Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing of Proposed Rule Change Regarding Routing to an Affiliated Exchange, 51861-51863 [2010-20820]

Download as PDF Federal Register / Vol. 75, No. 162 / Monday, August 23, 2010 / Notices Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File No. SR–NASDAQ–2010–101. 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 Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street, NE., 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 No. SR–NASDAQ– 2010–101 and should be submitted on or before September 13, 2010. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.6 Florence E. Harmon, Deputy Secretary. [FR Doc. 2010–20818 Filed 8–20–10; 8:45 am] erowe on DSK5CLS3C1PROD with NOTICES BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–62736; File No. SR– NASDAQ–2010–100] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing of Proposed Rule Change Regarding Routing to an Affiliated Exchange August 17, 2010. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on August 6, 2010, The NASDAQ Stock Market LLC (‘‘NASDAQ’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. 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 NASDAQ is proposing a rule change to amend Rule 4751 to modify the restriction on routing of Directed Orders to a facility of an exchange that is an affiliate of NASDAQ. 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. 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. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The NASDAQ OMX Group, Inc. (‘‘NASDAQ OMX’’), a Delaware corporation, owns three U.S. registered securities exchanges—NASDAQ, NASDAQ OMX PHLX, Inc. (‘‘PHLX’’) and NASDAQ OMX BX, Inc. (‘‘BX’’). In addition, NASDAQ OMX currently 1 15 6 17 CFR 200.30–3(a)(12). VerDate Mar<15>2010 15:31 Aug 20, 2010 2 17 Jkt 220001 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00114 Fmt 4703 Sfmt 4703 51861 indirectly owns Nasdaq Execution Services, LLC (‘‘NES’’), a registered broker-dealer and a member of PHLX. Thus, NES is an affiliate of each of NASDAQ, PHLX and BX. PHLX has proposed to launch NASDAQ OMX PSX (‘‘PSX’’) 3 as a new platform for trading NMS stocks (as defined in Rule 600 under Regulation NMS).4 Although PSX will not route to other market centers, PSX will receive orders routed to it by other market centers, including NASDAQ. In this respect, PSX will be similar to the NASDAQ OMX BX Equities System, which does not currently route orders to other venues. 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 5 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 numerous occasions since then.6 Rules 4751 and 4758 establish the conditions under which NASDAQ is permitted to own and operate NES in its 3 Securities Exchange Act Release No. 62519 (July 16, 2010), 75 FR 43497 (July 26, 2010) (SR–PHLX– 2010–79) (‘‘PSX Proposal’’). 4 17 CFR 242.600. 5 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). 6 See Securities Exchange Act Release Nos. 61682 (March 10, 2010), 75 FR 12592 (March 16, 2010) (SR–NASDAQ–2010–030); 61460 (February 1, 2010, 75 FR 6077 (February 5, 2010) (SR–NASDAQ– 2010–018); 60570 (August 26, 2009), 74 FR 45504 (September 2, 2009) (SR–NASDAQ–2009–079); 60039 (June 3, 2009), 74 FR 27365 (June 9, 2009) (SR–NASDAQ–2009–050); 59875 (May 6, 2009), 74 FR 22794 (May 14, 2009) (SR–NASDAQ–2009–043); 59807 (April 21, 2009), 74 FR 19251 (April 28, 2009) (SR–NASDAQ–2009–036); 59153 (December 23, 2008), 73 FR 80485 (December 31, 2008) (SR– NASDAQ–2008–098); 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). E:\FR\FM\23AUN1.SGM 23AUN1 51862 Federal Register / Vol. 75, No. 162 / Monday, August 23, 2010 / Notices erowe on DSK5CLS3C1PROD with NOTICES 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, 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; 7 and (5) NASDAQ will not route orders to an affiliated exchange, such as PHLX, unless they check the NASDAQ book prior to routing. The Commission has approved NES’s affiliation with PHLX 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; (3) NES does not provide routing of orders to PHLX or any trading facilities thereof, unless such orders first attempt to access any liquidity on the NASDAQ book; and (4) for purposes of Commission Rule 17d– 1, the designated examining authority of NES is a self-regulatory organization unaffiliated with NASDAQ.8 NASDAQ is proposing that, upon the resumption of cash equity trading by PHLX, NES, in its operation as a facility of NASDAQ, be permitted to route all orders, including Directed Orders, to PSX 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.9 In order to modify the conditions regarding the operation of NES and allow NES to route Directed Orders to PSX, NASDAQ is proposing to modify the restriction in 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 7 Because only NASDAQ members may enter orders into NASDAQ, it also follows that routing by NES is available only to NASDAQ members. 8 See Securities Exchange Act Release No. 58179 (July 17, 2008), 73 FR 42874 (July 23, 2008) (SR– Phlx–2008–31). 