Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Accept Inbound Orders Routed From Its Affiliates, 65311-65313 [2011-27133]

Download as PDF sroberts on DSK5SPTVN1PROD with NOTICES Federal Register / Vol. 76, No. 203 / Thursday, October 20, 2011 / Notices particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,14 which requires, among other things, that the Exchange’s rules 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 facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Exchange’s proposal to relieve market makers from the obligation to continuously quote in adjusted series would not affect market makers’ other obligations. For example, the Commission notes that the proposal does not excuse a market maker from the obligations to respond with a twosided, legal width market to a call for a market by a floor broker.15 The Commission also notes that the proposal does not excuse a market maker from the obligation to submit a single quote or maintain continuous quotes in one or more series of an option issue within the market maker’s appointment whenever, in the judgment of such Trading Official, it is necessary to do so in the interest of maintaining fair and orderly markets.16 Accordingly, the Exchange’s proposal concerning adjusted series is narrowly tailored to, among other things, 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. To the extent such series, shortly after the adjustment, become inactive as a result of a lack of interest in the series by market participants who have instead focused their trading in the new standard contracts, the Exchange’s proposal would reduce the burden on market makers to submit continuous quotes that the Exchange may not submit to OPRA. In so doing, the proposal may incentivize market makers to continue appointments in classes that have adjusted option series, and thereby should help maintain liquidity in these classes to the benefit of the Exchange, its ATP Holders, and investors. In addition, the obligation to continuously quote in such illiquid series, for which there may be little or no trading interest, is a minor part of a market maker’s overall obligations and thus requiring a continuous quote may not justify the system resources necessary to accommodate them. Further, the proposed new Commentary .01 to Rule 925.1NY (the rule applicable to market maker quotations) to reflect the exception for LEAPS provided for in Commentary .03(a) to Rule 903 to the continuous quoting obligations contained in Rule 925.1NY, is not a new substantive provision, but rather references the exception currently provided for in Commentary .03(a) to Rule 903. In so doing, the proposed change clarifies the exception by referencing it in the rule applicable to market maker quoting obligations generally. IV. Conclusion It Is Therefore Ordered, pursuant to Section 19(b)(2) of the Act,17 that the proposed rule change (SR–NYSEAmex– 2011–61) be, and hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.18 Elizabeth M. Murphy, Secretary. [FR Doc. 2011–27134 Filed 10–19–11; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–65554; File No. SR– NASDAQ–2011–142] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Accept Inbound Orders Routed From Its Affiliates October 13, 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 October 6, 2011, The NASDAQ Stock Market LLC (the ‘‘Exchange’’ or ‘‘NASDAQ’’), 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 by NASDAQ. 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 filing with the Securities and Exchange Commission (‘‘Commission’’) a proposed rule change to accept inbound orders routed by Nasdaq Execution Services LLC (‘‘NES’’) from both the NASDAQ OMX PSX facility (‘‘PSX’’) of NASDAQ OMX PHLX (‘‘PHLX’’) as well as from the NASDAQ OMX BX Equities Market of NASDAQ OMX BX, Inc. (‘‘BX’’), as described further below, on a one year pilot basis. The text of the proposed rule change is available at http:// 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 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 NES provides all routing functions for The NASDAQ Stock Market (‘‘NASDAQ’’) as well as, pursuant to recent proposed rule changes, for BX and PHLX.3 Accordingly, NASDAQ now proposes that NES be permitted to route orders from BX and PSX to the Exchange on a one year pilot basis. NES is a broker-dealer and member of NASDAQ, PHLX and BX. BX, NASDAQ, PHLX and NES are affiliates. This raises the issue of an exchange’s affiliation with a member of such exchange. Specifically, in connection with prior filings, the Commission has expressed concern that the affiliation of an exchange with one of its members raises the potential for unfair competitive advantage and potential conflicts of interest between an exchange’s self- 17 15 14 15 U.S.C. 78f(b)(5). 15 See NYSE Amex Rule 925NY(b)(6). 