Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change Regarding Routing to an Affiliated Exchange, 80485-80488 [E8-31130]
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Federal Register / Vol. 73, No. 251 / Wednesday, December 31, 2008 / Notices
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–31050 Filed 12–30–08; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
• Use the Commission’s Internet
comment form https://www.sec.gov/
rules/sro.shtml; or
• Send an e-mail to rulecomments@sec.gov. Please include File
No. SR–ISE–2008–95 on the subject
line.
[Release No. 34–59153; File No. SR–
Nasdaq–2008–098]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Order Granting Accelerated
Approval of Proposed Rule Change
Regarding Routing to an Affiliated
Exchange
December 23, 2008.
Paper Comments
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 December
15, 2008, The NASDAQ Stock Market
LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed
All submissions should refer to File
with the Securities and Exchange
Number SR–ISE–2008–95. This file
Commission (‘‘Commission’’) the
number should be included on the
proposed rule change as described in
subject line if e-mail is used. To help the Items I and II below, which Items have
Commission process and review your
been prepared substantially by Nasdaq.
comments more efficiently, please use
The Commission is publishing this
only one method. The Commission will notice and order to solicit comments on
the proposed rule change from
post all comments on the Commissions
interested persons, and is approving the
Internet Web site (https://www.sec.gov/
proposal on an accelerated basis.
rules/sro.shtml). Copies of the
submission, all subsequent
I. Self-Regulatory Organization’s
amendments, all written statements
Statement of the Terms of Substance of
with respect to the proposed rule
the Proposed Rule Change
change that are filed with the
Nasdaq is proposing a rule change to
Commission, and all written
amend: (i) Nasdaq Rule 4751 to modify
communications relating to the
the restriction on routing of Directed
proposed rule change between the
Orders to a facility of an exchange that
Commission and any person, other than
is an affiliate of Nasdaq and (ii) Nasdaq
those that may be withheld from the
Rule 4758 to provide for the
public in accordance with the
establishment of procedures designed to
provisions of 5 U.S.C. 552, will be
manage the flow of confidential
available for inspection and copying in
information between Nasdaq and its
the Commission’s Public Reference
facilities (including its routing facility
Room on official business days between Nasdaq Execution Services, LLC) and
the hours of 10 a.m. and 3 p.m. Copies
other entities.
of such filing also will be available for
The text of the proposed rule change
inspection and copying at the principal
is available from Nasdaq’s Web site at
office of the ISE. All comments received https://nasdaq.cchwallstreet.com, at
will be posted without change; the
Nasdaq’s principal office, and at the
Commission does not edit personal
Commission’s Public Reference Room.
identifying information from
Proposed new language is in italics.3
submissions. You should submit only
*
*
*
*
*
information that you wish to make
available publicly. All submissions
11 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
should refer to File Number SR–ISE–
2 17 CFR 240.19b–4.
2008–95 and should be submitted by
3 Changes are marked to the rule text that appears
January 21, 2009.
pwalker on PROD1PC71 with NOTICES
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street, NE.,
Washington, DC 20549–1090.
in the electronic manual of Nasdaq found at
https://nasdaq.cchwallstreet.com.
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80485
Nasdaq Rules
Equity Rules
4751. Definitions
(a)–(e) No change.
(f) The term ‘‘Order Type’’ shall mean
the unique processing prescribed for
designated orders that are eligible for
entry into the System, and shall include:
(1)–(8) No change.
(9) ‘‘Directed Orders’’ are orders that
are directed to an exchange other than
Nasdaq as directed by the entering party
without checking the Nasdaq book. If
unexecuted, the order (or unexecuted
portion thereof) shall be returned to the
entering party. This option may only be
used for orders with time-in-force
parameters of IOC. Directed Orders may
be designated as inter-market sweep
orders by the entering party to execute
against the full displayed size of any
protected bid or offer (as defined in Rule
600(b) of Regulation NMS under the
Act). A broker-dealer that designates an
order as an intermarket sweep order has
the responsibility of complying with
Rules 610 and 611 of Regulation NMS.
Directed Orders may not be directed
to a facility of an exchange that is an
affiliate of Nasdaq except for Directed
Orders directed to the NASDAQ OMX
BX Equities Market.
(g)–(i) No change.
4758. Order Routing
(a) No change.
(b) Routing Broker
(1)–(7) No change.
(8) Nasdaq Execution Services LLC
shall establish and maintain procedures
and internal controls reasonably
designed to adequately restrict the flow
of confidential and proprietary
information between the NASDAQ
Stock Market LLC and its facilities
(including Nasdaq Execution Services
LLC as its routing facility) and any other
entity.
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*
*
*
*
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. The text of these
statements may be examined at the
places specified in Item III below, and
is set forth in Sections A, B, and C
below.
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Federal Register / Vol. 73, No. 251 / Wednesday, December 31, 2008 / Notices
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
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a. Affiliation and Order Routing
The NASDAQ OMX Group, Inc.
(‘‘NASDAQ OMX’’), a Delaware
corporation, owns three U.S. registered
securities exchanges—Nasdaq,
NASDAQ OMX PHLX, Inc. (‘‘PHLX’’)
and The Boston Stock Exchange,
Incorporated, to be renamed NASDAQ
OMX BX, Inc. (‘‘BX’’).4 In addition,
NASDAQ OMX currently indirectly
owns Nasdaq Execution Services, LLC
(‘‘NES’’), a registered broker-dealer and
a member of BX. Thus, NES is an
affiliate of each of Nasdaq, PHLX and
BX.
