another market center, are routed by Brut to that market center for potential execution.
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Super Aggressive Cross orders are Brut Cross Order that, if after being posted in the Brut ECN, have their price locked or crossed by the displayed quote of another market center, are routed by Brut for potential execution.
• Thru Brut orders are directed to a market center other than Brut for execution.
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To Brut orders are eligible for execution upon receipt solely against Brut ECN orders, and are displayed in the Brut ECN to the extent they cannot be executed upon receipt.
• Hunter orders are not displayed in the Brut ECN, but will execute against available trading interest residing in the Brut ECN or another market center.
• Pegged orders are a form of To Brut limit order that, after entry, have their price automatically adjusted by the Brut ECN in response to changes in the Nasdaq Market Center (for Nasdaq-listed securities) or national best bid or offer (for exchange-listed securities), as appropriate.
• Discretionary orders have both a displayed price, as well as a non-displayed discretionary price range and size in which the entering party, if necessary, is also willing to buy or sell.
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Post Only orders are a form of To Brut limit order that, if marketable upon receipt against an order then-displayed in the Brut ECN, are rejected and returned to the entering party. If the order is marketable against a quote displayed outside of Brut, the price of the order is adjusted to a price $0.01 inferior to the best bid or offer, as appropriate, and then displayed in the Nasdaq Market Center and Brut.
D. Time in Force Designations
Orders entered into the Brut ECN may be designated by the entering party to remain in force and available for display and/or potential execution for varying periods of time. Unless cancelled earlier, once these time periods expire, the order (or the unexecuted portion thereof) is returned to the entering party. These “time in force” designations are described below:
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Immediate or Cancel (IOC) orders are returned to the sender if not immediately executed. If partially executed, un-executed remainders of these orders are returned immediately to the entering party.
• Day (DAY) and Good-till-Canceled (GTC) orders (or the unexecuted portions of such orders) are held by the Brut ECN and remain available for potential
17 display/execution until 4:00 p.m. Eastern Time on the day they are submitted unless cancelled before then by the entering party. 9
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Good-till-Canceled-Overnight (GTCO) orders (or the unexecuted portions of such orders) are treated like GTC orders, but are held by the Brut ECN overnight and remain available for potential display/execution until 4:00 p.m. of a date provided by the entering party, or indefinitely, unless and until cancelled by the entering party. GTCO orders are not eligible for execution between 4:00 p.m. and 8:00 p.m. Eastern Time.
• End-of-Day (GTX) orders (or the unexecuted portions of such orders) are held by the Brut ECN and remain available for potential display/execution until 8:00 p.m. Eastern Time on the day they are submitted unless cancelled before then by the entering party.
• Good-till-Time (GTT) orders (or the unexecuted portions of such orders) are held by the Brut ECN and remain available for potential display/execution until the time designated by the entering party. This time may be a relative time (e.g. 30 minutes after receipt) or an actual time (e.g. 2:00 p.m.).
• Effective Time (EFT) orders (or the unexecuted portions of such orders) are held by the Brut ECN and only become available for potential display/execution at an actual time during the trading day selected by entering party (e.g. 3:00 p.m.).
The Brut ECN normally operates between the hours of 6:30 a.m. and 8:00 p.m. Eastern Time. Orders with the above time-in-force designations may be entered into the Brut ECN, or previously entered orders cancelled, starting at 6:30 a.m. Eastern Time. With the exception of the GTC and DAY designations, which may only be entered until 4:00 p.m. Eastern Time, all time in force designations may be entered into Brut until 8:00 p.m. Eastern Time. Although the entry of various time-in-force designations is permitted throughout the Brut ECN’s hours of operation, the Brut ECN will not execute an order in contravention of the time-in-force period selected by the entering party, and instead will hold all such entries until they can be processed in conformity with the time-in-force parameters selected upon entry.
E. Routing
The Brut ECN provides the capability to route orders to other available market centers between the hours of 7:30 a.m. and 6:30 p.m. Eastern Time. 10 The entering party 9
Currently, the Brut ECN processes orders designated as GTC and Day in the exact same manner. In the near future, Brut will modify the names of its order types to eliminate this duplication.
