Nasdaq would be only 2nd exchange to start Pre-Market trading at 4 a.m.

[ by Howard Haykin ]

Nasdaq filed for immediate effectiveness to extend the pre-market hours of the Exchange to 4 ET. No specific date is mentioned for when the early schedule would kick in, though Nasdaq requested the SEC to waive the 30-day wait period before the change can go into effect. 

Background Information.   Nasdaq’s equities trading day is divided into 3 sessions:  (i) pre-market session, running from 7 a.m. to 9:29:59 a.m.;  (ii) regular session running from 9:30 a.m. to 4 p.m.; and,  (iii) the post-market session running from 4 p.m. to 7 p.m. The vast majority of trading - 91% - occurs during the regular session.  Nonetheless, the pre-market and post-market sessions provide critical price formation and trading opportunities for a small group of equities market participants.

Reasons for the Change.

• The presence of a transparent, liquid, and efficient market during pre- market or post-market session is vital to public investors, and to the firms themselves 

• NYSE Arca currently is the only U.S. equities exchange operating a pre-market trading session for equities.  It starts at 4 a.m.  increasingly, the trading period between 4 a.m. and 7 a.m.provides a significant opportunity for certain investors and traders.  A meaningful percentage of total daily trading volume in Nasdaq-listed securities is reported as executed before 7 a.m., especially for individual stocks that experience material news or other trading events overnight.

• Additionally, Nasdaq understands from its members that an increasing number of limit orders are entered into the NYSE Arca system before 7 a.m. and execute after 7 a.m. While it is difficult to quantify the total number of orders and shares in this category based on available trade reporting limitations,

• Nasdaq believes that significant liquidity comes to rest prior to 7 a.m.

Operations.   Nasdaq would permit trading by those that choose to do so - without imposing burdens on those that do not.  Thus, for example, Nasdaq will not require any Nasdaq ASDAQ member to participate in the extended session, including not requiring registered market makers to make 2-sided-markets between 4 and 7 a.m. NASDAQ will minimize members’ preparation efforts to the greatest extent possible by allowing members to trade beginning at 4 a.m. with the same equipment, connectivity, order types, and data feeds they currently use from 7 a.m. onwards.

Opening Process.  Nasdaq will offer no opening cross at 4 a.m., just as it offers no Opening Cross at 7 a.m. today. Instead, the Nasdaq system will “wake up” by loading in price/time priority all open trading interest carried over from the previous trading day.

Order Types.  Every Nasdaq order type that's currently available beginning at 7 a.m. will be available beginning at 4 a.m. All other order types, and all order type behaviors, will otherwise remain unchanged. Nasdaq will not extend the expiration times of any orders.

Routing Services. Nasdaq will route orders to away markets between 4 a.m. and 7 a.m., just as it does today between 7 a.m. and 9:30 a.m.  All routing strategies set forth in NASDAQ Rule 4758 will remain otherwise unchanged, performing the same instructions they perform
between 4 a.m. and 7 a.m. today.

Order Processing.  Order processing under Nasdaq Rule 4757 will operate beginning at 4 a.m. just as it does today beginning at 7 a.m. here will be no changes to the ranking, display, execution algorithms, or decrementation processes or rules.

Data Feeds. Nasdaq will report the best bid and offer on the Exchange to the appropriate network processor, as it currently does beginning 7 a.m. Nasdaq proprietary data feeds will be disseminated beginning at 4 a.m. using the same formats and delivery mechanisms with which Nasdaq Currently disseminates them beginning at 7 a.m.

Trade Reporting. Trades executed between 4 a.m. and 7a.m. will be reported to the appropriate network processor with the “.T” modifier, just as they are reported today beginning at 7 a.m.

Systems.  All  MarketWatch surveillance systems will launch by the time trading starts. At 4 a.m.  Nasdaq personnel will begin conducting alert reviews, clearly erroneous trade processing, and member firm contacts just as they do today beginning at 7 a.m. 

Trading Halts. Currently MarketWatch institutes trading halts from 7 a.m. to 8 p.m. Nasdaq plans to institute a subset of trading halts between 4 a.m. and 7 a.m. First, Nasdaq will halt trading at the request of an issuer, which Nasdaq believes is also the practice of the NYSE across its
affiliated exchanges for its listed companies.  Second, Nasdaq will halt trading in conjunction with a trading halt imposed by a foreign listing market.  As described below, Nasdaq does not plan to review issuer disclosures during the 4 a.m. to 7 a.m. period, obviating the need for material news halts.

For further details, go to:   [ SEC Release 34-69151, Nasdaq Rule Filing, 13-33, 3/15/13 ].