9 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. VerDate Mar<15>2010 15:31 Aug 20, 2010 Jkt 220001 Orders to the NASDAQ OMX PSX facility of PHLX would be permitted. The Commission has previously noted 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.10 In order to address the concerns identified by the Commission regarding the potential for informational ` advantages favoring NES vis-a-vis other non-affiliated members of BX, NASDAQ previously adopted Rule 4758(b)(8) to provide that NES shall 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 (including PHLX).11 In connection with the proposed launch of PSX, PHLX has proposed a new rule and made certain undertakings intended to manage the flow of confidential and proprietary information between NES and PHLX and to minimize potential conflicts of interest.12 PHLX’s proposed Rule 985(c)(2) will provide: The NASDAQ OMX Group, Inc., which owns Nasdaq Execution Services, LLC and the Exchange, shall establish and maintain procedures and internal controls reasonably designed to ensure that Nasdaq Execution Services, LLC does not develop or implement changes to its system on the basis of nonpublic information regarding planned changes to the Exchange’s systems, obtained as a result of its affiliation with the Exchange, until such information is available generally to similarly situated exchange members in connection with the provision of inbound routing to the Exchange. Pursuant to the new rule, PHLX has proposed to allow PSX to receive inbound routed orders for a twelvemonth pilot period. 2. Statutory Basis NASDAQ believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,13 in general, and with Section 6(b)(5) of the Act,14 in particular, in that the proposal is designed to prevent fraudulent and 10 See, e.g., Securities Exchange Act Release Nos. 59153 (December 23, 2008), 73 FR 80485 (December 31, 2008) (SR–NASDAQ–2008–098) (‘‘BX Order’’); 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’’). 11 BX Order, supra n. 10. 12 PSX Proposal, supra n. 3. 13 15 U.S.C. 78f. 14 15 U.S.C. 78f(b)(5). PO 00000 Frm 00115 Fmt 4703 Sfmt 4703 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 PHLX 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. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change 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, it has become effective pursuant to Section 19(b)(3)(A) of the Act 15 and Rule 19b–4(f)(6) thereunder.16 At any time within the 60-day period beginning on the date of the filing of the proposed rule change, the Commission summarily may temporarily suspend 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. 15 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). In addition, Rule 19b–4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file 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 designated by the Commission. The Exchange has satisfied this requirement. 16 17 E:\FR\FM\23AUN1.SGM 23AUN1 Federal Register / Vol. 75, No. 162 / Monday, August 23, 2010 / Notices erowe on DSK5CLS3C1PROD with NOTICES IV. Solicitation of Comments 51863 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.17 Florence E. Harmon, Deputy Secretary. (‘‘Index’’). The Index is designed to represent micro-sized companies and is Interested persons are invited to a subset of the Wilshire 5000 Total submit written data, views, and Market IndexSM (the ‘‘Wilshire 5000’’). arguments concerning the foregoing, The Index represents a float-adjusted, including whether the proposed rule market capitalization-weighted index of [FR Doc. 2010–20820 Filed 8–20–10; 8:45 am] change is consistent with the Act. the issues ranked below 2500 by market BILLING CODE 8010–01–P Comments may be submitted by any of capitalization of the Wilshire 5000. As the following methods: of March 31, 2010, the Index was SECURITIES AND EXCHANGE comprised of approximately 1,564 Electronic Comments COMMISSION securities of micro-capitalization companies. • Use the Commission’s Internet [Release No. 34–62737; File No. SR– The Exchange represents that: (i) NYSEArca–2010–64] comment form (https://www.sec.gov/ Except for Commentaries .01(a)(A)(1) 6 rules/sro.shtml); or and .01(a)(A)(5) 7 to NYSE Arca Equities Self-Regulatory Organizations; NYSE • Send an e-mail to ruleRule 5.2(j)(3), the Shares of the Fund Arca, Inc.; Order Approving Proposed comments@sec.gov. Please include File currently satisfy all of the other generic Rule Change Relating to Listing of the Number SR–NASDAQ–2010–100 on the Wilshire Micro-Cap ETF listing standards under NYSE Arca subject line. Equities Rule 5.2(j)(3); (ii) the continued August 17, 2010. listing standards under NYSE Arca Paper Comments Equities Rules 5.2(j)(3) and 5.5(g)(2) I. Introduction applicable to Units shall apply to the • Send paper comments in triplicate On July 1, 2010, NYSE Arca, Inc. Shares; and (iii) the Trust is required to to Elizabeth M. Murphy, Secretary, (‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with comply with Rule 10A–3 8 under the Securities and Exchange Commission, the Securities and Exchange Act for the initial and continued listing 100 F Street, NE., Washington, DC Commission (‘‘Commission’’) pursuant of the Shares. Additionally, the 20549–1090. to Section 19(b)(1) of the Securities Exchange represents that the Shares will 1 and Rule Exchange Act of 1934 (‘‘Act’’) All submissions should refer to File comply with all other requirements 2 a proposed rule 19b–4 thereunder, Number