16 See NYSE Amex Rule 925.1NY(d). VerDate Mar<15>2010 18:59 Oct 19, 2011 Jkt 226001 U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 65311 18 17 PO 00000 Frm 00154 Fmt 4703 Sfmt 4703 3 See Securities Exchange Act Release Nos. 65470 (October 3, 2011) (SR–BX–2011–048); and 65469 (October 3, 2011) (SR–Phlx–2011–108). E:\FR\FM\20OCN1.SGM 20OCN1 65312 Federal Register / Vol. 76, No. 203 / Thursday, October 20, 2011 / Notices sroberts on DSK5SPTVN1PROD with NOTICES regulatory obligations and its commercial interests.4 Recognizing that the Commission has previously expressed concern regarding the potential for conflicts of interest in instances where a member firm is affiliated with an exchange of which it is a member, the Exchange previously proposed, and the Commission approved, limitations and conditions on NES’s affiliation with the NASDAQ.5 The Commission has also expressed concern regarding the potential for conflicts of interest in instances where a member firm is affiliated with an exchange to which it is routing orders.6 To address the Commission’s concerns, NASDAQ proposes to accept inbound orders that NES routes from PHLX and BX, respectively, in its capacity as a facility of PHLX and BX, subject to certain limitations and conditions: • First, the Exchange and the Financial Industry Regulatory Authority (‘‘FINRA’’) will maintain a Regulatory Contract, as well as an agreement pursuant to Rule 17d–2 under the Act (‘‘17d–2 Agreement’’).7 Pursuant to the Regulatory Contract and the 17d–2 Agreement, FINRA will be allocated regulatory responsibilities to review NES’s compliance with certain Exchange rules.8 Pursuant to the Regulatory Contract, however, NASDAQ retains ultimate responsibility for enforcing its rules with respect to NES. • Second, FINRA will monitor NES for compliance with the Exchange’s trading rules, and will collect and maintain certain related information.9 • Third, FINRA will provide a report to the Exchange’s chief regulatory officer (‘‘CRO’’), on a quarterly basis, that: (i) Quantifies all alerts (of which FINRA is aware) that identify NES as a participant that has potentially violated Commission or Exchange rules, and (ii) 4 See Securities Exchange Act Release Nos. 59153 (December 23, 2008), 73 FR 80485 (SR–NASDAQ– 2008–098); and 62736 (August 17, 2010), 75 FR 51861 (August 23, 2010) (SR–NASDAQ–2010–100). 5 Id. 6 See Securities Exchange Act Release No. 62877 (September 9, 2010), 75 FR 56633 (September 16, 2010) (SR–PHLX–2010–79). 7 17 CFR 240.17d–2. 8 NES is also subject to independent oversight by FINRA, its designated examining authority, for compliance with financial responsibility requirements. 9 Pursuant to the Regulatory Contract, both FINRA and the Exchange will collect and maintain all alerts, complaints, investigations and enforcement actions in which NES (in its capacity as a facility of PHLX or BX routing orders to the Exchange) is identified as a participant that has potentially violated applicable Commission or Exchange rules. The Exchange and FINRA will retain these records in an easily accessible manner in order to facilitate any potential review conducted by the Commission’s Office of Compliance Inspections and Examinations. VerDate Mar<15>2010 18:59 Oct 19, 2011 Jkt 226001 lists all investigations that identify NES as a participant that has potentially violated Commission or Exchange rules. • Fourth, the Exchange will adopt Rule 2160(c), which requires NASDAQ OMX, as the holding company owning both the Exchange and NES, to establish and maintain procedures and internal controls reasonably designed to ensure that NES does not develop or implement changes to its system, based on nonpublic information obtained regarding planned changes to the Exchange’s systems 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 order routing to the Exchange. • Fifth, the Exchange proposes that the routing of orders from NES to the Exchange, in NES’s capacity as a facility of PHLX as well as BX, be authorized for a pilot period of one year. The Exchange believes that the abovelisted conditions protect the independence of the Exchange’s regulatory responsibility with respect to NES, and that these mitigate the aforementioned concerns about potential conflicts of interest and unfair competitive advantage. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,10 in general, and with Sections 6(b)(5) of the Act,11 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, because the proposed rule change will allow the Exchange to receive inbound routes of orders from NES, acting in its capacity as a facility of PHLX or BX, in a manner consistent with prior approvals and established protections. The Exchange believes that the proposed conditions establish mechanisms that protect the independence of the Exchange’s regulatory responsibility with respect to NES, as well as ensure that NES cannot use any information it may have 10 15 11 15 PO 00000 U.S.C. 78f. U.S.C. 78f(b)(5). Frm 00155 Fmt 4703 Sfmt 4703 because of its affiliation with the Exchange to its advantage. 