Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify the Minor Rules Violation Plan of the Nasdaq Options Market With Respect to Standardized Options, 13007-13010 [2011-5380]

Download as PDF Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Notices Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–MSRB–2011–02 on the subject line. Paper Comments Emcdonald on DSK2BSOYB1PROD with NOTICES • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–64032; File No. SR– NASDAQ–2011–029] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify the Minor Rules Violation Plan of the Nasdaq Options Market With Respect to Standardized Options March 4, 2011. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 All submissions should refer to File (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 Number SR–MSRB–2011–02. This file notice is hereby given that on February number should be included on the 18, 2011, The NASDAQ Stock Market subject line if e-mail is used. To help the LLC (‘‘NASDAQ’’ or ‘‘Exchange’’) filed Commission process and review your with the Securities and Exchange comments more efficiently, please use Commission (‘‘Commission’’) the only one method. The Commission will proposed rule change as described in post all comments on the Commission’s Items I, II, and III below, which Items Internet Web site (http://www.sec.gov/ have been prepared by NASDAQ. The rules/sro.shtml). Copies of the Commission is publishing this notice to submission, all subsequent solicit comments on the proposed rule amendments, all written statements change from interested persons. with respect to the proposed rule I. Self-Regulatory Organization’s change that are filed with the Statement of the Terms of the Substance Commission, and all written of the Proposed Rule Change communications relating to the proposed rule change between the NASDAQ proposes to modify the Commission and any person, other than Minor Rules Violation Plan with respect those that may be withheld from the to standardized options as set forth in public in accordance with the Chapter X, Section 7 of the Nasdaq provisions of 5 U.S.C. 552, will be Options Market (‘‘NOM’’) rules. available for website viewing and The text of the proposed rule change printing in the Commission’s Public is available at http:// Reference Room, 100 F Street, NE., nasdaq.cchwallstreet.com/, at Washington, DC 20549, on official NASDAQ’s principal office, on the business days between the hours of 10 Commission’s Web site at http:// a.m. and 3 p.m. Copies of such filing also will be available for inspection and www.sec.gov, and at the Commission’s Public Reference Room. copying at the MSRB’s offices. All comments received will be posted II. Self-Regulatory Organization’s without change; the Commission does Statement of the Purpose of, and not edit personal identifying Statutory Basis for, the Proposed Rule information from submissions. You Change should submit only information that you wish to make available publicly. All In its filing with the Commission, submissions should refer to File NASDAQ included statements Number SR–MSRB–2011–02 and should concerning the purpose of and basis for be submitted on or before March 30, the proposed rule change and discussed 2011. any comments it received on the proposed rule change. The text of these For the Commission, by the Division of statements may be examined at the Trading and Markets, pursuant to delegated places specified in Item IV below. authority.10 NASDAQ has prepared summaries, set Cathy H. Ahn, forth in Sections A, B, and C below, of Deputy Secretary. the most significant aspects of such [FR Doc. 2011–5279 Filed 3–8–11; 8:45 am] statements. BILLING CODE 8011–01–P 1 15 10 17 CFR 200.30–3(a)(12). VerDate Mar<15>2010 18:04 Mar 08, 2011 2 17 Jkt 223001 PO 00000 U.S.C. 78s(b)(1). CFR 240.19–b4. Frm 00076 Fmt 4703 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Minor Rules Violation Plan (‘‘MRVP’’) fosters compliance with applicable rules and also helps to reduce the number and extent of rule violations committed by Options Participants and associated persons. The MRVP is particularly useful in reducing both the number and extent of rule violations because the text of the rule, located at Chapter X, Section 7, enables staff to promptly impose a limited but meaningful financial penalty soon after the violations are detected. The prompt imposition of a financial penalty helps to quickly educate and improve the conduct of Options Participants and associated persons that have engaged in inadvertent or otherwise minor violations of the Exchange’s rules, particularly those parties who may not pay attention to mere warnings that they are violating Exchange rules. By promptly imposing a meaningful financial penalty for such violations, the MRVP focuses on correcting conduct before it gives rise to more serious enforcement action. The Exchange believes its proposal places the Exchange on par with all other options exchanges. Currently, all options exchanges have entered into a plan pursuant to Rule 17d–2 of the Act (the ‘‘Plan’’) to agree to allocate regulatory