Although BX does not currently have
any equity trading operations, BX has
proposed a new rulebook for BX to
support the resumption of these
operations.5 Although BX will not route
to other market centers, BX will receive
orders routed to it by other market
centers, including Nasdaq.6
NES is the approved outbound
routing facility of Nasdaq for cash
equities, providing outbound routing
from Nasdaq to other market centers.
NES does not provide inbound routing
to Nasdaq. The acquisition of NES by
NASDAQ OMX was approved by the
Commission in 2004 and 2005 7 and the
rules under which NES currently routes
orders from Nasdaq to other market
centers were approved initially by the
Commission in 2006 and have been
amended on several occasions.8 Nasdaq
4 See Securities Exchange Act Release No. 58927
(November 10, 2008), 73 FR 69685 (November 19,
2008) (SR–BSE–2008–48). This filing also proposes
a new rule book for cash equities trading (‘‘BX
Rulebook Proposal’’) on a facility of BX, to be
named the NASDAQ OMX BX Equities Market.
5 Id.
6 PHLX does not currently trade cash equities,
and therefore this filing does not apply to it. Nasdaq
is not at this time proposing to modify limits on
routing options to affiliated exchanges.
7 See Securities Exchange Act Release Nos. 50311
(September 3, 2004), 69 FR 54818 (September 10,
2004) (Order Granting Application for a Temporary
Conditional Exemption Pursuant To Section 36(a)
of the Exchange Act by the National Association of
Securities Dealers, Inc. Relating to the Acquisition
of an ECN by The Nasdaq Stock Market, Inc.) and
52902 (December 7, 2005), 70 FR 73810 (December
13, 2005) (SR–NASD–2005–128) (Order Approving
a Proposed Rule Change To Establish Rules
Governing the Operation of the INET System).
8 See Securities Exchange Act Release Nos. 58752
(October 8, 2008), 73 FR 61181 (October 15, 2008)
(SR–NASDAQ–2008–079); 58135 (July 10, 2008), 73
FR 40898 (July 16, 2008) (SR–NASDAQ–2008–061);
58069 (June 30, 2008), 73 FR 39360 (July 9, 2008)
(SR–NASDAQ–2008–054); 56708 (October 26,
2007), 72 FR 61925 (November 1, 2007) (SR–
NASDAQ–2007–078); 56867 (November 29, 2007),
72 FR 69263 (December 7, 2007) (SR–NASDAQ–
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Rules 4751 and 4758 establish the
conditions under which Nasdaq is
permitted to own and operate NES in its
capacity as a facility of Nasdaq that
routes orders from Nasdaq to other
market centers. The conditions include
requirements that: (1) NES is operated
as a facility of Nasdaq; (2) NES will not
engage in any business other than: (i) As
an outbound router for Nasdaq and (ii)
any other activities it may engage in as
approved by the Commission; (3) for
purposes of Commission Rule 17d–1
under the Act,9 the designated
examining authority of NES is a selfregulatory organization unaffiliated with
Nasdaq; (4) use of NES to route orders
to other market centers is optional; 10
and (5) Nasdaq will not route orders to
an affiliated exchange, such as BX,
unless they check the Nasdaq book prior
to routing.
The Commission has approved NES’s
affiliation with BX subject to the
conditions that: (1) NES remains a
facility of Nasdaq; (2) use of NES’s
routing function by Nasdaq members
continues to be optional and (3) NES
does not provide routing of Directed
Orders to BX or any trading facilities
thereof, unless such orders first attempt
to access any liquidity on the Nasdaq
book.11
Nasdaq proposes that, upon the
resumption of cash equity trading by
BX, NES, in its operation as a facility of
Nasdaq, be permitted to route all orders,
including Directed Orders, to BX’s
equity market without checking the
Nasdaq book prior to routing. Directed
Orders are orders that route directly to
other exchanges on an immediate-orcancel basis without first checking the
Nasdaq book for liquidity.12 In order to
modify the conditions regarding the
operation of NES and allow NES to
route Directed Orders to BX, Nasdaq
2007–065); 55335 (February 23, 2007), 72 FR 9369
(March 1, 2007) (SR–NASDAQ–2007–005); 54613
(October 17, 2006), 71 FR 62325 (October 24, 2006)
(SR–NASDAQ 2006–043); 54271 (August 3, 2006),
71 FR 45876 (August 10, 2006) (SR–NASDAQ–
2006–027); and 54155 (July 14, 2006), 71 FR 41291
(July 20, 2006) (SR–NASDAQ–2006–001).
9 17 CFR 240.17d–1.
10 Because only Nasdaq members may enter
orders into Nasdaq, it also follows that routing by
NES is available only to Nasdaq members.
11 See Securities Exchange Act Release No. 58324
(August 7, 2008), 73 FR 46936 (August 12, 2008)
(SR–BSE–2008–23).
12 Rules 4751 and 4755 provide for routing of
‘‘directed orders’’ to automated market centers other
than Nasdaq on an ‘‘immediate-or-cancel’’ basis.
Such directed orders may be designated as
intermarket sweep orders (‘‘ISOs’’), which may be
executed by the receiving venue based on the
representation of the market participant that it has
routed to all superior protected quotations, or not
so designated, in which case the orders will execute
only if their execution would not result in a tradethrough.
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proposes to modify the restriction in
Nasdaq Rule 4751(f)(9) that prohibits
the routing of Directed Orders to a
facility of an exchange that is an affiliate
of Nasdaq. Under the proposed rule
change, inbound routing of Directed
Orders to the NASDAQ OMX BX
Equities Market would be permitted.