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 Because the foregoing proposed rule change does not significantly affect the protection of investors or the public interest, does not impose any significant burden on competition, and, by its terms, does not 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 12 and Rule 19b– 4(f)(6) thereunder.13 The Exchange has requested that the Commission waive the 30-day operative delay. The Exchange believes that the waiver of the 30-day operative delay is consistent with the protection of investors and the public interest because it would benefit users by offering more opportunities for their orders to be executed.14 The Commission notes that the proposed rule change is consistent with rules of other national securities exchanges, and does not raise any new substantive issues.15 For these reasons, the Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest, and designates the proposal to be operative upon filing with the Commission.16 12 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6)(iii) requires the Exchange to give the Commission written notice of the Exchange’s intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 14 See SR–NASDAQ–2011–142, Item 7. 15 See, e.g., Securities Exchange Act Release Nos. 62901 (September 13, 2010), 75 FR 57097 (September 17, 2010) (SR–BATS–2010–024); and 64729 (June 23, 2011), 76 FR 38232 (June 29, 2011) (SR–NYSE–2011–24). 16 For purposes only of waiving the 30-day operative delay, the Commission has considered the 13 17 E:\FR\FM\20OCN1.SGM 20OCN1 Federal Register / Vol. 76, No. 203 / Thursday, October 20, 2011 / Notices 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. 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–2011–142 and should be submitted on or before November 10, 2011. IV. Solicitation of Comments For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.17 Elizabeth M. Murphy, Secretary. Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–NASDAQ–2011–142 on the subject line. sroberts on DSK5SPTVN1PROD with 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 Number SR–NASDAQ–2011–142. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/sro.shtml). 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 the Exchange. All comments received will be posted without change; the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). VerDate Mar<15>2010 18:59 Oct 19, 2011 Jkt 226001 [FR Doc. 2011–27133 Filed 10–19–11; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–65551; File No. SR–FINRA– 2011–056] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 7730 Regarding TRACE Reporting Fees For Transactions in Agency Pass-Through Mortgage-Backed Securities Traded ‘‘To Be Announced’’ 65313 a TRACE-Eligible Security that is an Agency Pass-Through Mortgage-Backed Security traded ‘‘to be announced’’ and to incorporate minor technical amendments. The text of the proposed rule change is available on FINRA’s Web site at http://www.finra.org, at the principal office of FINRA, 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, FINRA 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. FINRA 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 October 13, 2011. 1. Purpose 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 September 30, 2011, the Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by FINRA. FINRA has designated the proposed rule change as ‘‘establishing or changing a due, fee or other charge’’ under Section 19(b)(3)(A)(ii) of the Act 3 and Rule 19b– 4(f)(2) thereunder,4 which renders the proposal effective upon receipt of this filing by the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. On May 16, 2011, amendments to the FINRA Rule 6700 Series (the TRACE rules) and Rule 7730 (TRACE fees) became effective.5 The amendments defined Asset-Backed Securities (‘‘ABS’’) as TRACE-Eligible Securities and extended TRACE reporting requirements to transactions in ABS in the TRACE rules.6 In addition, the TRACE reporting fees in effect for transactions in corporate bonds and Agency Debt Securities were extended to transactions in ABS in Rule 7730.7 As a result, currently the reporting fee for transactions in ABS, including Agency Pass-Through Mortgage-Backed Securities (‘‘Agency Pass-Through MBS’’) traded to-be-announced I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change FINRA is proposing to amend FINRA Rule 7730 to establish a transaction reporting fee of $1.50 per transaction for 17 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(ii). 4 17 CFR 240.19b–4(f)(2). 1 15 PO 00000 Frm 00156 Fmt 4703 Sfmt 4703 5 See Securities Exchange Act Release No. 61566 (February 22, 2010), 75 FR 9262 (March 1, 2010) (order approving File No. SR–FINRA–2009–065) (‘‘TRACE ABS filing’’); Securities Exchange Act Release No. 64364 (April 28, 2011), 76 FR 25385 (May 4, 2011) (order approving File No. SR– FINRA–2011–012) (‘‘supplemental TRACE ABS filing’’); Regulatory Notice 10–55 (October 2010) (establishing May 16, 2011 as the effective date for the TRACE ABS filing); and Regulatory Notice 11– 20 (May 2011) (establishing May 16, 2011 as the effective date for the supplemental TRACE ABS filing). 6 ‘‘Asset-Backed Security’’ and ‘‘TRACE-Eligible Security’’ are defined in, respectively, Rule 6710(m) and Rule 6710(a). 7 ‘‘Agency Debt Security’’ is defined in Rule 6710(l). E:\FR\FM\20OCN1.SGM 20OCN1