responsibility for certain rules common to all options exchanges. Adding the proposed rules to the Exchange’s minor rule plan promotes consistency with the minor rule violations plans of the other exchanges, particularly with respect to rule [sic] that are classified as common rules pursuant to the Plan. In light of recent amendments to Exchange rules, the Exchange is proposing to make amendments to the MVRP as described in greater detail below. While the MRVP will continue to be used for inadvertent and occasional rule violations, serious violations of Exchange rules will continue to be addressed through formal enforcement action.3 LOPR Reporting and Position Limit Violations Proposed new subsection (d) of Chapter X, Section 7 will govern minor violations of the rules regarding Large Option Position Report (‘‘LOPR’’) Reporting and Position Limits as set forth in Chapter III, Sections 7–10. This 3 See Sfmt 4703 13007 E:\FR\FM\09MRN1.SGM Exchange Section 9200 Series Rules. 09MRN1 13008 Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Notices Audit Trail Submissions and Record Keeping Requirements Violations Expiring Exercise Declaration Rule Violations Emcdonald on DSK2BSOYB1PROD with NOTICES section applies to position limits and maintaining and furnishing reports related to applicable position limits for options contracts. For minor rule violations of LOPR Reporting, the fine for a first offense would be $1,000; the fine for a second offense would be $2,500; and for any subsequent offense the fine would be $5,000. For minor rule violations of position limits, the fine for a first offense would be $500; for a second offense the fine would be $1,000; and for any subsequent offense the fine would be $2,500. The scope of this proposed subsection is substantially similar to and is applicable to the conduct covered by the MRVP provision of Rule 476A, Part 1C(i)(17) of the NYSE Amex Exchange (‘‘Amex’’). Specifically, Amex Rule 476A, Part 1C(i)(17), entitled ‘‘Position Limit or Exercise Limit Violation. (Rule 904, 904C, 905, 905C, 1107, 1108)’’ governs violations of position and exercise limits set forth in the enumerated Amex rules. Furthermore, proposed new subsection (d) references Chapter III, Sections 7, 8, and 9 of the Exchange Rules and also govern violations of position (Sections 7 and 8) and exercise (Section 9) limits. Likewise, Amex Rule 476A, Part 1C(i)(38), entitled ‘‘Reporting of options positions. (Rule 906(a) and 906C(a))’’ governs a failure to report options positions as set forth in Amex Rule 906 (Reporting of Options Positions), which is similar to Exchange Rule Chapter III, Section 10 (Reports Related to Position Limits). Based on the similarity of rules between the Exchange and Amex and the overlap between NOM and Amex members, the Exchange believes that the proposal is non-controversial. Representation of Orders Violations Proposed new subsection (e) would govern minor violations regarding exercise of options contracts, allocation of exercise notices and delivery and payment of the underlying security set forth in Chapter VIII, Sections 1–3 of the Exchange’s Rules. For these minor rules violations by individuals, the fine for a first offense would be $500, the fine for a second offense would be $1,000, and for any subsequent offense the fine would be $2,500. For these minor rules violations by a firm, the fine for a first offense would be $1,000, the fine for a second offense would be $2,500, and for any subsequent offense the fine would be $5,000. The language of this proposed subsection is identical to and applicable to the conduct covered by the MRVP provision in Chapter X, Section 2(f) of the rules of the rules of Boston Options Exchange (‘‘BOX’’). VerDate Mar<15>2010 18:04 Mar 08, 2011 Jkt 223001 Proposed new subsection (f) would govern minor violations of the Audit Trail Submissions and Record Keeping Requirements set forth in Chapter V, Section 7 and Chapter IX, Sections 1–3 of the Exchange’s Rules. These rules address the submission of audit trail information and require information to be recorded, retained and provided upon request by the Exchange’s Regulation or other applicable regulatory entity. For minor rules violations regarding the submission of audit trail information, the fine for a first offense would be $1,500, the fine for a second offense would be $3,000, and for any subsequent offense the fine would be $5,000. The proposed provision is substantially similar to and applicable to conduct covered by Rule 10.12(h)(2) entitled ‘‘Failure to comply with order formal and system entry requirements of Rule 6.67’’ and Rule 10.12(k)(i)(2) of the rules of the NYSE Arca, Inc. (‘‘NYSE Arca’’). Likewise, the fine amounts are mirror NYSE Arca for minor rules violations regarding recordkeeping requirements and requirements for providing records upon request—the fine for a first offense would be $2,000, the fine for a second offense would be $4,000, and for any subsequent offense the fine would be $5,000. The proposed provision is substantially similar to and applicable to conduct covered by Rule 10.12(j)(10) entitled ‘‘Failure to comply with the books and records requirements of Rule 9.17’’ and Rule 10.12(k)(iii)(10) of the rules of NYSE Arca. Proposed new subsection (g) will govern minor violations of the rules regarding Representation of Orders set forth in Chapter VII, Section 12 of the Exchange Rules. These rules restrict options participant executions of principal orders they represent as agent unless proper exposure parameters are applied. For these minor rules violations, the fine for a first offense would be $1000, the fine for a second offense would be $2,500, and for any subsequent offenses the fine would be $5,000. This proposed provision is substantially similar to and applicable to the same conduct and fines covered by Rules 10.12(h)(34) entitled ‘‘Failure to satisfy the Order Exposure Requirements set forth in Rule 6.47A and its Commentary’’ and Rule 10.12(k)(i)(34) of the rules of NYSE Arca. NYSE Arca Rule 6.47A governs requirements for exposed orders. PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 Trade Reporting Violations Proposed new subsection (h) will govern minor violations of the Trade Reporting rules set forth in Chapter VI, Sections 14 and 15 of the Exchange Rules. These rules require that all transactions effected on the Exchange: (i) be submitted for clearance to The Options Clearing Corporation; (ii) that Options Participants report the name of the Clearing Participants; and (iii) the prompt reporting of any change in this identity to the Exchange. For these minor rules violations, the fine for a first offense would be $1,500, the fine for a second offense would be $3,000, and for any subsequent offense the fine would be $5,000. This proposed provision is substantially similar to and applicable to the same conduct and fines covered by Rule 10.12(h)(38) entitled ‘‘Failure to comply with the reporting duties of Rule 6.69)’’ of the rules of NYSE Arca. Specifically, NYSE Arca Rule 6.69(e) governs the submission of trade reporting information regarding clearing through The Options Clearing Corporation. Locked and Cross Market Violations Proposed new subsection (i) will govern Locked and Cross Market Violations as set forth in Chapter XII, Section 3 of the Exchange Rules. The Locked and Crossed Markets rules address violations of the rules regarding avoidance of Locked or Crossed Markets. For these minor rules violations, the fine for a first offense would be $500, the fine for a second offense would be $1,000, and for any subsequent offense the fine would be $2,500. The language of this proposed subsection is identical to and applicable to the conduct and fines covered by Rule 10.12(h)(35) entitled ‘‘Failure to avoid locking a market (Rule 6.95)’’ and 10.12(k)(i)(35) of the rules of NYSE Arca. The underlying provisions of the Exchange and NYSE Arca rules are all based on the same provisions of the Options Order Protection and Locked/ Crossed Market Plan.4 Trade-Through Violations Proposed new subsection (j) would govern Trade-Through Violations that occur pursuant to Chapter XII, Section 2(a) of the Exchange Rules. The TradeThrough Rules prevent market 4 On August 31, 2009, the Nasdaq Stock Market, LLC and NASDAQ OMX PHLX LLC (herein collectively referred to as ‘‘NASDAQ’’) entered into the ‘‘Options Order Protection and Locked/Crossed Market Plan’’ (‘‘Plan’’) amongst other Participants, which was approved by the Securities and Exchange Commission (‘‘SEC’’) pursuant to Section 11A(a)(3)(B) of the Exchange Act and Rule 608, effective on August 28, 2009, Release No. 34–60582. E:\FR\FM\09MRN1.SGM 09MRN1 Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Notices participants from executing orders at prices that are inferior to other displayed quotations. For these minor rules violations, the fine for a First Offense would be $500, the fine for a second offense would be $1,000, and for any subsequent offense the fine would be $2,500. The language of this proposed subsection is substantially applicable to the conduct and fines covered by Rule 10.12(h)(29) entitled ‘‘Failure to comply with the requirements for avoidance of tradethroughs set forth in Rule 6.94(a)’’ and Rule 10.12(k)(i)(29) of the rules of NYSE Arca. The underlying provisions of the Exchange and NYSE Arca rules are all based on the same provisions of the Options Order Protection and Locked/ Crossed Market Plan. Emcdonald on DSK2BSOYB1PROD with NOTICES Failure to Timely File Amendments to Form U4, Form U5 and Form BD Violations Proposed new subsection (k) would govern Failure to Timely File Amendments to Form U4, Form U5 and Form BD. Any member and/or participant organization that is required to file Form U4, Form U5 or Form BD pursuant to Section 1031 of the Exchange Rules, the Act, and/or the rules promulgated thereunder, is required to amend the applicable Form U4, Form U5 or Form BD to keep such forms current at all times. Members and/or participant organizations must amend Form U4, Form U5 and Form BD within thirty days after the filer knew of or should have known of the need for the amendment. For these minor rules violations, implemented on a running twelve (12) month period the fine for a first offense would be $500, the fine for a second offense would be $1,000, and for any subsequent offense the fine would be $2,000. The language of this proposed subsection is identical to and applicable to the conduct and fines covered by the MRVP provision in Chapter X, Section 2(e) of the rules of BOX, which addresses the same provisions. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,5 in general, and Section 6(b)(5) of the Act,6 in particular, because it 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 facilitating transactions in securities, and to remove impediments to and perfect the mechanism of a free and open market and a national market system. The proposed rule change is consistent with the statute in that it directly addresses fraudulent and manipulative acts and practices by NOM members. The proposed rule change is consistent with Section 6(b)(6) of the Act 7 which provides that members and persons associated with members shall be appropriately disciplined for violation of the provisions of the rules of the exchange, by expulsion, suspension, limitation of activities, functions, and operations, fine, censure, being suspended or barred from being associated with a member, or any other fitting sanction. The establishment and modification of a MRVP directly addresses such requirement. B. Self-Regulatory Organization’s Statement on Burden on Competition NASDAQ does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended. 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 Pursuant to Section 19(b)(3)(A) of the Act 8 and Rule 19b–4(f)(6) thereunder,9 The [sic] Exchange has designated this proposal as one that effects a change that: (i) Does not significantly affect the protection of investors or the public interest; (ii) does not impose any significant burden on competition; and (iii) by its terms, does not become operative for thirty days after the date of the filing, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest. The Exchange has provided the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change. The Exchange believes that the filing may appropriately be designated for filing under Rule 19b–4(f)(6) because the filing eliminates inconsistencies 7 15 U.S.C. 78f(b)(6). U.S.C. 78s(b)(3)(A). 9 17 CFR 240.19b–4(f)(6). 5 15 U.S.C. 78f. 6 15 U.S.C. 78f(b)(5). VerDate Mar<15>2010 18:04 Mar 08, 2011 8 15 Jkt 223001 PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 13009 between the Exchange’s MRVP and those of other exchanges. The proposed rules of the Exchange are substantially similar to the rules of other exchanges. This similarity is the basis for the Exchange’s belief that the proposed rule change is non-controversial. Since no significant issues have been raised with this ‘‘copycat’’ filing, the Exchange believes that this filing will afford it the same operability regarding the MRVP as the other exchanges.10 In addition, the proposal will improve the regulation of NOM and its members, and enhance investor protection on the Exchange. At any time within 60 days 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. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, as amended, is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–NASDAQ–2011–029 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–2011–029. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your 10 See Securities Exchange Act Release No. 58092 (July 3, 2008), 73 FR 40144 (July 11, 2008) at 40151, where the Securities and Exchange Commission acknowledges that ‘‘any increase in the number of proposed rule changes that may become effective upon filing with the Commission should improve the ability of SROs to amend their rules efficiently, particularly with respect to rules relating to trading systems and ‘‘copycat’’ proposals, which will enhance their ability to respond to competitive pressures by allowing them to file changes to their systems on an immediately-effective basis’’. E:\FR\FM\09MRN1.SGM 09MRN1 13010 Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Notices comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/sro.shtml). 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 website 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 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–2011–029, and should be submitted on or before March 30, 2011. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.11 Cathy H. Ahn, Deputy Secretary. [FR Doc. 2011–5380 Filed 3–8–11; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–64028; File No. SR–BX– 2010–059] Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Designation of Longer Period for Commission Action on Proceedings To Determine Whether To Disapprove Proposed Rule Change, as Modified by Amendment No. 1, To Create a Listing Market on the Exchange Emcdonald on DSK2BSOYB1PROD with NOTICES March 3, 2011. On August 20, 2010, NASDAQ OMX BX, Inc. (the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to 11 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Mar<15>2010 18:04 Mar 08, 2011 Jkt 223001 create a listing market on the Exchange. The proposed rule change was published for comment in the Federal Register on September 8, 2010.3 The Commission received three comment letters on the proposal.4 The Commission subsequently extended the time period in which to either approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change, to December 7, 2010.5 On December 6, 2010, the Exchange filed Amendment No. 1 to the proposed rule change.6 On December 7, 2010, the Commission instituted proceedings to determine whether to disapprove the proposed rule change, as modified by Amendment No. 1.7 The Commission thereafter received seven comments on the proposal.8 The Exchange responded to these comments on February 17, 2011.9 Section 19(b)(2) of the Act 10 provides that, after initiating disapproval proceedings, the Commission shall issue an order approving or disapproving the proposed rule change not later than 180 days after the date of publication of notice of the filing of the proposed rule change. The Commission may extend the period for issuing an order approving or disapproving the proposed rule change, however, by not more than 60 days if the Commission determines 3 See Securities Exchange Act Release No. 62818 (September 1, 2010), 75 FR 54665 (‘‘Notice’’). 4 See Letters to Elizabeth M. Murphy, Secretary, Commission, from William F. Galvin, Secretary of the Commonwealth, Commonwealth of Massachusetts, dated September 28, 2010; Michael R. Trocchio, Bingham McCutchen LLP, on behalf of Pink OTC Markets Inc., dated October 3, 2010; and Tom A. Alberg, Managing Director and Founder, Madrona Venture Group, dated December 1, 2010. 5 See Securities Exchange Act Release No. 63105 (October 14, 2010), 75 FR 64772 (October 20, 2010) (‘‘Extension’’). 6 See Securities Exchange Act Release No. 63597 (December 22, 2010), 75 FR 82098 (December 29, 2010) (‘‘Amendment No. 1’’). 7 See Securities Exchange Act Release No. 63448 (December 7, 2010), 75 FR 77036 (December 10, 2010) (‘‘Order Instituting Proceedings’’). 8 See Letters to Elizabeth M. Murphy, Secretary, Commission, from James J. Angel, Ph.D., CFA, dated January 14, 2011; K. Richard B. Niehoff, Chairman and CEO, United States OTC Markets, Inc., dated January 20, 2011; Mark G. Heesen, President, National Venture Capital Association, dated January 21, 2011; Alan F. Eisenberg, Executive Vice President, Emerging Companies and Business Development, Biotechnology Industry Organization, dated January 24, 2011; Michael R. Trocchio, Bingham McCutchen LLP, on behalf of OTC Markets Group Inc., dated January 24, 2011; Rey Ramsey, President and CEO, TechNet, dated January 24, 2011; and William F. Galvin, Secretary of the Commonwealth, Commonwealth of Massachusetts, dated January 26, 2011. 9 See Letter to Elizabeth M. Murphy, Secretary, Commission, from Joan C. Conley, Senior Vice President and Corporate Secretary, The NASDAQ OMX Group, dated February 17, 2011. 10 15 U.S.C. 78s(b)(2). PO 00000 Frm 00079 Fmt 4703 Sfmt 9990 that a longer period is appropriate and publishes the reasons for such determination. The proposed rule change was published for notice and comment in the Federal Register on September 8, 2010. March 7, 2011 is 180 days from that date, and May 6, 2011 is an additional 60 days from that date. The Commission finds it appropriate to designate a longer period within which to issue an order approving or disapproving the proposed rule change so that it has sufficient time to consider this proposed rule change, the issues raised in the comment letters that have been submitted in connection with this proposed rule change, and the Exchange’s response to such issues in its response letter. Specifically, while the Exchange noted a number of benefits to the proposal,11 as the Commission noted in the Order Instituting Proceedings, the proposal raises issues such as whether BX-listed securities could be more prone to manipulation, and whether investors will understand that BX-listed securities could pose substantially more risk than those listed on other markets.12 Accordingly, the Commission, pursuant to Section 19(b)(2) of the Act,13 designates May 6, 2011, as the date by which the Commission should either approve or disapprove the proposed rule change. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14 Cathy H. Ahn, Deputy Secretary. [FR Doc. 2011–5379 Filed 3–8–11; 8:45 am] BILLING CODE 8011–01–P 11 The Exchange believes that a BX listing could help companies that are being delisted from another national securities exchange for failure to meet its quantitative listing standards and companies with smaller market capitalization contemplating an initial exchange listing to raise capital, and in turn promote job creation within the United States. See Amendment No. 1, supra note 6 at 82100. The Exchange further believes that the proposed listing venue will provide a transparent, well-regulated marketplace for these companies and their investors. See id. at 82099. 12 See Order Instituting Proceedings, supra note 7 at 77040. 13 15 U.S.C. 78s(b)(2). 14 17 CFR 200.30–3(a)(57). E:\FR\FM\09MRN1.SGM 09MRN1

