Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Related to Rules Governing Options Trading, 64377-64379 [E8-25810]

Download as PDF Federal Register / Vol. 73, No. 210 / Wednesday, October 29, 2008 / Notices SECURITIES AND EXCHANGE COMMISSION [Release No. 34–58840; File No. SR– NASDAQ–2008–081] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Related to Rules Governing Options Trading October 23, 2008. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on October 10, 2008, The NASDAQ Stock Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’), filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been substantially prepared by Nasdaq. The Exchange has designated the proposed rule change as constituting a ‘‘non-controversial’’ rule change under Rule 19b–4(f)(6) under the Act,3 which renders the proposal effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. jlentini on PROD1PC65 with NOTICES I. Self-Regulatory Organization’s Statement of the Terms of the Substance of the Proposed Rule Change Nasdaq proposes to amend the Nasdaq Options Market Rules (‘‘NOM Rules’’) to eliminate the requirement for separate designations of Senior Registered Options Principal (‘‘SROP’’) and Compliance Registered Options Principal (‘‘CROP’’), to require a member to integrate the responsibility for supervision of its public customer options business into its overall supervisory and compliance program, and to make certain related changes to the NOM Rules. The rule proposal, which is effective upon filing with the Commission, shall become operative 30 days after filing pursuant to Rule 19b– 4(f)(6) of the Act. The text of the proposed rule is available on the Exchange’s Web site at http:// nasdaqomx.cchwallstreet.com, at the Exchange’s principal office, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, Nasdaq included statements concerning 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 17 CFR 240.19b–4(f)(6). 2 17 VerDate Aug<31>2005 17:17 Oct 28, 2008 Jkt 217001 the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. Nasdaq has prepared summaries, set forth in Sections A, B and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend the NOM Rules to integrate the responsibility for supervision of a member’s public customer options business into its overall supervisory and compliance program. The proposed rule change is substantively similar to recent amendments to the rules of Financial Industry Regulatory Authority (‘‘FINRA’’), which were approved by the Commission.4 As part of these changes, the Exchange proposes to eliminate the requirement that a firm must designate a SROP and CROP to be responsible for the overall supervision and compliance programs, respectively, for a member’s public customer options activities. Nasdaq believes that the supervisory and compliance function of a member’s public customer options activities would be better integrated into the matrix of a firm’s overall supervisory and compliance functions rather than separately vested in a SROP and CROP. The Exchange does not believe that eliminating the SROP and CROP requirements would lead to a reduction in supervision, as firms have an obligation to designate an appropriately registered principal(s) to supervise their public customer options activities pursuant to Nasdaq Rule 3010, which requires Nasdaq members to comply with NASD Rule 3010 5 as if such Rule were part of Nasdaq’s Rules. In this regard, the Exchange proposes to amend NOM Rules Chapter II, Section 2(g)(1) to delete the reference to the SROP and CROP and to clarify that if a person is engaged in the supervision of options and security futures sales practices, including a person designated pursuant to NASD Rule 3010(a)(2),6 then such 4 Securities Exchange Act Release No. 57775 (May 5, 2008), 73 FR 26453 (May 9, 2008) (SR–FINRA– 2007–035) (approval order) 5 NASD Rule 3010 sets forth member firms’ responsibilities with respect to supervision. 6 NASD Rule 3010(a)(2) requires that members designate ‘‘an appropriately registered principal(s) with authority to carry out the supervisory responsibilities of the member for each type of business in which it engages for which registration as a broker/dealer is required.’’ PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 64377 person must be registered as a Registered Options and Security Futures Principal. The Exchange believes that the proposed rule change would provide firms greater flexibility to incorporate supervision into existing, firm-wide supervisory structures. The proposed rule change also makes two technical changes. First, all references to ‘‘Options Principal’’ would be changed to ‘‘Registered Options and Security Futures Principal’’ to reflect the correct title of such principals, consistent with the other NOM Rules. Second, all references to ‘‘put and call’’ would be deleted before options, and ‘‘options’’ will mean all types of options. In addition, the proposed rule change would amend NOM Rules Chapter XI in several respects. First, Section 7, paragraph (f), which relates to the opening of accounts, would be amended to delete the reference to the SROP and CROP and require that a specific Registered Options and Security Futures