SR–NASDAQ–2010–100. This applicable to Units including, but not change to list and trade shares (‘‘Shares’’) file number should be included on the limited to, requirements relating to the subject line if e-mail is used. To help the of the Wilshire Micro-Cap ETF. The dissemination of key information such proposed rule change was published for Commission process and review your as the value of the Index and Intraday comment in the Federal Register on July comments more efficiently, please use Indicative Value, rules governing the 3 The Commission received no 15, 2010. trading of equity securities, trading only one method. The Commission will comment letters on the proposed rule hours, trading halts, surveillance, and post all comments on the Commission’s change. This order approves the Information Bulletin to ETP Holders, as Internet Web site (https://www.sec.gov/ proposed rule change. set forth in Exchange rules applicable to rules/sro.shtml). Copies of the Units and prior Commission orders II. Description of the Proposed Rule submission, all subsequent approving the generic listing rules Change amendments, all written statements applicable to the listing and trading of with respect to the proposed rule The Exchange proposes to list and Units.9 change that are filed with the trade the Shares of the Wilshire Micro4 under NYSE Commission, and all written Cap ETF (the ‘‘Fund’’) 6 Commentary .01(a)(A)(1) to NYSE Arca Equities communications relating to the Arca Equities Rule 5.2(j)(3), the Rule 5.2(j)(3) provides that component stocks Exchange’s listing standards for proposed rule change between the (excluding Units and securities defined in Section Commission and any person, other than Investment Company Units (‘‘Units’’).5 2 of NYSE Arca Equities Rule 8, collectively, ‘‘Derivative Securities Products’’) that in the The Fund is a series of the Claymore those that may be withheld from the aggregate account for at least 90% of the weight of Exchange-Traded Fund Trust. public in accordance with the the index or portfolio (excluding such Derivative The Fund seeks investment results provisions of 5 U.S.C. 552, will be Securities Products) each shall have a minimum that correspond generally to the market value of at least $75 million. The Exchange available for Web site viewing and has represented that, as of April 21, 2010, 76.93% performance, before fees and expenses, printing in the Commission’s Public of the weight of the Index components had a market of the Wilshire US Micro-Cap Index SM Reference Room, on official business capitalization greater than $75 million. 7 Commentary .01(a)(A)(5) to NYSE Arca Equities days between the hours of 10 a.m. and 17 17 CFR 200.30–3(a)(12). Rule 5.2(j)(3) provides that all securities in the 3 p.m. Copies of the filing also will be 1 15 U.S.C. 78s(b)(1). index or portfolio shall be US Component Stocks available for inspection and copying at 2 17 CFR 240.19b–4. listed on a national securities exchange and shall 3 See Securities Exchange Act Release No. 62471 the principal office of the Exchange. All be NMS Stocks as defined in Rule 600 of Regulation (July 8, 2010), 75 FR 41252 (‘‘Notice’’). NMS under the Act. The Exchange has represented comments received will be posted 4 See the Claymore Exchange-Traded Fund that, as of April 21, 2010, 201 of approximately without change; the Commission does 1,564 components in the Index, accounting for Trust’s registration statement on Form N–1A, dated not edit personal identifying approximately 12.8% of the total stocks in the May 18, 2010 (File Nos. 333–134551; 811–21906) Index and approximately 3.7% of the Index weight, information from submissions. You (‘‘Registration Statement’’). were non-NMS stocks that trade either on the OTC 5 An Investment Company Unit is a security that should submit only information that Bulletin Board or the Pink OTC Markets. you wish to make available publicly. All represents an interest in a registered investment 8 17 CFR 240.10A–3. company that holds securities comprising, or submissions should refer to File 9 See, e.g., Securities Exchange Act Release Nos. otherwise based on or representing an interest in, Number SR–NASDAQ–2010–100 and 44551 (July 12, 2001), 66 FR 37716 (July 19, 2001) an index or portfolio of securities (or holds (SR–PCX–2001–14) (order approving generic listing securities in another registered investment should be submitted on or before standards for Units and Portfolio Depositary company that holds securities comprising, or September 13, 2010. Receipts); and 41983 (October 6, 1999), 64 FR 56008 otherwise based on or representing an interest in, an index or portfolio of securities). See NYSE Arca Equities Rule 5.2(j)(3)(A). VerDate Mar<15>2010 15:31 Aug 20, 2010 Jkt 220001 PO 00000 Frm 00116 Fmt 4703 Sfmt 4703 (October 15, 1999) (SR–PCX–98–29) (order approving rules for listing and trading of Units). E:\FR\FM\23AUN1.SGM 23AUN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 75, Number 162 (Monday, August 23, 2010)]
[Notices]
[Pages 51861-51863]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-20820]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62736; File No. SR-NASDAQ-2010-100]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change Regarding Routing to an 
Affiliated Exchange