Agencies

[Federal Register Volume 76, Number 203 (Thursday, October 20, 2011)]
[Notices]
[Pages 65311-65313]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-27133]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65554; File No. SR-NASDAQ-2011-142]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Accept Inbound Orders Routed From Its Affiliates

October 13, 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 October 6, 2011, The NASDAQ Stock Market LLC (the ``Exchange'' or 
``NASDAQ''), 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 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 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASDAQ is filing with the Securities and Exchange Commission 
(``Commission'') a proposed rule change to accept inbound orders routed 
by Nasdaq Execution Services LLC (``NES'') from both the NASDAQ OMX PSX 
facility (``PSX'') of NASDAQ OMX PHLX (``PHLX'') as well as from the 
NASDAQ OMX BX Equities Market of NASDAQ OMX BX, Inc. (``BX''), as 
described further below, on a one year pilot basis.
    The text of the proposed rule change is available at http://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 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
    NES provides all routing functions for The NASDAQ Stock Market 
(``NASDAQ'') as well as, pursuant to recent proposed rule changes, for 
BX and PHLX.\3\ Accordingly, NASDAQ now proposes that NES be permitted 
to route orders from BX and PSX to the Exchange on a one year pilot 
basis.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release Nos. 65470 (October 3, 
2011) (SR-BX-2011-048); and 65469 (October 3, 2011) (SR-Phlx-2011-
108).
---------------------------------------------------------------------------

    NES is a broker-dealer and member of NASDAQ, PHLX and BX. BX, 
NASDAQ, PHLX and NES are affiliates. This raises the issue of an 
exchange's affiliation with a member of such exchange. Specifically, in 
connection with prior filings, the Commission has expressed concern 
that the affiliation of an exchange with one of its members raises the 
potential for unfair competitive advantage and potential conflicts of 
interest between an exchange's self-

[[Page 65312]]

regulatory obligations and its commercial interests.\4\
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    \4\ See Securities Exchange Act Release Nos. 59153 (December 23, 
2008), 73 FR 80485 (SR-NASDAQ-2008-098); and 62736 (August 17, 
2010), 75 FR 51861 (August 23, 2010) (SR-NASDAQ-2010-100).
---------------------------------------------------------------------------

    Recognizing that the Commission has previously expressed concern 
regarding the potential for conflicts of interest in instances where a 
member firm is affiliated with an exchange of which it is a member, the 
Exchange previously proposed, and the Commission approved, limitations 
and conditions on NES's affiliation with the NASDAQ.\5\ The Commission 
has also expressed concern regarding the potential for conflicts of 
interest in instances where a member firm is affiliated with an 
exchange to which it is routing orders.\6\ To address the Commission's 
concerns, NASDAQ proposes to accept inbound orders that NES routes from 
PHLX and BX, respectively, in its capacity as a facility of PHLX and 
BX, subject to certain limitations and conditions:
---------------------------------------------------------------------------

    \5\ Id.
    \6\ See Securities Exchange Act Release No. 62877 (September 9, 
2010), 75 FR 56633 (September 16, 2010) (SR-PHLX-2010-79).
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     First, the Exchange and the Financial Industry Regulatory 
Authority (``FINRA'') will maintain a Regulatory Contract, as well as 
an agreement pursuant to Rule 17d-2 under the Act (``17d-2 
Agreement'').\7\ Pursuant to the Regulatory Contract and the 17d-2 
Agreement, FINRA will be allocated regulatory responsibilities to 
review NES's compliance with certain Exchange rules.\8\ Pursuant to the 
Regulatory Contract, however, NASDAQ retains ultimate responsibility 
for enforcing its rules with respect to NES.
---------------------------------------------------------------------------