Principal(s) be designated to be responsible for approving customer accounts that do not meet the specific criteria and standards for writing uncovered short option transactions and for maintaining written records of the reasons for every account so approved. The proposed rule change would allow members the flexibility to assign this responsibility, which currently rests with the SROP and/or CROP, to a specific Registered Options and Security Futures Principal. Second, references to the SROP and CROP would be deleted and a new paragraph (a) would be inserted into Section 8, which relates to supervision of accounts. The new paragraph (a) would make clear that a member that conducts a public customer options business must ensure its written supervisory system policies and procedures pursuant to NASD Rules 3010, 3012, and 3013 adequately address its public customer options business. Although the proposed rule change would eliminate entirely the positions and titles of the SROP and CROP, a member would still be required pursuant to NASD Rule 3010(a)(2) to designate ‘‘an appropriately registered principal(s) with authority to carry out the supervisory responsibilities of the member for each type of business in which it engages for which registration as a broker/dealer is required,’’ which would include designating an Options Principal to supervise a member’s public customer options activities. Third, Nasdaq proposes amending Section 10, which relates to discretionary accounts, to eliminate references to the CROP and SROP, and E:\FR\FM\29OCN1.SGM 29OCN1 jlentini on PROD1PC65 with NOTICES 64378 Federal Register / Vol. 73, No. 210 / Wednesday, October 29, 2008 / Notices require that a specific Registered Options and Security Futures Principal(s) be designated to be responsible for the review of the acceptance of discretionary accounts. Under the proposed rule change, each firm would be required to have a Registered Options and Security Futures Principal other than the Registered Options and Security Futures Principal who accepted the account review the acceptance of each discretionary account to determine that the Registered Options and Security Futures Principal accepting the account had a reasonable basis for believing that the customer was able to understand and bear the risk of the strategies or transactions proposed. The firm must maintain a record of the basis for such determination. In addition, the proposed rule change would eliminate the requirement in paragraph (a)(ii) that discretionary options orders be approved and initialed on the day of entry by the branch office manager or other Options Principal, or confirmed within a reasonable time by an Options Principal if the branch office manager is not an Options Principal. Under the proposed rule change, discretionary orders would be required to receive frequent appropriate supervisory review by a Registered Options and Security Futures Principal who is not exercising discretionary authority (instead of a CROP) and be reviewed in accordance with a member’s written supervisory procedures. The proposed rule change would ensure that supervisory responsibilities are assigned to specific Registered Options and Security Futures Principal-qualified individuals, thereby enhancing the quality of supervision. Proposed NOM Rules Chapter XI, Section 10(e) would allow a participant to exercise time and price discretion on orders for the purchase or sale of a definite number of options contracts in a specified security. The Exchange proposes to limit the duration of this discretionary authority to the day it is granted, absent written authorization to the contrary. Additionally, the proposed rule would require any exercise of time and price discretion to be reflected on the customer order ticket. The proposed one-day limitation would not apply to time and price discretion exercised for orders affected with or for an institutional account (as defined in the NOM Rules) pursuant to valid Good-Till Cancelled instructions issued on a ‘‘not held’’ basis. The Exchange believes that investors will receive greater protection by clarifying the time such discretionary orders remain pending. VerDate Aug<31>2005 17:17 Oct 28, 2008 Jkt 217001 Nasdaq also proposes to add NOM Rules Chapter XI, Section 10(f), which requires any participant that does not utilize computerized surveillance tools for the frequent and appropriate review of discretionary account activity to establish and implement procedures to require Registered Options and Security Futures-qualified individuals who have been designated to review discretionary accounts to approve and initial each discretionary order on the day entered. The Exchange believes that any member that does not use computerized tools for the frequent and adequate surveillance of options discretionary account activity should continue to be required to perform the daily manual review of discretionary orders. 2. Statutory Basis Nasdaq believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,7 in general, and with Section 6(b)(5) of the Act,8 in particular, in that the proposal is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Exchange believes that the supervisory and compliance function of a member’s public customer options activities would be better integrated into the matrix of a firm’s overall supervisory and compliance functions rather than separately vested in a SROP and CROP. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited nor were any received with respect to the proposed rule change. 7 15 8 15 PO 00000 U.S.C. 78f. U.S.C. 78f(b)(5). Frm 00078 Fmt 4703 Sfmt 4703 III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The Exchange has designated the proposed rule change as one that does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate. Therefore, the foregoing rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 9 and Rule 19b– 4(f)(6) thereunder.10 At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–NASDAQ–2008–081 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NASDAQ–2008–081. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/sro.shtml). 9 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6)(iii) requires a self-regulatory organization to provide the Commission with written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as the Commission may designate. The Exchange had satisfied the five business-day prefiling requirement. 10 17 E:\FR\FM\29OCN1.SGM 29OCN1 Federal Register / Vol. 73, No. 210 / Wednesday, October 29, 2008 / Notices Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission’s Public Reference Room, 100 F Street, NW., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at the principal office of Nasdaq. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–NASDAQ–2008–081 and should be submitted on or before November 19, 2008. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.11 Florence Harmon, Acting Secretary. [FR Doc. E8–25810 Filed 10–28–08; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–58845; File No. SR–NYSE– 2008–46] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Amendment Nos. 2 and 3 and Order Granting Accelerated Approval to a Proposed Rule Change, as Modified by Amendment Nos. 1, 2, and 3, To Create a New NYSE Market Model, With Certain Components To Operate as a One-Year Pilot, That Would Alter NYSE’s Priority and Parity Rules, Phase Out Specialists by Creating a Designated Market Maker, and Provide Market Participants With Additional Abilities To Post Hidden Liquidity jlentini on PROD1PC65 with NOTICES October 24, 2008. I. Introduction On June 12, 2008, the New York Stock Exchange LLC 1 (‘‘NYSE’’ or ‘‘Exchange’’) filed with the Securities 11 17 CFR 200.30–3(a)(12). known as the New York Stock Exchange, Inc. 1 Formerly VerDate Aug<31>2005 17:17 Oct 28, 2008 Jkt 217001 and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 2 and Rule 19b–4 thereunder,3 a proposed rule change to establish a new market model (‘‘New Model’’). The New Model would implement significant changes in NYSE’s market structure, including, most notably: (i) The phasing out of the specialist system and adopting a Designated Market Maker (‘‘DMM’’) structure; (ii) the alteration of NYSE’s priority and parity rules, most significantly to allow DMMs to trade on parity with orders on NYSE’s Display Book (‘‘Display Book’’); and (iii) the introduction of new order functionality, including the DMM Capital Commitment Schedule (‘‘CCS’’) and hidden orders.4 On July 15, 2008, the Exchange filed Amendment No. 1 to the proposed rule change. The proposed rule change, as modified by Amendment No. 1, was published for public comment in the Federal Register on July 23, 2008.5 The Exchange filed Amendment No. 2 to the proposed rule change on August 29, 2008. The Exchange filed Amendment No. 3 to the proposed rule change on October 7, 2008. The Commission received no comment letters regarding proposed rule change. This order provides notice of filing of Amendment Nos. 2 and 3 to the proposed rule change, and grants accelerated approval to the proposed rule change, as modified by Amendment Nos. 1, 2 and 3. II. Description of the Proposal A. Background: NYSE’s Hybrid Market and the Evolution of Electronic Trading Section 11(b) of the Act 6 allows the rules of a national securities exchange to permit a member to be registered as a specialist and act as both a broker and a dealer. Historically, the NYSE specialist was responsible for overseeing the execution of all orders coming into the Exchange, for conducting auctions on the Floor, and for maintaining an orderly market in assigned securities. Specialists’ dealer activities are governed, in part, by the negative and affirmative trading obligations. Rule 11b–1 under the Act 7 requires exchanges that permit members to register as specialists to have rules 2 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 4 Currently, specialists must yield to customer orders on the Display Book. See NYSE Rule 92(a). 5 Securities Exchange Act Release No. 58184 (Jul. 17, 2008), 73 FR 42853 (‘‘Notice’’). 6 15 U.S.C. 78k(b). 7 17 CFR 240.11b–1. 