Agencies

[Federal Register Volume 76, Number 46 (Wednesday, March 9, 2011)]
[Notices]
[Pages 13007-13010]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-5380]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64032; File No. SR-NASDAQ-2011-029]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Modify the Minor Rules Violation Plan of the Nasdaq Options Market With 
Respect to Standardized Options

March 4, 2011.
    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 February 18, 2011, The NASDAQ Stock Market LLC (``NASDAQ'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by NASDAQ. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19-b4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    NASDAQ proposes to modify the Minor Rules Violation Plan with 
respect to standardized options as set forth in Chapter X, Section 7 of 
the Nasdaq Options Market (``NOM'') rules.
    The text of the proposed rule change is available at http://nasdaq.cchwallstreet.com/, at NASDAQ's principal office, on the 
Commission's Web site at http://www.sec.gov, and at the Commission's 
Public Reference Room.

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

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

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

1. Purpose
    The Minor Rules Violation Plan (``MRVP'') fosters compliance with 
applicable rules and also helps to reduce the number and extent of rule 
violations committed by Options Participants and associated persons. 
The MRVP is particularly useful in reducing both the number and extent 
of rule violations because the text of the rule, located at Chapter X, 
Section 7, enables staff to promptly impose a limited but meaningful 
financial penalty soon after the violations are detected. The prompt 
imposition of a financial penalty helps to quickly educate and improve 
the conduct of Options Participants and associated persons that have 
engaged in inadvertent or otherwise minor violations of the Exchange's 
rules, particularly those parties who may not pay attention to mere 
warnings that they are violating Exchange rules. By promptly imposing a 
meaningful financial penalty for such violations, the MRVP focuses on 
correcting conduct before it gives rise to more serious enforcement 
action.
    The Exchange believes its proposal places the Exchange on par with 
all other options exchanges. Currently, all options exchanges have 
entered into a plan pursuant to Rule 17d-2 of the Act (the ``Plan'') to 
agree to allocate regulatory responsibility for certain rules common to 
all options exchanges. Adding the proposed rules to the Exchange's 
minor rule plan promotes consistency with the minor rule violations 
plans of the other exchanges, particularly with respect to rule [sic] 
that are classified as common rules pursuant to the Plan.
    In light of recent amendments to Exchange rules, the Exchange is 
proposing to make amendments to the MVRP as described in greater detail 
below. While the MRVP will continue to be used for inadvertent and 
occasional rule violations, serious violations of Exchange rules will 
continue to be addressed through formal enforcement action.\3\
---------------------------------------------------------------------------

    \3\ See Exchange Section 9200 Series Rules.
---------------------------------------------------------------------------

LOPR Reporting and Position Limit Violations

    Proposed new subsection (d) of Chapter X, Section 7 will govern 
minor violations of the rules regarding Large Option Position Report 
(``LOPR'') Reporting and Position Limits as set forth in Chapter III, 
Sections 7-10. This

[[Page 13008]]

section applies to position limits and maintaining and furnishing 
reports related to applicable position limits for options contracts. 
For minor rule violations of LOPR Reporting, the fine for a first 
offense would be $1,000; the fine for a second offense would be $2,500; 
and for any subsequent offense the fine would be $5,000. For minor rule 
violations of position limits, the fine for a first offense would be 
$500; for a second offense the fine would be $1,000; and for any 
subsequent offense the fine would be $2,500. The scope of this proposed 
subsection is substantially similar to and is applicable to the conduct 
covered by the MRVP provision of Rule 476A, Part 1C(i)(17) of the NYSE 
Amex Exchange (``Amex''). Specifically, Amex Rule 476A, Part 1C(i)(17), 
entitled ``Position Limit or Exercise Limit Violation. (Rule 904, 904C, 
905, 905C, 1107, 1108)'' governs violations of position and exercise 
limits set forth in the enumerated Amex rules. Furthermore, proposed 
new subsection (d) references Chapter III, Sections 7, 8, and 9 of the 
Exchange Rules and also govern violations of position (Sections 7 and 
8) and exercise (Section 9) limits. Likewise, Amex Rule 476A, Part 
1C(i)(38), entitled ``Reporting of options positions. (Rule 906(a) and 
906C(a))'' governs a failure to report options positions as set forth 
in Amex Rule 906 (Reporting of Options Positions), which is similar to 
Exchange Rule Chapter III, Section 10 (Reports Related to Position 
Limits). Based on the similarity of rules between the Exchange and Amex 
and the overlap between NOM and Amex members, the Exchange believes 
that the proposal is non-controversial.

Expiring Exercise Declaration Rule Violations

    Proposed new subsection (e) would govern minor violations regarding 
exercise of options contracts, allocation of exercise notices and 
delivery and payment of the underlying security set forth in Chapter 
VIII, Sections 1-3 of the Exchange's Rules. For these minor rules 
violations by individuals, the fine for a first offense would be $500, 
the fine for a second offense would be $1,000, and for any subsequent 
offense the fine would be $2,500. For these minor rules violations by a 
firm, the fine for a first offense would be $1,000, the fine for a 
second offense would be $2,500, and for any subsequent offense the fine 
would be $5,000. The language of this proposed subsection is identical 
to and applicable to the conduct covered by the MRVP provision in 
Chapter X, Section 2(f) of the rules of the rules of Boston Options 
Exchange (``BOX'').

