FR 2025-02818

Summary of the Proposal

The document outlines a rule change proposal by The Nasdaq Stock Market LLC, filed with the Securities and Exchange Commission. Nasdaq proposes to introduce a new functionality that allows for a trading halt for Exchange-Traded Products (ETPs) on their launch day. This process is akin to what is currently used for initial public offerings (IPOs) and aims to ensure that the price of ETPs is discovered efficiently and safeguarded against unexpected volatility. The implementation of this new feature is planned for the second quarter of 2025.

Significant Issues and Concerns

The document presents several issues that warrant attention. Firstly, it lacks clarity on any potential costs associated with adopting the new Initial ETP Open process, aside from confirming the workstation subscription is free. This leaves financial implications vague, possibly affecting issuers' decision-making. Additionally, the language used is quite technical, which may pose comprehension challenges for those not familiar with financial regulations, obscuring the document’s details for the general public.

Furthermore, there is a notable absence of discussion on potential negative impacts of this proposal on investors or other market participants. This exclusion might lead to a lack of transparency about any possible downsides. Similarly, guidelines for setting and updating the price bands for validation checks lack detail, raising concerns about consistency and fairness.

The document also falls short in explaining how the proposed changes will interact with existing rules, which may create confusion for those involved. Lastly, there is no mention of how the success of the new process will be assessed or any outreach and educational efforts ensuring stakeholder understanding and effective participation in the new process.

Broader Public Impact

Overall, the proposed changes aim to enhance the efficiency and stability of price discovery for ETPs, which could contribute to a more orderly and reliable market environment, potentially benefiting all investors by reducing risks associated with unexpected volatility on launch days.

Impact on Specific Stakeholders

For ETP issuers, the new proposal provides an option to adopt a hiatus on launch day for better price discovery, which could align closely with their strategic interests in stabilizing initial trading conditions. On the other hand, the unclear financial implications related to opting into the new system might be a deterrent to some.

Market makers and Designated Liquidity Providers (DLPs) are also likely to see significant impacts. As they play a crucial role similar to that of underwriters in IPOs, their actions now directly influence the timing and pricing during the ETP launch process. However, the amount of input and influence these stakeholders will hold may raise concerns regarding equity and transparency.

Finally, since the proposal aims to utilize a new halt functionality similarly to IPOs, investors might experience an added layer of security in initial trading pricing. However, the lack of detailed interaction with existing processes could lead to unexpected operational challenges.

Overall, while the proposal seeks to promote stability and efficient market operations, the issues highlighted indicate areas where further clarity and transparency would be beneficial to ensure broad understanding and acceptance of the new rule.

The Federal Register document pertaining to a proposed rule change by The Nasdaq Stock Market LLC references financial matters primarily through the discussion of pricing bands and the cost of subscribing to certain tools. The financial implications revolve around price bands for exchange-traded products (ETPs) and the availability of a workstation tool at no cost to subscribers. Below is a detailed discussion of these aspects.

Price Bands

The introduction of price bands is a central financial element within this proposal. Specifically, the document explains that price bands ranging from $0 to $0.50 can be selected by the Designated Liquidity Provider (DLP) for the trading halt process on the launch day of ETPs. These bands are meant to ensure that the actual trading price does not exceed a certain threshold from the Expected Price, enhancing price stability and investor confidence.

• The document specifies an example scenario where if the Expected Price is $32 per share, the selected upper price band could be $0.10, and the lower band could be $0.05. In this instance, the actual trading price could not surpass $32.10 or go below $31.95. This range ensures that trading prices are kept within a predictable and stable bracket, mitigating volatility risks.

• Additionally, the available increments within these price bands range from $0.01, allowing for a finely-tuned approach to setting these parameters. The Exchange maintains discretion to stipulate wider increments if necessary, though it is capped at $0.50 without submitting a new proposal for change.

Workstation Tool Access

Another financial reference is the mention that subscribing to the Nasdaq IPO Workstation tool comes at no cost to subscribing DLPs and non-member ETP issuers. This tool is pivotal as it provides detailed information that helps both DLPs and issuers in monitoring orders during the initial trading stages of ETPs.

• The lack of cost for using this workstation implies a financial relief for subscribing members, ensuring they can access critical trading data without additional financial burden. This is presented as equitable because all DLP member firms and ETP issuers are eligible for this no-cost subscription.

Analysis of Financial References

The document does not go into explicit spending, appropriation, or financial allocations beyond the discussions around price bands and workstation costs. However, the way financial elements are woven into the proposal reflects an underlying aim to safeguard investments by regulating price fluctuation risks and offering beneficial tools without adding financial strain on the involved parties.

The financial references relate to identified issues by addressing potential market risks and promoting a more orderly trading system through financial safeguards like price bands. The proposal does not clearly lay out any direct costs for opting into the new Initial ETP Open process, apart from outlining that workstation access incurs no subscription fee. This could lead to ambiguities, as there could be other hidden costs or operational expenses associated with the new process not covered in the document.

Conclusively, the document presents a focused approach to managing the financial elements of ETP launches to enhance market stability while keeping relevant costs low for market participants. However, further clarity on any undisclosed expenses and more examples of financial impact assessments could provide even greater transparency and utility to potential stakeholders.