3 17 PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 64379 governing specialists’ dealer transactions so that their proprietary trades conform to the negative and affirmative obligations. The negative obligation as set forth in Rule 11b–1 under the Act requires that a specialist’s dealings be restricted, so far as practicable, to those reasonably necessary to permit the specialist to maintain a fair and orderly market.8 The affirmative obligation as set forth in Rule 11b–1 under the Act requires a specialist to engage in a course of dealings for its own account to assist in the maintenance, so far as practicable, of a fair and orderly market.9 NYSE has adopted these obligations in its current Rule 104.10 In 2006, the Exchange began implementation of its NYSE HYBRID MARKETSM (‘‘Hybrid Market’’),11 under which Exchange systems assumed the function of matching and executing electronically-entered orders. As part of the Hybrid Market, the Exchange programmed its systems to provide specialists with an order-by-order advance ‘‘look’’ at incoming orders. The rise of the electronic Hybrid Market has fundamentally altered NYSE’s trading environment. Traditionally, price discovery on the Exchange took place almost exclusively on the Floor in the form of face-to-face interactions among brokers and specialists. These interactions have diminished as electronic trading has become more important on the Exchange. In addition, information that once was exclusive to the Floor, such as the most up-to-date quotes and last sale prices, is now widely available off the Floor through electronic means. At the same time, the Exchange believes that it is no longer the dominant trading market for many NYSE-listed securities, as competition from other market centers has increased. The increase in electronic executions on the Exchange as well as the increase in the use of smart routing engines by market participants of all types has reduced the advantages once enjoyed by Floor brokers and specialists. Indeed, NYSE has argued that the informational advantage has shifted ‘‘upstairs’’ where 8 17 CFR 240.11b–1(a)(2)(iii). CFR 240.11b–1(a)(2)(ii). 10 NYSE Rule 104(a) reflects NYSE’s adoption of the negative obligation and states that ‘‘no specialist shall effect on the Exchange purchases or sales of any security in which such specialist is registered, for any account in which he or his member organization * * * is directly or indirectly interested, unless such dealings are reasonably necessary to permit such specialist to maintain a fair and orderly market * * *.’’ 11 See Securities Exchange Act Release No. 53539 (March 22, 2006), 71 FR 16353 (March 31, 2006) (SR–NYSE–2004–05). 9 17 E:\FR\FM\29OCN1.SGM 29OCN1

Agencies

[Federal Register Volume 73, Number 210 (Wednesday, October 29, 2008)]
[Notices]
[Pages 64377-64379]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-25810]



[[Page 64377]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58840; File No. SR-NASDAQ-2008-081]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Related to Rules Governing Options Trading

October 23, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on October 10, 2008, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange''), filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been substantially prepared by Nasdaq. 
The Exchange has designated the proposed rule change as constituting a 
``non-controversial'' rule change under Rule 19b-4(f)(6) under the 
Act,\3\ which renders the proposal effective upon filing with the 
Commission. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    Nasdaq proposes to amend the Nasdaq Options Market Rules (``NOM 
Rules'') to eliminate the requirement for separate designations of 
Senior Registered Options Principal (``SROP'') and Compliance 
Registered Options Principal (``CROP''), to require a member to 
integrate the responsibility for supervision of its public customer 
options business into its overall supervisory and compliance program, 
and to make certain related changes to the NOM Rules. The rule 
proposal, which is effective upon filing with the Commission, shall 
become operative 30 days after filing pursuant to Rule 19b-4(f)(6) of 
the Act. The text of the proposed rule is available on the Exchange's 
Web site at http://nasdaqomx.cchwallstreet.com, at the Exchange's 
principal office, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, Nasdaq included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. Nasdaq has prepared summaries, set forth in Sections A, 
B and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend the NOM Rules to integrate the 
responsibility for supervision of a member's public customer options 
business into its overall supervisory and compliance program. The 
proposed rule change is substantively similar to recent amendments to 
the rules of Financial Industry Regulatory Authority (``FINRA''), which 
were approved by the Commission.\4\ As part of these changes, the 
Exchange proposes to eliminate the requirement that a firm must 
designate a SROP and CROP to be responsible for the overall supervision 
and compliance programs, respectively, for a member's public customer 
options activities. Nasdaq believes that the supervisory and compliance 
function of a member's public customer options activities would be 
better integrated into the matrix of a firm's overall supervisory and 
compliance functions rather than separately vested in a SROP and CROP.