August 17, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on August 6, 2010, The NASDAQ Stock Market LLC (``NASDAQ'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the Exchange. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASDAQ is proposing a rule change to amend Rule 4751 to modify the 
restriction on routing of Directed Orders to a facility of an exchange 
that is an affiliate of NASDAQ. 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.

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.

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

1. Purpose
    The NASDAQ OMX Group, Inc. (``NASDAQ OMX''), a Delaware 
corporation, owns three U.S. registered securities exchanges--NASDAQ, 
NASDAQ OMX PHLX, Inc. (``PHLX'') and NASDAQ OMX BX, Inc. (``BX''). In 
addition, NASDAQ OMX currently indirectly owns Nasdaq Execution 
Services, LLC (``NES''), a registered broker-dealer and a member of 
PHLX. Thus, NES is an affiliate of each of NASDAQ, PHLX and BX.
    PHLX has proposed to launch NASDAQ OMX PSX (``PSX'') \3\ as a new 
platform for trading NMS stocks (as defined in Rule 600 under 
Regulation NMS).\4\ Although PSX will not route to other market 
centers, PSX will receive orders routed to it by other market centers, 
including NASDAQ. In this respect, PSX will be similar to the NASDAQ 
OMX BX Equities System, which does not currently route orders to other 
venues.
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    \3\ Securities Exchange Act Release No. 62519 (July 16, 2010), 
75 FR 43497 (July 26, 2010) (SR-PHLX-2010-79) (``PSX Proposal'').
    \4\ 17 CFR 242.600.
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    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 \5\ 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 numerous occasions since 
then.\6\ Rules 4751 and 4758 establish the conditions under which 
NASDAQ is permitted to own and operate NES in its

[[Page 51862]]