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Brut routes to other market centers trading Nasdaq securities as well as to national securities exchanges, including the American Stock Exchange, the NYSE, and
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designates, through the order type it selects, whether the Brut ECN should seek to execute the order against contra-side marketable orders in the Brut ECN prior to routing. In no event, however, does the router give an order to a market center displaying an inferior-priced order until the router has attempted to access better-priced displayed rders in that or other market centers. 11
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With the exception of Thru Brut and Directed Cross orders that specifically direct to which market center an order is to be routed, orders routed out of the Brut ECN to other market centers for potential execution are generally delivered to other market centers in price/size priority. If the Nasdaq Market Center has displayed shares at the best price level, the Brut ECN will first deliver to the displayed Nasdaq Market Center quote/order before routing to other market centers. If the routed order is smaller in size than the total combined displayed share amounts of accessible market centers at the best price level, the Brut ECN delivers the routed order to the available market centers in price/size priority. If the routed order is larger than the total combined displayed share amounts of accessible market centers at the best price level, the Brut ECN delivers over- sized orders to each displayed market center’s quote in proportion to the individual market’s center share of that total displayed share amount.
Orders routed by Brut to another market do not retain time priority with respect to other orders in the Brut ECN, and Brut continues to execute other orders while the routed order is away at another market. Once routed by Brut, an order becomes subject to the rules and procedures of the destination market including, but not limited to, short-sale regulation and order cancellation.
F.
Execution Algorithm
The Brut ECN has an execution algorithm of price/time priority. For each order, among equally-priced trading interest, the Brut ECN executes against available contra- side displayed share amounts in full, in price/time priority, before then moving to reserve shares which are likewise executed in price/time priority. After display and reserve size are exhausted at a particular price level, the Brut ECN will then access, if available, share amounts of Discretionary Orders within the Discretionary Order's discretionary price range at that same price level, followed by executable Hunter Orders before moving on to the next price level.
Having determined which orders are eligible for execution via the matching process, the Burt Brut ECN then proceeds to decrement (reduce) share amounts from
regional stock exchanges using the Intermarket Trading System ("ITS"). As an NYSE member, Brut also has access to the New York Stock Exchange's DOT system.
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Use of the Brut router is voluntary. Users can select, by the type of order entered, if they what the Brut ECN to route their order to another market center for potential execution.
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those orders. These share amounts are decremented from the matched orders starting with reserve size of the orders, if any. 12
Although now sharing common ownership, Brut and Nasdaq currently operate separate order display and execution systems. With respect to the processing of quotes/orders: (i) Brut participates in the Nasdaq Market Center as a Nasdaq Order- Delivery ECN pursuant to the NASD Rule 4700 Series and an ITS Market Maker pursuant to NASD Rule 5200 Series, and (ii) provides its full depth of its order book to the Nasdaq Market Center. Brut connect to the Nasdaq Market Center using a dedicated direct voluntary linkage that Nasdaq makes available to any Nasdaq Order-Delivery ECN that wants it.
Nasdaq’s long-term vision is to have Brut and Nasdaq unified in a single technology platform that will further enhance execution quality for system users. Nasdaq currently contemplates using the Brut broker-dealer in a manner ancillary to the market execution system as an outbound access broker-dealer to other market centers. However, the timing and manner of integration may be affected by Nasdaq’s agreement to acquire the Inet ECN (“Inet”). If Nasdaq’s acquisition of Inet is consummated, Nasdaq would expect to unify Nasdaq, Inet, and Brut into a single technology platform, while operating one or more broker-dealers for the purpose of outbound access.
XIV. Fees and Hours of Operation
The Rule 7000 Series of the Nasdaq Rules (filed as Exhibit A, Tab 9) describes the fees to be assessed by Nasdaq for use of the Nasdaq Market Center and Brut. The Rule 4500 Series of the Nasdaq Rules (filed as Exhibit A, Tab 6) describes the fees to be assessed by Nasdaq for listing.
Nasdaq’s hours of operation are as follows:
Nasdaq-listed securities trading in the Nasdaq Market Center Order/Quote Entry: 7:30 am, ET
Pre-Market Session: 8:00 am to 9:25 am, ET Pre-Open Session: 9:25 am to 9:29:59 am, ET
Regular Market Hours: 9:30 am to 4:00 pm, ET Post-Market Hours: 4:00 pm to 6:30 pm, ET
Order/Quote Entry
7:30 am, ET
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decrements shares directly from the matched portion of quotes/orders and then refreshes those matched portions from any remaining reserve share amounts.