On September 29, 2008, the
Commission approved rule changes to
permit the NYSE, NYSE Arca and NYSE
Alternext US to accept inbound orders
that their affiliate Arca Securities routes
in its capacity as a facility of NYSE or
NYSE Arca, subject to certain
limitations and conditions intended to
address the Commission’s concerns
regarding affiliation.13 In the orders
approving these rule changes, the
Commission noted its concerns about
potential informational advantages and
conflicts of interest between an
exchange’s self-regulatory obligations
and its commercial interest when the
exchange is affiliated with one of its
members, but determined that the
proposed limitations and conditions
were sufficient to mitigate its
concerns.14
Nasdaq proposes to amend Nasdaq
Rule 4758 to provide that NES will
establish and maintain procedures and
internal controls reasonably designed to
adequately restrict the flow of
confidential and proprietary
information between Nasdaq and its
facilities (including NES) and any other
entity.15
In addition, in the BX Rulebook
Proposal, BX is proposing a rule change
and certain undertakings intended to
manage the flow of confidential and
proprietary information between NES
and BX and to minimize potential
conflicts of interest.16
2. Statutory Basis
Nasdaq believes that the proposed
rule change is consistent with the
provisions of Section 6 of the Act,17 in
13 See Securities Exchange Act Release Nos.
58681 (September 29, 2008), 73 FR 58285 (October
6, 2008) (SR–NYSEArca–2008–90) (‘‘NYSE Arca
Order’’); 58680 (September 29, 2008), 73 FR 58283
(October 6, 2008) (SR–NYSE–2008–76) (‘‘NYSE
Order’’); 58673 (September 29, 2008), 73 FR 57707
(October 3, 2008) (SR–Amex–2008–62) (‘‘NYSE
Alternext US Order’’).
14 The Commission also set forth these concerns
in its order abrogating NYSE Arca Rule 7.31(x). See
Securities Exchange Act Release No. 57648 (April
11, 2008), 73 FR 20981 (April 17, 2008).
15 This sentence was modified at the request of
the Exchange from the text contained in the
proposed rule change. Telephone conversation
between John Yetter, Vice President and Deputy
General Counsel, NASDAQ OMX, and Nancy
Burke-Sanow, Assistant Director, Division of
Trading and Markets, Commission on December 22,
2008.
16 See BX Rulebook Proposal, supra note 4.
17 15 U.S.C. 78f.
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general, and with Section 6(b)(5) of the
Act,18 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 proposed rule
change would permit inbound routing
of Directed Orders and other orders to
BX from its affiliate NES while
minimizing the potential for conflicts of
interest and informational advantages
involved where a member firm is
affiliated with an exchange to which it
is routing orders.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
Nasdaq does not believe that the
proposed rule change will impose 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
Written comments were neither
solicited nor received.
III. 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:
pwalker on PROD1PC71 with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml ); or
• Send an e-mail to rulecomments@sec.gov. Please include File
No. SR–Nasdaq–2008–098 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–2008–098. This file
number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
18 15
U.S.C. 78f(b)(5).
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comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml ). 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 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 the Exchange. 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–2008–098 and should be
submitted on or before January 21, 2009.
IV. Commission’s Findings and Order
Granting Accelerated Approval of a
Proposed Rule Change
The Commission finds that the
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder
applicable to a national securities
exchange.19 In particular, the proposed
rule change is consistent with Section
6(b)(5) of the Act,20 which requires,
among other things, that the rules of a
national securities exchange be
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; and are not designed to
permit unfair discrimination between
customers, issuers, brokers, or dealers.
On August 7, 2008, the Commission
approved the acquisition of BX
(formerly The Boston Stock Exchange,
19 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
20 15 U.S.C. 78f(b)(5).
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80487
Incorporated) by NASDAQ OMX.21 In
conjunction with that transaction, the
Exchange amended its rules to prohibit
the routing of Directed Orders 22 to any
facility of an exchange that is an affiliate
of Nasdaq.23 This limitation
corresponds to one of the conditions
proposed by BX at the time it was
acquired by NASDAQ OMX to permit
its affiliation with NES.24 NES, a brokerdealer that will become a member of BX,
currently provides to Nasdaq members
optional routing services to other market
centers. NES is owned by NASDAQ
OMX, which also owns three registered
securities exchanges—Nasdaq, BX, and
the PHLX.25 Thus, NES is an affiliate of
each of these exchanges.
BX previously proposed as a
condition to its affiliation with NES,
that NES would only route orders to
BSE that first attempt to access liquidity
on Nasdaq. In connection with the
resumption of equities trading on BX,
BX is now proposing to accept orders
routed to it by NES in its capacity as a
facility of Nasdaq, including orders that
do not first attempt to access liquidity
on Nasdaq.26 In the instant filing, the
Exchange proposes to amend Nasdaq
Rule 4751 to allow the routing of
Directed Orders 27 from Nasdaq to the
NASDAQ OMX BX Equities Market. The
Exchange is also proposing to amend
Nasdaq Rule 4758 to add a requirement
that NES establish and maintain
procedures and internal controls
reasonably designed to adequately
restrict the flow of confidential and
proprietary information between Nasdaq
and its facilities, including NES, and
any other entity.
In the past, the Commission has
expressed concern that the affiliation of
an exchange with one of its members
raises potential conflicts of interest, and
the potential for unfair competitive
21 See
supra note 11.
Rule 4751(f)(9) defines Directed Orders
as immediate-or-cancel orders that are directed to
an exchange other than Nasdaq without checking
the Nasdaq book.
23 See Nasdaq Rule 4751(f)(9). See also Securities
Exchange Act Release No. 58135, supra note 8.
