Nasdaq, Inc. ("Nasdaq") asked the SEC to suspend the unlisted trading privileges ("UTP") of certain thinly traded Nasdaq-listed securities ("Subject Securities") for a period of no longer than 12 months. Nasdaq stated that the suspension of UTP for the Subject Securities would (i) improve investor protections, and (ii) enhance "efficiency, competition, and capital formation" of the market.
In Nasdaq's request, the Subject Securities "(i) are issued by an operating company; (ii) have an initial market capitalization of $700 million or less or a continued market capitalization of $2 billion or less; (iii) have an initial average Daily Volume of 100,000 shares or less; and (iv) have a bid price greater than $1."
Nasdaq elaborated upon its reasoning to select these Subject Securities, stating that, due to their characteristics, the UTP suspension of these Subject Securities would:
- prevent exacerbation of market fragmentation that may be caused by their smaller market capitalization and lesser liquidity;
- increase market quality by "promoting the submission of displayed limit orders in those securities";
- encourage innovation within the market structure; and
- "reduce market complexity, promote market stability, and promote efficiency" by (i) reducing venues that trade the securities, (ii) helping broker-dealers meet obligations by concentrating all exchange trading, and (iii) consolidating regulatory surveillance.
Commentary / Steven Lofchie
This would be a small but significant move away from Regulation NMS, one of the consequences of which was to foster a proliferation of exchanges that had no material trading volume and that essentially survived by the fee-sharing among exchanges. If this request is approved, the SEC should look at the issue of market fragmentation more generally.
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