Regular Market Hours: 9:30 am to 4:00 pm, ET Post-Market Hours: 4:00 pm to 6:30 pm, ET
Trading of Nasdaq-listed securities and other exchange-listed securities in Brut Order Entry: 6:30 am, ET Pre-Market Trading Session: 8:00 am to 9:30 am, ET Market Hours: 9:30 am, ET to 4:00 pm, ET Post-Market Hours: 4:00 pm, ET to 6:30 pm, ET After Hours Session: 6:30 pm, ET to 8:00 pm, ET
At present, Nasdaq operates the Nasdaq Market Center and Brut as facilities of the NASD, and will operate them as facilities of a national securities exchange immediately upon the effectiveness of the registration of The NASDAQ Stock Market LLC as a national securities.
XV. Market Surveillance A.
Nasdaq MarketWatch
Nasdaq operates MarketWatch, a real-time surveillance department. The principal purpose of MarketWatch is to maintain an orderly market and ensure a level playing field for market participants, investors and the public in general. Market Watch performs this real-time, intra-day surveillance over all Nasdaq-listed companies and all market participants in the Nasdaq Market Center and Brut.
material information. Under Nasdaq IM-4120-1, issuers are required to notify MarketWatch prior to the release of significant corporate developments. MarketWatch determines if implementing a trading halt is necessary to maintain an orderly market for the release of that material news. MarketWatch utilizes an automated detection system that monitors the trading activity in each issue and generates price and volume alerts that aid in the assessment of unusual market activity. MarketWatch coordinates and executes the release of Initial Public Offerings (“IPOs”) and actively monitors the IPO during the opening quote period to facilitate an orderly open. MarketWatch is also responsible for administering market participants’ excused withdrawals and passive market making requests and handles the clearly erroneous trades adjudication process for the Nasdaq Market Center and Brut.
If MarketWatch staff observes any activity that may involve a violation of SEC or SRO rules, MarketWatch immediately refers the activity to NASD Regulation’s Market Regulation Department for further investigation and potential disciplinary actions. All information received by MarketWatch is confidential and used strictly for regulatory purposes.
NASD Regulation
21 In addition to surveillance by Nasdaq, Nasdaq has contracted with NASD Regulation for NASD Regulation to surveil Nasdaq in the same manner that it does today. NASD Regulation’s Market Regulation Department operates a highly automated process of investigating and preventing abusive, manipulative, or illegal trading practices in the Nasdaq Market Center and Brut.. NASD Regulation carries out its regulatory responsibilities through education, examinations, market surveillance, registration of securities personnel, advertising and underwriting regulation, disciplinary actions that violate rules, investigation of customer complaints, and forums to resolve disputes.
To promote effective regulation and investor confidence, and to protect market participants, Market Regulation has put in place regulatory programs and has established specialized units focused on determining compliance with specific Nasdaq rules and regulations and federal securities laws. Market Regulation is comprised of investigative, examination, and operational units consisting of analysts, attorneys, and examiners based in Rockville, Maryland, Chicago and New York. The Market Regulation Department utilizes state-of-the-art technology to carry out its regulatory responsibilities. This technology provides the ability to reconstruct market transactions utilizing trading data and quote information that is captured second-by-second throughout the trading day, and alert staff to potential violative activity.
The Market Regulation Department also conducts onsite inspections of the larger Nasdaq Market Center and Brut participants to assess compliance with Nasdaq market- making and trading rules and regulations and federal securities laws. The regulatory information gathered from online surveillance, customer and broker/dealer complaints, and on-site examinations of trading activity is shared and analyzed by experts in the Market Regulation Department to determine whether violative activity has occurred and disciplinary action is warranted. The staff‘s mission is to serve investors and all market participants by being a fair, efficient, and effective regulator.
As it does today, NASD Market Regulation may investigate any Nasdaq member or associated person, or any transaction occurring on the Nasdaq market, for potential violation of the federal securities laws, and relevant SEC and Nasdaq rules. NASD Market Regulation will have complete discretion to initiate, conduct, close and report on investigations, without input or review by Nasdaq.
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