    \7\ 17 CFR 240.17d-2.
    \8\ NES is also subject to independent oversight by FINRA, its 
designated examining authority, for compliance with financial 
responsibility requirements.
---------------------------------------------------------------------------

     Second, FINRA will monitor NES for compliance with the 
Exchange's trading rules, and will collect and maintain certain related 
information.\9\
---------------------------------------------------------------------------

    \9\ Pursuant to the Regulatory Contract, both FINRA and the 
Exchange will collect and maintain all alerts, complaints, 
investigations and enforcement actions in which NES (in its capacity 
as a facility of PHLX or BX routing orders to the Exchange) is 
identified as a participant that has potentially violated applicable 
Commission or Exchange rules. The Exchange and FINRA will retain 
these records in an easily accessible manner in order to facilitate 
any potential review conducted by the Commission's Office of 
Compliance Inspections and Examinations.
---------------------------------------------------------------------------

     Third, FINRA will provide a report to the Exchange's chief 
regulatory officer (``CRO''), on a quarterly basis, that: (i) 
Quantifies all alerts (of which FINRA is aware) that identify NES as a 
participant that has potentially violated Commission or Exchange rules, 
and (ii) lists all investigations that identify NES as a participant 
that has potentially violated Commission or Exchange rules.
     Fourth, the Exchange will adopt Rule 2160(c), which 
requires NASDAQ OMX, as the holding company owning both the Exchange 
and NES, to establish and maintain procedures and internal controls 
reasonably designed to ensure that NES does not develop or implement 
changes to its system, based on non-public information obtained 
regarding planned changes to the Exchange's systems 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 order routing to the Exchange.
     Fifth, the Exchange proposes that the routing of orders 
from NES to the Exchange, in NES's capacity as a facility of PHLX as 
well as BX, be authorized for a pilot period of one year.
    The Exchange believes that the above-listed conditions protect the 
independence of the Exchange's regulatory responsibility with respect 
to NES, and that these mitigate the aforementioned concerns about 
potential conflicts of interest and unfair competitive advantage.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\10\ in general, and with 
Sections 6(b)(5) of the Act,\11\ 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, because the 
proposed rule change will allow the Exchange to receive inbound routes 
of orders from NES, acting in its capacity as a facility of PHLX or BX, 
in a manner consistent with prior approvals and established 
protections. The Exchange believes that the proposed conditions 
establish mechanisms that protect the independence of the Exchange's 
regulatory responsibility with respect to NES, as well as ensure that 
NES cannot use any information it may have because of its affiliation 
with the Exchange to its advantage.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f.
    \11\ 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 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

    Because the foregoing proposed rule change does not significantly 
affect the protection of investors or the public interest, does not 
impose any significant burden on competition, and, by its terms, does 
not 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 \12\ and Rule 19b-
4(f)(6) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Exchange believes that the waiver of the 30-day 
operative delay is consistent with the protection of investors and the 
public interest because it would benefit users by offering more 
opportunities for their orders to be executed.\14\ The Commission notes 
that the proposed rule change is consistent with rules of other 
national securities exchanges, and does not raise any new substantive 
issues.\15\ For these reasons, the Commission believes that waiving the 
30-day operative delay is consistent with the protection of investors 
and the public interest, and designates the proposal to be operative 
upon filing with the Commission.\16\
---------------------------------------------------------------------------

    \14\ See SR-NASDAQ-2011-142, Item 7.
    \15\ See, e.g., Securities Exchange Act Release Nos. 62901 
(September 13, 2010), 75 FR 57097 (September 17, 2010) (SR-BATS-
2010-024); and 64729 (June 23, 2011), 76 FR 38232 (June 29, 2011) 
(SR-NYSE-2011-24).
    \16\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).

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[[Page 65313]]

    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.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2011-142 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-2011-142. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 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-2011-142 and should be submitted on or before November 10, 2011.

    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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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-27133 Filed 10-19-11; 8:45 am]
BILLING CODE 8011-01-P