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    \4\ Securities Exchange Act Release No. 57775 (May 5, 2008), 73 
FR 26453 (May 9, 2008) (SR-FINRA-2007-035) (approval order)
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    The Exchange does not believe that eliminating the SROP and CROP 
requirements would lead to a reduction in supervision, as firms have an 
obligation to designate an appropriately registered principal(s) to 
supervise their public customer options activities pursuant to Nasdaq 
Rule 3010, which requires Nasdaq members to comply with NASD Rule 3010 
\5\ as if such Rule were part of Nasdaq's Rules. In this regard, the 
Exchange proposes to amend NOM Rules Chapter II, Section 2(g)(1) to 
delete the reference to the SROP and CROP and to clarify that if a 
person is engaged in the supervision of options and security futures 
sales practices, including a person designated pursuant to NASD Rule 
3010(a)(2),\6\ then such person must be registered as a Registered 
Options and Security Futures Principal. The Exchange believes that the 
proposed rule change would provide firms greater flexibility to 
incorporate supervision into existing, firm-wide supervisory 
structures.
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    \5\ NASD Rule 3010 sets forth member firms' responsibilities 
with respect to supervision.
    \6\ NASD Rule 3010(a)(2) requires that members designate ``an 
appropriately registered principal(s) with authority to carry out 
the supervisory responsibilities of the member for each type of 
business in which it engages for which registration as a broker/
dealer is required.''
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    The proposed rule change also makes two technical changes. First, 
all references to ``Options Principal'' would be changed to 
``Registered Options and Security Futures Principal'' to reflect the 
correct title of such principals, consistent with the other NOM Rules. 
Second, all references to ``put and call'' would be deleted before 
options, and ``options'' will mean all types of options.
    In addition, the proposed rule change would amend NOM Rules Chapter 
XI in several respects. First, Section 7, paragraph (f), which relates 
to the opening of accounts, would be amended to delete the reference to 
the SROP and CROP and require that a specific Registered Options and 
Security Futures Principal(s) be designated to be responsible for 
approving customer accounts that do not meet the specific criteria and 
standards for writing uncovered short option transactions and for 
maintaining written records of the reasons for every account so 
approved. The proposed rule change would allow members the flexibility 
to assign this responsibility, which currently rests with the SROP and/
or CROP, to a specific Registered Options and Security Futures 
Principal.
    Second, references to the SROP and CROP would be deleted and a new 
paragraph (a) would be inserted into Section 8, which relates to 
supervision of accounts. The new paragraph (a) would make clear that a 
member that conducts a public customer options business must ensure its 
written supervisory system policies and procedures pursuant to NASD 
Rules 3010, 3012, and 3013 adequately address its public customer 
options business. Although the proposed rule change would eliminate 
entirely the positions and titles of the SROP and CROP, a member would 
still be required pursuant to NASD Rule 3010(a)(2) to designate ``an 
appropriately registered principal(s) with authority to carry out the 
supervisory responsibilities of the member for each type of business in 
which it engages for which registration as a broker/dealer is 
required,'' which would include designating an Options Principal to 
supervise a member's public customer options activities.