24 See Securities Exchange Act Release No. 58324,
supra note 11, at notes 117–123 and accompanying
text. See also Securities Exchange Act Release No.
58135, supra note 8.
25 See Securities Exchange Act Release Nos.
Release No. 58324, supra note 11; and 58179 (July
17, 2008), 73 FR 42874 (July 23, 2008) (order
approving NASDAQ OMX’s acquisition of the
PHLX.)
26 See Securities Exchange Act Release No. 59154
(December 23, 2008) (SR–BSE–2008–48) (order
approving the BX Rulebook Filing) (‘‘BX Rulebook
Approval Order’’).
27 Pursuant to Nasdaq Rule 4751(f)(9), Nasdaq
currently may not route Directed Orders to a facility
of an exchange that is an affiliate of Nasdaq.
22 Nasdaq
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advantage.28 Although the Commission
continues to be concerned about
potential unfair competition and
conflicts of interest between an
exchange’s self-regulatory obligations
and its commercial interests when the
exchange is affiliated with one of its
members, the Commission believes that
it is consistent with the Act to permit
NES to expand the outbound routing
services it provides to Nasdaq, subject to
certain conditions.
Nasdaq Rule 4758 imposes certain
conditions on NES as the Exchange’s
outbound order router. For example,
NES must: (1) Be a member of a selfregulatory organization unaffiliated with
Nasdaq that is its designated examining
authority; (2) be regulated as a facility
of the Exchange; 29 and (3) not engage in
any business other than its outbound
router function unless otherwise
approved by the Commission. Also, the
books, records, premises, officers,
agents, directors and employees of NES,
as a facility of Nasdaq are deemed to be
those of the Exchange for purposes of
and subject to oversight pursuant to the
Act.30 In addition, use of NES to route
orders from Nasdaq to away market
centers is optional,31 and a Nasdaq
member is free to route orders to other
market centers through alternative
means. Pursuant to the proposal, NES
will also establish and maintain
procedures and internal controls
reasonably designed to restrict the flow
of confidential and proprietary
information between Nasdaq and its
facilities, including NES, and any other
entity.32
28 See, e.g., Securities Exchange Act Release Nos.
58324, supra note 11; 58673, (September 29, 2008),
73 FR 57707 (October 3, 2008) (SR–NYSE–2008–60
and SR–Amex–2008–62) (order approving the
business combination between NYSE Euronext and
NYSE Alternext US LLC); 54170 (July 18, 2006), 71
FR 42149 (July 25, 2006) (SR–NASDAQ–2006–006)
(order approving Nasdaq’s proposal to adopt
Nasdaq Rule 2140, restricting affiliations between
Nasdaq and its members); and 53382 (February 27,
2006, 71 FR 11251) (March 6, 2006) (SR–NYSE–
2005–77) (order approving the combination of the
New York Stock Exchange, Inc. and Archipelago
Holdings).
29 The Commission notes that, as a facility of the
Exchange, NES is subject to Exchange oversight, as
well as Commission oversight. Further, the
Exchange is responsible for filing with the
Commission proposed rule changes and fees
relating to NES’s outbound router function and
NES’s outbound router function is subject to
exchange non-discrimination requirements.
30 See Nasdaq Rule 4758(b)(6). In addition, the
books and records of NES, as a facility of the
Exchange, are subject at all times to inspection and
copying by the Exchange and the Commission. Id.
31 Nasdaq Rule 4758(b)(7).
32 See proposed Nasdaq Rule 4758(b)(8). The
Commission notes that this proposed requirement
is consistent with the rules for Nasdaq Options
Services LLC, which provides outbound routing
services for the Nasdaq Options Market, that were
previously approved by the Commission. See
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In light of the protections discussed
above and contained in Nasdaq Rule
4758, the Commission believes that it is
consistent with the Act to permit
Nasdaq to expand the availability of the
outbound routing services provided by
its affiliate, NES.
Nasdaq has asked the Commission to
accelerate approval of the proposed rule
change concurrent with approval of the
BX Rulebook Proposal which
establishes protections against possible
conflicts of interest as a result of routing
by NES to BX.33 The Commission finds
good cause for approving the proposed
rule change before the thirtieth day after
the date of publication of notice of filing
thereof in the Federal Register. The
Commission notes that Nasdaq’s
proposal to expand the use of NES as its
outbound order routing facility is
consistent with prior Commission
action.34 Accordingly, the Commission
finds good cause, consistent with
Section 19(b)(2) of the Act,35 to approve
the proposed rule change on an
accelerated basis.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act, that the
proposed rule change (SR–NASDAQ–
2008–098) is hereby approved on an
accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.36
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–31130 Filed 12–30–08; 8:45 am]
BILLING CODE 8011–01–P
Nasdaq Options Rule Section 11(e). See also
Securities Exchange Act Release No. 57478 (March
12, 2008), 73 FR 14521 (March 18, 2008) (SR–
NASDAQ–2007–004 and SR–NASDAQ–2007–080)
(order approving a proposed rule change relating to
the establishment and operation of the NASDAQ
Options Market).
33 See SR–Nasdaq–2008–098, Item 7. The
Commission is also approving today the BX
Rulebook Proposal. See BX Rulebook Approval
Order, supra note 26.
34 See, e.g., Securities Exchange Act Release Nos.
59009 (November 24, 2008), 73 FR 73363
(December 2, 2008) (SR–NYSEALTR–2008–07);
58681, supra note 13; and 58680 supra note 13.
35 15 U.S.C. 78s(b)(2).