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, 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; \7\ and (5) NASDAQ will not route orders to an affiliated 
exchange, such as PHLX, unless they check the NASDAQ book prior to 
routing.
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    \5\ 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).
    \6\ See Securities Exchange Act Release Nos. 61682 (March 10, 
2010), 75 FR 12592 (March 16, 2010) (SR-NASDAQ-2010-030); 61460 
(February 1, 2010, 75 FR 6077 (February 5, 2010) (SR-NASDAQ-2010-
018); 60570 (August 26, 2009), 74 FR 45504 (September 2, 2009) (SR-
NASDAQ-2009-079); 60039 (June 3, 2009), 74 FR 27365 (June 9, 2009) 
(SR-NASDAQ-2009-050); 59875 (May 6, 2009), 74 FR 22794 (May 14, 
2009) (SR-NASDAQ-2009-043); 59807 (April 21, 2009), 74 FR 19251 
(April 28, 2009) (SR-NASDAQ-2009-036); 59153 (December 23, 2008), 73 
FR 80485 (December 31, 2008) (SR-NASDAQ-2008-098); 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).
    \7\ Because only NASDAQ members may enter orders into NASDAQ, it 
also follows that routing by NES is available only to NASDAQ 
members.
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    The Commission has approved NES's affiliation with PHLX 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; (3) 
NES does not provide routing of orders to PHLX or any trading 
facilities thereof, unless such orders first attempt to access any 
liquidity on the NASDAQ book; and (4) for purposes of Commission Rule 
17d-1, the designated examining authority of NES is a self-regulatory 
organization unaffiliated with NASDAQ.\8\
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    \8\ See Securities Exchange Act Release No. 58179 (July 17, 
2008), 73 FR 42874 (July 23, 2008) (SR-Phlx-2008-31).
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    NASDAQ is proposing that, upon the resumption of cash equity 
trading by PHLX, NES, in its operation as a facility of NASDAQ, be 
permitted to route all orders, including Directed Orders, to PSX 
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.\9\ In order 
to modify the conditions regarding the operation of NES and allow NES 
to route Directed Orders to PSX, NASDAQ is proposing to modify the 
restriction in 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 PSX facility of PHLX would be permitted.
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    \9\ 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.
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    The Commission has previously noted 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.\10\ In order to 
address the concerns identified by the Commission regarding the 
potential for informational advantages favoring NES vis-[agrave]-vis 
other non-affiliated members of BX, NASDAQ previously adopted Rule 
4758(b)(8) to provide that NES shall 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 (including PHLX).\11\
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    \10\ See, e.g., Securities Exchange Act Release Nos. 59153 
(December 23, 2008), 73 FR 80485 (December 31, 2008) (SR-NASDAQ-
2008-098) (``BX Order''); 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'').
    \11\ BX Order, supra n. 10.
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    In connection with the proposed launch of PSX, PHLX has proposed a 
new rule and made certain undertakings intended to manage the flow of 
confidential and proprietary information between NES and PHLX and to 
minimize potential conflicts of interest.\12\ PHLX's proposed Rule 
985(c)(2) will provide:
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    \12\ PSX Proposal, supra n. 3.

    The NASDAQ OMX Group, Inc., which owns Nasdaq Execution 
Services, LLC and the Exchange, shall establish and maintain 
procedures and internal controls reasonably designed to ensure that 
Nasdaq Execution Services, LLC does not develop or implement changes 
to its system on the basis of non-public information regarding 
planned changes to the Exchange's systems, obtained as a result of 
its affiliation with the Exchange, until such information is 
available generally to similarly situated exchange members in 
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connection with the provision of inbound routing to the Exchange.

    Pursuant to the new rule, PHLX has proposed to allow PSX to receive 
inbound routed orders for a twelve-month pilot period.
2. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\13\ in general, and with 
Section 6(b)(5) of the Act,\14\ 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 PHLX 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.
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    \13\ 15 U.S.C. 78f.
    \14\ 15 U.S.C. 78f(b)(5).
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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. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change 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, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \15\ and Rule 19b-
4(f)(6) thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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 designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within the 60-day period beginning on the date of the 
filing of the proposed rule change, the Commission summarily may 
temporarily suspend 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.

[[Page 51863]]

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 (https://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2010-100 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2010-100. 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 Web site 
viewing and printing in the Commission's Public Reference Room, on 
official business days between the hours of 10 a.m. and 3 p.m. Copies 
of the 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-2010-100 and should be submitted on or before 
September 13, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-20820 Filed 8-20-10; 8:45 am]
BILLING CODE 8010-01-P

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