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Wednesday, June 2, 2010

Equity Regulatory Alert #2010 - 4
NASDAQ OMX Announces the NASDAQ Volatility Guard

Markets Impacted:

Contact Information:

What you need to know:

  • The NASDAQ Stock Market® has submitted a rule filing to the Securities and Exchange Commission (SEC) regarding the implementation of the NASDAQ Volatility GuardSM.
  • The NASDAQ Volatility Guard is designed to restore an orderly market in NASDAQ-listed securities experiencing intraday volatility.
  • Once initiated, the NASDAQ Volatility Guard will trigger a 60-second trading pause on NASDAQ in the affected security. Trading will resume via the NASDAQ Halt Cross process after the 60-second trading pause.

What is the NASDAQ Volatility Guard?

The NASDAQ Volatility Guard is a trading pause and resumption process designed to restore an orderly market in a single NASDAQ-listed security. The NASDAQ Volatility Guard will be implemented in the third quarter of 2010.

How does the NASDAQ Volatility Guard work?

The NASDAQ Volatility Guard will be utilized if a trade executes on NASDAQ® at a price that is beyond the Threshold Range either above or below the Triggering Price.

Once initiated, the NASDAQ Volatility Guard will trigger a 60-second trading pause on NASDAQ in the affected security. During the trading pause, NASDAQ will maintain all current quotes and orders and will continue to accept quotes and orders in the security, as well as disseminate an electronic Order Imbalance Indicator every five seconds. At the conclusion of the 60-second pause, the security will be re-opened via the NASDAQ Halt Cross process as set forth in NASDAQ Rule 4753. This process allows all market participants to engage in the re-open of the affected security.

How are the Triggering Price and Threshold Range defined?

The Triggering Price for each NASDAQ-listed security is the price of any execution by NASDAQ in that security within the prior 30 seconds. The Threshold Range shall be determined as follows:

Execution Price
Threshold Range Away From Triggering Price
$1.75 and under
15%
More than $1.75 and up to $25
10%
More than $25 and up to $50
5%
More than $50
3%

Where can I find additional information?


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