36 17 CFR 200.30–3(a)(12).
PO 00000
Frm 00128
Fmt 4703
Sfmt 4703
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–59140; File No. SR–NYSE–
2008–130]
Self-Regulatory Organizations; Notice
of Filing and Immediate Effectiveness
of Proposed Rule Change by New York
Stock Exchange LLC To Establish a
Trading License Fee for 2009 and
Amend Certain Other Floor Fees
December 22, 2008.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on December
18, 2008, New York Stock Exchange
LLC (the ‘‘NYSE’’ or the ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to: (i) Amend
Exchange Rule 300 (Trading Licenses) to
provide that the fee for trading licenses
will be set forth on the Exchange’s Price
List rather than in Rule 300; (ii) amend
Rule 300 to provide that trading licenses
purchased following the annual offering
will be sold for a pro rated portion of
the annual fee, rather than at a premium
to the annual price; (iii) establish a
trading license fee for 2009 of $40,000;
(iv) reduce from $5,000 to $1,000 the fee
related to the approval of a pre-qualified
substitute employee; and (v) eliminate
the $1,000 clerk badge fee. The text of
the proposed rule change is available on
the Exchange’s Web site (https://
www.nyse.com), at the Exchange’s
Office of the Secretary, 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, the
Exchange included statements
concerning the purpose of, and basis for,
the proposed rule change. The text of
these statements may be examined at
the places specified in Item IV below.
The NYSE has prepared summaries, set
forth in Sections A, B, and C below, of
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
E:\FR\FM\31DEN1.SGM
31DEN1
Agencies
[Federal Register Volume 73, Number 251 (Wednesday, December 31, 2008)]
[Notices]
[Pages 80485-80488]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-31130]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-59153; File No. SR-Nasdaq-2008-098]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Order Granting Accelerated Approval of Proposed
Rule Change Regarding Routing to an Affiliated Exchange
December 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 December 15, 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 and
II below, which Items have been prepared substantially by Nasdaq. The
Commission is publishing this notice and order to solicit comments on
the proposed rule change from interested persons, and is approving the
proposal on an accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Nasdaq is proposing a rule change to amend: (i) Nasdaq Rule 4751 to
modify the restriction on routing of Directed Orders to a facility of
an exchange that is an affiliate of Nasdaq and (ii) Nasdaq Rule 4758 to
provide for the establishment of procedures designed to manage the flow
of confidential information between Nasdaq and its facilities
(including its routing facility Nasdaq Execution Services, LLC) and
other entities.
The text of the proposed rule change is available from Nasdaq's Web
site at https://nasdaq.cchwallstreet.com, at Nasdaq's principal office,
and at the Commission's Public Reference Room.
Proposed new language is in italics.\3\
---------------------------------------------------------------------------
\3\ Changes are marked to the rule text that appears in the
electronic manual of Nasdaq found at https://
nasdaq.cchwallstreet.com.
---------------------------------------------------------------------------
* * * * *
Nasdaq Rules
Equity Rules
4751. Definitions
(a)-(e) No change.
(f) The term ``Order Type'' shall mean the unique processing
prescribed for designated orders that are eligible for entry into the
System, and shall include:
(1)-(8) No change.
(9) ``Directed Orders'' are orders that are directed to an exchange
other than Nasdaq as directed by the entering party without checking
the Nasdaq book. If unexecuted, the order (or unexecuted portion
thereof) shall be returned to the entering party. This option may only
be used for orders with time-in-force parameters of IOC. Directed
Orders may be designated as inter-market sweep orders by the entering
party to execute against the full displayed size of any protected bid
or offer (as defined in Rule 600(b) of Regulation NMS under the Act). A
broker-dealer that designates an order as an intermarket sweep order
has the responsibility of complying with Rules 610 and 611 of
Regulation NMS.
Directed Orders may not be directed to a facility of an exchange
that is an affiliate of Nasdaq except for Directed Orders directed to
the NASDAQ OMX BX Equities Market.
(g)-(i) No change.
4758. Order Routing
(a) No change.
(b) Routing Broker
(1)-(7) No change.
(8) Nasdaq Execution Services LLC shall establish and maintain
procedures and internal controls reasonably designed to adequately
restrict the flow of confidential and proprietary information between
the NASDAQ Stock Market LLC and its facilities (including Nasdaq
Execution Services LLC as its routing facility) and any other entity.
* * * * *
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. The
text of these statements may be examined at the places specified in
Item III below, and is set forth in Sections A, B, and C below.
[[Page 80486]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
a. Affiliation and Order Routing
The NASDAQ OMX Group, Inc. (``NASDAQ OMX''), a Delaware
corporation, owns three U.S. registered securities exchanges--Nasdaq,
NASDAQ OMX PHLX, Inc. (``PHLX'') and The Boston Stock Exchange,
Incorporated, to be renamed NASDAQ OMX BX, Inc. (``BX'').\4\ In
addition, NASDAQ OMX currently indirectly owns Nasdaq Execution
Services, LLC (``NES''), a registered broker-dealer and a member of BX.
Thus, NES is an affiliate of each of Nasdaq, PHLX and BX.
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 58927 (November 10,
2008), 73 FR 69685 (November 19, 2008) (SR-BSE-2008-48). This filing
also proposes a new rule book for cash equities trading (``BX
Rulebook Proposal'') on a facility of BX, to be named the NASDAQ OMX
BX Equities Market.
---------------------------------------------------------------------------
Although BX does not currently have any equity trading operations,
BX has proposed a new rulebook for BX to support the resumption of
these operations.\5\ Although BX will not route to other market
centers, BX will receive orders routed to it by other market centers,
including Nasdaq.\6\
---------------------------------------------------------------------------
\5\ Id.