Audit Trail Submissions and Record Keeping Requirements Violations

    Proposed new subsection (f) would govern minor violations of the 
Audit Trail Submissions and Record Keeping Requirements set forth in 
Chapter V, Section 7 and Chapter IX, Sections 1-3 of the Exchange's 
Rules. These rules address the submission of audit trail information 
and require information to be recorded, retained and provided upon 
request by the Exchange's Regulation or other applicable regulatory 
entity. For minor rules violations regarding the submission of audit 
trail information, the fine for a first offense would be $1,500, the 
fine for a second offense would be $3,000, and for any subsequent 
offense the fine would be $5,000. The proposed provision is 
substantially similar to and applicable to conduct covered by Rule 
10.12(h)(2) entitled ``Failure to comply with order formal and system 
entry requirements of Rule 6.67'' and Rule 10.12(k)(i)(2) of the rules 
of the NYSE Arca, Inc. (``NYSE Arca''). Likewise, the fine amounts are 
mirror NYSE Arca for minor rules violations regarding recordkeeping 
requirements and requirements for providing records upon request--the 
fine for a first offense would be $2,000, the fine for a second offense 
would be $4,000, and for any subsequent offense the fine would be 
$5,000. The proposed provision is substantially similar to and 
applicable to conduct covered by Rule 10.12(j)(10) entitled ``Failure 
to comply with the books and records requirements of Rule 9.17'' and 
Rule 10.12(k)(iii)(10) of the rules of NYSE Arca.

Representation of Orders Violations

    Proposed new subsection (g) will govern minor violations of the 
rules regarding Representation of Orders set forth in Chapter VII, 
Section 12 of the Exchange Rules. These rules restrict options 
participant executions of principal orders they represent as agent 
unless proper exposure parameters are applied. For these minor rules 
violations, the fine for a first offense would be $1000, the fine for a 
second offense would be $2,500, and for any subsequent offenses the 
fine would be $5,000. This proposed provision is substantially similar 
to and applicable to the same conduct and fines covered by Rules 
10.12(h)(34) entitled ``Failure to satisfy the Order Exposure 
Requirements set forth in Rule 6.47A and its Commentary'' and Rule 
10.12(k)(i)(34) of the rules of NYSE Arca. NYSE Arca Rule 6.47A governs 
requirements for exposed orders.

Trade Reporting Violations

    Proposed new subsection (h) will govern minor violations of the 
Trade Reporting rules set forth in Chapter VI, Sections 14 and 15 of 
the Exchange Rules. These rules require that all transactions effected 
on the Exchange: (i) be submitted for clearance to The Options Clearing 
Corporation; (ii) that Options Participants report the name of the 
Clearing Participants; and (iii) the prompt reporting of any change in 
this identity to the Exchange. For these minor rules violations, the 
fine for a first offense would be $1,500, the fine for a second offense 
would be $3,000, and for any subsequent offense the fine would be 
$5,000. This proposed provision is substantially similar to and 
applicable to the same conduct and fines covered by Rule 10.12(h)(38) 
entitled ``Failure to comply with the reporting duties of Rule 6.69)'' 
of the rules of NYSE Arca. Specifically, NYSE Arca Rule 6.69(e) governs 
the submission of trade reporting information regarding clearing 
through The Options Clearing Corporation.

Locked and Cross Market Violations

    Proposed new subsection (i) will govern Locked and Cross Market 
Violations as set forth in Chapter XII, Section 3 of the Exchange 
Rules. The Locked and Crossed Markets rules address violations of the 
rules regarding avoidance of Locked or Crossed Markets. For these minor 
rules violations, the fine for a first offense would be $500, the fine 
for a second offense would be $1,000, and for any subsequent offense 
the fine would be $2,500. The language of this proposed subsection is 
identical to and applicable to the conduct and fines covered by Rule 
10.12(h)(35) entitled ``Failure to avoid locking a market (Rule 6.95)'' 
and 10.12(k)(i)(35) of the rules of NYSE Arca. The underlying 
provisions of the Exchange and NYSE Arca rules are all based on the 
same provisions of the Options Order Protection and Locked/Crossed 
Market Plan.\4\
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    \4\ On August 31, 2009, the Nasdaq Stock Market, LLC and NASDAQ 
OMX PHLX LLC (herein collectively referred to as ``NASDAQ'') entered 
into the ``Options Order Protection and Locked/Crossed Market Plan'' 
(``Plan'') amongst other Participants, which was approved by the 
Securities and Exchange Commission (``SEC'') pursuant to Section 
11A(a)(3)(B) of the Exchange Act and Rule 608, effective on August 
28, 2009, Release No. 34-60582.
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Trade-Through Violations

    Proposed new subsection (j) would govern Trade-Through Violations 
that occur pursuant to Chapter XII, Section 2(a) of the Exchange Rules. 
The Trade-Through Rules prevent market