    Third, Nasdaq proposes amending Section 10, which relates to 
discretionary accounts, to eliminate references to the CROP and SROP, 
and

[[Page 64378]]

require that a specific Registered Options and Security Futures 
Principal(s) be designated to be responsible for the review of the 
acceptance of discretionary accounts. Under the proposed rule change, 
each firm would be required to have a Registered Options and Security 
Futures Principal other than the Registered Options and Security 
Futures Principal who accepted the account review the acceptance of 
each discretionary account to determine that the Registered Options and 
Security Futures Principal accepting the account had a reasonable basis 
for believing that the customer was able to understand and bear the 
risk of the strategies or transactions proposed. The firm must maintain 
a record of the basis for such determination. In addition, the proposed 
rule change would eliminate the requirement in paragraph (a)(ii) that 
discretionary options orders be approved and initialed on the day of 
entry by the branch office manager or other Options Principal, or 
confirmed within a reasonable time by an Options Principal if the 
branch office manager is not an Options Principal. Under the proposed 
rule change, discretionary orders would be required to receive frequent 
appropriate supervisory review by a Registered Options and Security 
Futures Principal who is not exercising discretionary authority 
(instead of a CROP) and be reviewed in accordance with a member's 
written supervisory procedures. The proposed rule change would ensure 
that supervisory responsibilities are assigned to specific Registered 
Options and Security Futures Principal-qualified individuals, thereby 
enhancing the quality of supervision.
    Proposed NOM Rules Chapter XI, Section 10(e) would allow a 
participant to exercise time and price discretion on orders for the 
purchase or sale of a definite number of options contracts in a 
specified security. The Exchange proposes to limit the duration of this 
discretionary authority to the day it is granted, absent written 
authorization to the contrary. Additionally, the proposed rule would 
require any exercise of time and price discretion to be reflected on 
the customer order ticket. The proposed one-day limitation would not 
apply to time and price discretion exercised for orders affected with 
or for an institutional account (as defined in the NOM Rules) pursuant 
to valid Good-Till Cancelled instructions issued on a ``not held'' 
basis.
    The Exchange believes that investors will receive greater 
protection by clarifying the time such discretionary orders remain 
pending.
    Nasdaq also proposes to add NOM Rules Chapter XI, Section 10(f), 
which requires any participant that does not utilize computerized 
surveillance tools for the frequent and appropriate review of 
discretionary account activity to establish and implement procedures to 
require Registered Options and Security Futures-qualified individuals 
who have been designated to review discretionary accounts to approve 
and initial each discretionary order on the day entered. The Exchange 
believes that any member that does not use computerized tools for the 
frequent and adequate surveillance of options discretionary account 
activity should continue to be required to perform the daily manual 
review of discretionary orders.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\7\ in general, and with Section 
6(b)(5) of the Act,\8\ in particular, in that the proposal is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest. The Exchange believes that 
the supervisory and compliance function of a member's public customer 
options activities would be better integrated into the matrix of a 
firm's overall supervisory and compliance functions rather than 
separately vested in a SROP and CROP.
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    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited nor were any received with 
respect to the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has designated the proposed rule change as one that 
does not: (i) Significantly affect the protection of investors or the 
public interest; (ii) impose any significant burden on competition; and 
(iii) become operative for 30 days from the date on which it was filed, 
or such shorter time as the Commission may designate. Therefore, the 
foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \9\ and Rule 19b-4(f)(6) thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to provide the Commission 
with written notice of its intent to file the proposed rule change, 
along with a brief description and text of the proposed rule change, 
at least five business days prior to the date of filing of the 
proposed rule change, or such shorter time as the Commission may 
designate. The Exchange had satisfied the five business-day pre-
filing requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act.
    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2008-081 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2008-081. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/
rules/sro.shtml).

[[Page 64379]]

    Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Room, 100 F Street, NW., Washington, DC 
20549, on official business days between the hours of 10 a.m. and 3 
p.m. Copies of such filing also will be available for inspection and 
copying at the principal office of Nasdaq.
    All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly.
    All submissions should refer to File Number SR-NASDAQ-2008-081 and 
should be submitted on or before November 19, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Florence Harmon,
Acting Secretary.
 [FR Doc. E8-25810 Filed 10-28-08; 8:45 am]
BILLING CODE 8011-01-P