\6\ PHLX does not currently trade cash equities, and therefore
this filing does not apply to it. Nasdaq is not at this time
proposing to modify limits on routing options to affiliated
exchanges.
---------------------------------------------------------------------------
NES is the approved outbound routing facility of Nasdaq for cash
equities, providing outbound routing from Nasdaq to other market
centers. NES does not provide inbound routing to Nasdaq. The
acquisition of NES by NASDAQ OMX was approved by the Commission in 2004
and 2005 \7\ and the rules under which NES currently routes orders from
Nasdaq to other market centers were approved initially by the
Commission in 2006 and have been amended on several occasions.\8\
Nasdaq Rules 4751 and 4758 establish the conditions under which Nasdaq
is permitted to own and operate NES in its capacity as a facility of
Nasdaq that routes orders from Nasdaq to other market centers. The
conditions include requirements that: (1) NES is operated as a facility
of Nasdaq; (2) NES will not engage in any business other than: (i) As
an outbound router for Nasdaq and (ii) any other activities it may
engage in as approved by the Commission; (3) for purposes of Commission
Rule 17d-1 under the Act,\9\ the designated examining authority of NES
is a self-regulatory organization unaffiliated with Nasdaq; (4) use of
NES to route orders to other market centers is optional; \10\ and (5)
Nasdaq will not route orders to an affiliated exchange, such as BX,
unless they check the Nasdaq book prior to routing.
---------------------------------------------------------------------------
\7\ See Securities Exchange Act Release Nos. 50311 (September 3,
2004), 69 FR 54818 (September 10, 2004) (Order Granting Application
for a Temporary Conditional Exemption Pursuant To Section 36(a) of
the Exchange Act by the National Association of Securities Dealers,
Inc. Relating to the Acquisition of an ECN by The Nasdaq Stock
Market, Inc.) and 52902 (December 7, 2005), 70 FR 73810 (December
13, 2005) (SR-NASD-2005-128) (Order Approving a Proposed Rule Change
To Establish Rules Governing the Operation of the INET System).
\8\ See Securities Exchange Act Release Nos. 58752 (October 8,
2008), 73 FR 61181 (October 15, 2008) (SR-NASDAQ-2008-079); 58135
(July 10, 2008), 73 FR 40898 (July 16, 2008) (SR-NASDAQ-2008-061);
58069 (June 30, 2008), 73 FR 39360 (July 9, 2008) (SR-NASDAQ-2008-
054); 56708 (October 26, 2007), 72 FR 61925 (November 1, 2007) (SR-
NASDAQ-2007-078); 56867 (November 29, 2007), 72 FR 69263 (December
7, 2007) (SR-NASDAQ-2007-065); 55335 (February 23, 2007), 72 FR 9369
(March 1, 2007) (SR-NASDAQ-2007-005); 54613 (October 17, 2006), 71
FR 62325 (October 24, 2006) (SR-NASDAQ 2006-043); 54271 (August 3,
2006), 71 FR 45876 (August 10, 2006) (SR-NASDAQ-2006-027); and 54155
(July 14, 2006), 71 FR 41291 (July 20, 2006) (SR-NASDAQ-2006-001).
\9\ 17 CFR 240.17d-1.
\10\ Because only Nasdaq members may enter orders into Nasdaq,
it also follows that routing by NES is available only to Nasdaq
members.
---------------------------------------------------------------------------
The Commission has approved NES's affiliation with BX subject to
the conditions that: (1) NES remains a facility of Nasdaq; (2) use of
NES's routing function by Nasdaq members continues to be optional and
(3) NES does not provide routing of Directed Orders to BX or any
trading facilities thereof, unless such orders first attempt to access
any liquidity on the Nasdaq book.\11\
---------------------------------------------------------------------------
\11\ See Securities Exchange Act Release No. 58324 (August 7,
2008), 73 FR 46936 (August 12, 2008) (SR-BSE-2008-23).
---------------------------------------------------------------------------
Nasdaq proposes that, upon the resumption of cash equity trading by
BX, NES, in its operation as a facility of Nasdaq, be permitted to
route all orders, including Directed Orders, to BX's equity market
without checking the Nasdaq book prior to routing. Directed Orders are
orders that route directly to other exchanges on an immediate-or-cancel
basis without first checking the Nasdaq book for liquidity.\12\ In
order to modify the conditions regarding the operation of NES and allow
NES to route Directed Orders to BX, Nasdaq proposes to modify the
restriction in Nasdaq Rule 4751(f)(9) that prohibits the routing of
Directed Orders to a facility of an exchange that is an affiliate of
Nasdaq. Under the proposed rule change, inbound routing of Directed
Orders to the NASDAQ OMX BX Equities Market would be permitted.
---------------------------------------------------------------------------
\12\ Rules 4751 and 4755 provide for routing of ``directed
orders'' to automated market centers other than Nasdaq on an
``immediate-or-cancel'' basis. Such directed orders may be
designated as intermarket sweep orders (``ISOs''), which may be
executed by the receiving venue based on the representation of the
market participant that it has routed to all superior protected
quotations, or not so designated, in which case the orders will
execute only if their execution would not result in a trade-through.