[[Page 13009]]

participants from executing orders at prices that are inferior to other 
displayed quotations. For these minor rules violations, the fine for a 
First Offense would be $500, the fine for a second offense would be 
$1,000, and for any subsequent offense the fine would be $2,500. The 
language of this proposed subsection is substantially applicable to the 
conduct and fines covered by Rule 10.12(h)(29) entitled ``Failure to 
comply with the requirements for avoidance of trade-throughs set forth 
in Rule 6.94(a)'' and Rule 10.12(k)(i)(29) of the rules of NYSE Arca. 
The underlying provisions of the Exchange and NYSE Arca rules are all 
based on the same provisions of the Options Order Protection and 
Locked/Crossed Market Plan.

Failure to Timely File Amendments to Form U4, Form U5 and Form BD 
Violations

    Proposed new subsection (k) would govern Failure to Timely File 
Amendments to Form U4, Form U5 and Form BD. Any member and/or 
participant organization that is required to file Form U4, Form U5 or 
Form BD pursuant to Section 1031 of the Exchange Rules, the Act, and/or 
the rules promulgated thereunder, is required to amend the applicable 
Form U4, Form U5 or Form BD to keep such forms current at all times. 
Members and/or participant organizations must amend Form U4, Form U5 
and Form BD within thirty days after the filer knew of or should have 
known of the need for the amendment. For these minor rules violations, 
implemented on a running twelve (12) month period the fine for a first 
offense would be $500, the fine for a second offense would be $1,000, 
and for any subsequent offense the fine would be $2,000. The language 
of this proposed subsection is identical to and applicable to the 
conduct and fines covered by the MRVP provision in Chapter X, Section 
2(e) of the rules of BOX, which addresses the same provisions.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\5\ in general, and Section 
6(b)(5) of the Act,\6\ in particular, because it 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 facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system. The proposed rule change is 
consistent with the statute in that it directly addresses fraudulent 
and manipulative acts and practices by NOM members.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f.
    \6\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The proposed rule change is consistent with Section 6(b)(6) of the 
Act \7\ which provides that members and persons associated with members 
shall be appropriately disciplined for violation of the provisions of 
the rules of the exchange, by expulsion, suspension, limitation of 
activities, functions, and operations, fine, censure, being suspended 
or barred from being associated with a member, or any other fitting 
sanction. The establishment and modification of a MRVP directly 
addresses such requirement.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b)(6).
---------------------------------------------------------------------------

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

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

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

    Pursuant to Section 19(b)(3)(A) of the Act \8\ and Rule 19b-4(f)(6) 
thereunder,\9\ The [sic] Exchange has designated this proposal as one 
that effects a change that: (i) Does not significantly affect the 
protection of investors or the public interest; (ii) does not impose 
any significant burden on competition; and (iii) by its terms, does not 
become operative for thirty days after the date of the filing, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest. The Exchange has 
provided the Commission written notice of its intent to file the 
proposed rule change, along with a brief description and text of the 
proposed rule change, at least five business days prior to the date of 
filing of the proposed rule change.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    The Exchange believes that the filing may appropriately be 
designated for filing under Rule 19b-4(f)(6) because the filing 
eliminates inconsistencies between the Exchange's MRVP and those of 
other exchanges. The proposed rules of the Exchange are substantially 
similar to the rules of other exchanges. This similarity is the basis 
for the Exchange's belief that the proposed rule change is non-
controversial. Since no significant issues have been raised with this 
``copycat'' filing, the Exchange believes that this filing will afford 
it the same operability regarding the MRVP as the other exchanges.\10\ 
In addition, the proposal will improve the regulation of NOM and its 
members, and enhance investor protection on the Exchange.
---------------------------------------------------------------------------

    \10\ See Securities Exchange Act Release No. 58092 (July 3, 
2008), 73 FR 40144 (July 11, 2008) at 40151, where the Securities 
and Exchange Commission acknowledges that ``any increase in the 
number of proposed rule changes that may become effective upon 
filing with the Commission should improve the ability of SROs to 
amend their rules efficiently, particularly with respect to rules 
relating to trading systems and ``copycat'' proposals, which will 
enhance their ability to respond to competitive pressures by 
allowing them to file changes to their systems on an immediately-
effective basis''.
---------------------------------------------------------------------------

    At any time within 60 days 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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2011-029 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-2011-029. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your

[[Page 13010]]

comments more efficiently, please use only one method. The Commission 
will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 website 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 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-2011-029, and should be submitted on or before 
March 30, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
---------------------------------------------------------------------------

    \11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-5380 Filed 3-8-11; 8:45 am]
BILLING CODE 8011-01-P