---------------------------------------------------------------------------
On September 29, 2008, the Commission approved rule changes to
permit the NYSE, NYSE Arca and NYSE Alternext US to accept inbound
orders that their affiliate Arca Securities routes in its capacity as a
facility of NYSE or NYSE Arca, subject to certain limitations and
conditions intended to address the Commission's concerns regarding
affiliation.\13\ In the orders approving these rule changes, the
Commission noted its concerns about potential informational advantages
and conflicts of interest between an exchange's self-regulatory
obligations and its commercial interest when the exchange is affiliated
with one of its members, but determined that the proposed limitations
and conditions were sufficient to mitigate its concerns.\14\
---------------------------------------------------------------------------
\13\ See Securities Exchange Act Release Nos. 58681 (September
29, 2008), 73 FR 58285 (October 6, 2008) (SR-NYSEArca-2008-90)
(``NYSE Arca Order''); 58680 (September 29, 2008), 73 FR 58283
(October 6, 2008) (SR-NYSE-2008-76) (``NYSE Order''); 58673
(September 29, 2008), 73 FR 57707 (October 3, 2008) (SR-Amex-2008-
62) (``NYSE Alternext US Order'').
\14\ The Commission also set forth these concerns in its order
abrogating NYSE Arca Rule 7.31(x). See Securities Exchange Act
Release No. 57648 (April 11, 2008), 73 FR 20981 (April 17, 2008).
---------------------------------------------------------------------------
Nasdaq proposes to amend Nasdaq Rule 4758 to provide that NES will
establish and maintain procedures and internal controls reasonably
designed to adequately restrict the flow of confidential and
proprietary information between Nasdaq and its facilities (including
NES) and any other entity.\15\
---------------------------------------------------------------------------
\15\ This sentence was modified at the request of the Exchange
from the text contained in the proposed rule change. Telephone
conversation between John Yetter, Vice President and Deputy General
Counsel, NASDAQ OMX, and Nancy Burke-Sanow, Assistant Director,
Division of Trading and Markets, Commission on December 22, 2008.
---------------------------------------------------------------------------
In addition, in the BX Rulebook Proposal, BX is proposing a rule
change and certain undertakings intended to manage the flow of
confidential and proprietary information between NES and BX and to
minimize potential conflicts of interest.\16\
---------------------------------------------------------------------------
\16\ See BX Rulebook Proposal, supra note 4.
---------------------------------------------------------------------------
2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
the provisions of Section 6 of the Act,\17\ in
[[Page 80487]]
general, and with Section 6(b)(5) of the Act,\18\ 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 proposed rule change would permit inbound routing of
Directed Orders and other orders to BX from its affiliate NES while
minimizing the potential for conflicts of interest and informational
advantages involved where a member firm is affiliated with an exchange
to which it is routing orders.
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78f.
\18\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
Nasdaq does not believe that the proposed rule change will impose
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
Written comments were neither solicited nor received.
III. 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 (https://
www.sec.gov/rules/sro.shtml ); or
Send an e-mail to rule-comments@sec.gov. Please include
File No. SR-Nasdaq-2008-098 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-2008-098. 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 (https://www.sec.gov/
rules/sro.shtml ). 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 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 the Exchange. 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-2008-098 and should be submitted on or before
January 21, 2009.
IV. Commission's Findings and Order Granting Accelerated Approval of a
Proposed Rule Change
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange.\19\ In
particular, the proposed rule change is consistent with Section 6(b)(5)
of the Act,\20\ which requires, among other things, that the rules of a
national securities exchange be 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; and are not designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers.
---------------------------------------------------------------------------
\19\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\20\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
On August 7, 2008, the Commission approved the acquisition of BX
(formerly The Boston Stock Exchange, Incorporated) by NASDAQ OMX.\21\
In conjunction with that transaction, the Exchange amended its rules to
prohibit the routing of Directed Orders \22\ to any facility of an
exchange that is an affiliate of Nasdaq.\23\ This limitation
corresponds to one of the conditions proposed by BX at the time it was
acquired by NASDAQ OMX to permit its affiliation with NES.\24\ NES, a
broker-dealer that will become a member of BX, currently provides to
Nasdaq members optional routing services to other market centers. NES
is owned by NASDAQ OMX, which also owns three registered securities
exchanges--Nasdaq, BX, and the PHLX.\25\ Thus, NES is an affiliate of
each of these exchanges.
---------------------------------------------------------------------------
\21\ See supra note 11.
\22\ Nasdaq Rule 4751(f)(9) defines Directed Orders as
immediate-or-cancel orders that are directed to an exchange other
than Nasdaq without checking the Nasdaq book.
\23\ See Nasdaq Rule 4751(f)(9). See also Securities Exchange
Act Release No. 58135, supra note 8.
\24\ See Securities Exchange Act Release No. 58324, supra note
11, at notes 117-123 and accompanying text. See also Securities
Exchange Act Release No. 58135, supra note 8.
\25\ See Securities Exchange Act Release Nos. Release No. 58324,
supra note 11; and 58179 (July 17, 2008), 73 FR 42874 (July 23,
2008) (order approving NASDAQ OMX's acquisition of the PHLX.)
---------------------------------------------------------------------------
BX previously proposed as a condition to its affiliation with NES,
that NES would only route orders to BSE that first attempt to access
liquidity on Nasdaq. In connection with the resumption of equities
trading on BX, BX is now proposing to accept orders routed to it by NES
in its capacity as a facility of Nasdaq, including orders that do not
first attempt to access liquidity on Nasdaq.\26\ In the instant filing,
the Exchange proposes to amend Nasdaq Rule 4751 to allow the routing of
Directed Orders \27\ from Nasdaq to the NASDAQ OMX BX Equities Market.
The Exchange is also proposing to amend Nasdaq Rule 4758 to add a
requirement that NES establish and maintain procedures and internal
controls reasonably designed to adequately restrict the flow of
confidential and proprietary information between Nasdaq and its
facilities, including NES, and any other entity.
---------------------------------------------------------------------------
\26\ See Securities Exchange Act Release No. 59154 (December 23,
2008) (SR-BSE-2008-48) (order approving the BX Rulebook Filing)
(``BX Rulebook Approval Order'').
\27\ Pursuant to Nasdaq Rule 4751(f)(9), Nasdaq currently may
not route Directed Orders to a facility of an exchange that is an
affiliate of Nasdaq.
---------------------------------------------------------------------------
In the past, the Commission has expressed concern that the
affiliation of an exchange with one of its members raises potential
conflicts of interest, and the potential for unfair competitive
[[Page 80488]]
advantage.\28\ Although the Commission continues to be concerned about
potential unfair competition and conflicts of interest between an
exchange's self-regulatory obligations and its commercial interests
when the exchange is affiliated with one of its members, the Commission
believes that it is consistent with the Act to permit NES to expand the
outbound routing services it provides to Nasdaq, subject to certain
conditions.
---------------------------------------------------------------------------
\28\ See, e.g., Securities Exchange Act Release Nos. 58324,
supra note 11; 58673, (September 29, 2008), 73 FR 57707 (October 3,
2008) (SR-NYSE-2008-60 and SR-Amex-2008-62) (order approving the
business combination between NYSE Euronext and NYSE Alternext US
LLC); 54170 (July 18, 2006), 71 FR 42149 (July 25, 2006) (SR-NASDAQ-
2006-006) (order approving Nasdaq's proposal to adopt Nasdaq Rule
2140, restricting affiliations between Nasdaq and its members); and
53382 (February 27, 2006, 71 FR 11251) (March 6, 2006) (SR-NYSE-
2005-77) (order approving the combination of the New York Stock
Exchange, Inc. and Archipelago Holdings).
---------------------------------------------------------------------------
Nasdaq Rule 4758 imposes certain conditions on NES as the
Exchange's outbound order router. For example, NES must: (1) Be a
member of a self-regulatory organization unaffiliated with Nasdaq that
is its designated examining authority; (2) be regulated as a facility
of the Exchange; \29\ and (3) not engage in any business other than its
outbound router function unless otherwise approved by the Commission.
Also, the books, records, premises, officers, agents, directors and
employees of NES, as a facility of Nasdaq are deemed to be those of the
Exchange for purposes of and subject to oversight pursuant to the
Act.\30\ In addition, use of NES to route orders from Nasdaq to away
market centers is optional,\31\ and a Nasdaq member is free to route
orders to other market centers through alternative means. Pursuant to
the proposal, NES will also establish and maintain procedures and
internal controls reasonably designed to restrict the flow of
confidential and proprietary information between Nasdaq and its
facilities, including NES, and any other entity.\32\
---------------------------------------------------------------------------
\29\ The Commission notes that, as a facility of the Exchange,
NES is subject to Exchange oversight, as well as Commission
oversight. Further, the Exchange is responsible for filing with the
Commission proposed rule changes and fees relating to NES's outbound
router function and NES's outbound router function is subject to
exchange non-discrimination requirements.
\30\ See Nasdaq Rule 4758(b)(6). In addition, the books and
records of NES, as a facility of the Exchange, are subject at all
times to inspection and copying by the Exchange and the Commission.
Id.
\31\ Nasdaq Rule 4758(b)(7).
\32\ See proposed Nasdaq Rule 4758(b)(8). The Commission notes
that this proposed requirement is consistent with the rules for
Nasdaq Options Services LLC, which provides outbound routing
services for the Nasdaq Options Market, that were previously
approved by the Commission. See Nasdaq Options Rule Section 11(e).
See also Securities Exchange Act Release No. 57478 (March 12, 2008),
73 FR 14521 (March 18, 2008) (SR-NASDAQ-2007-004 and SR-NASDAQ-2007-
080) (order approving a proposed rule change relating to the
establishment and operation of the NASDAQ Options Market).
---------------------------------------------------------------------------
In light of the protections discussed above and contained in Nasdaq
Rule 4758, the Commission believes that it is consistent with the Act
to permit Nasdaq to expand the availability of the outbound routing
services provided by its affiliate, NES.
Nasdaq has asked the Commission to accelerate approval of the
proposed rule change concurrent with approval of the BX Rulebook
Proposal which establishes protections against possible conflicts of
interest as a result of routing by NES to BX.\33\ The Commission finds
good cause for approving the proposed rule change before the thirtieth
day after the date of publication of notice of filing thereof in the
Federal Register. The Commission notes that Nasdaq's proposal to expand
the use of NES as its outbound order routing facility is consistent
with prior Commission action.\34\ Accordingly, the Commission finds
good cause, consistent with Section 19(b)(2) of the Act,\35\ to approve
the proposed rule change on an accelerated basis.
---------------------------------------------------------------------------
\33\ See SR-Nasdaq-2008-098, Item 7. The Commission is also
approving today the BX Rulebook Proposal. See BX Rulebook Approval
Order, supra note 26.
\34\ See, e.g., Securities Exchange Act Release Nos. 59009
(November 24, 2008), 73 FR 73363 (December 2, 2008) (SR-NYSEALTR-
2008-07); 58681, supra note 13; and 58680 supra note 13.
\35\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (SR-NASDAQ-2008-098) is hereby approved
on an accelerated basis.
---------------------------------------------------------------------------
\36\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\36\
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-31130 Filed 12-30-08; 8:45 am]
BILLING CODE 8011-01-P