Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing of Proposed Rule Change With Respect to the Authority of NASDAQ or NASDAQ Execution Services To Cancel Orders When a Technical or System Issue Occurs and To Describe the Operation of an Error Account, 28905-28909 [2012-11819]
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Federal Register / Vol. 77, No. 95 / Wednesday, May 16, 2012 / Notices
amendment proposes to add BOX as a
party to the Symbology Plan. The
Commission is publishing this notice to
solicit comments on the proposed
amendment from interested persons.
srobinson on DSK4SPTVN1PROD with NOTICES
I. Description and Purpose of the
Amendment
The current parties to the Symbology
Plan are BATS Exchange, Inc.
(‘‘BATS’’), NASDAQ OMX BX, Inc.
(‘‘BSE’’), Chicago Board Options
Exchange, Incorporated (‘‘CBOE’’), CHX,
EDGA Exchange, Inc. (‘‘EDGA’’), EDGX
Exchange, Inc. (‘‘EDGX’’), FINRA, the
International Securities Exchange, LLC
(‘‘ISE’’), Nasdaq, New York Stock
Exchange LLC (‘‘NYSE’’), NYSE Arca,
Inc. (‘‘NYSE Arca’’), NYSE Amex LLC
(‘‘NYSE Amex’’) (f/k/a NYSE Alternext
US LLC’’ (‘‘NYSE Alternext’’)), NSX and
Phlx.4 The proposed amendment to the
Symbology Plan would add BOX as a
party to the Symbology Plan. A selfregulatory organization (‘‘SRO’’) may
become a party to the Symbology Plan
if it satisfies the requirements of Section
I(c) of the Plan. Specifically, an SRO
may become a party to the Symbology
Plan if: (i) It maintains a market for the
listing or trading of Plan Securities 5 in
accordance with rules approved by the
Commission, which securities are
identified by one, two, or three
character symbols, on the one hand, or
four or five character symbols, on the
other hand, in each case prior to any
Stock Exchange, Inc. (‘‘NSX’’), and Philadelphia
Stock Exchange, Inc. (‘‘Phlx’’), subject to certain
changes. See Securities Exchange Act Release No.
58904, 73 FR 67218 (November 13, 2008) (File No.
4–533).
4 On November 18, 2008, ISE filed with the
Commission an amendment to the Plan to add ISE
as a member to the Plan. See Securities and
Exchange Act Release No. 59024 (November 26,
2008), 73 FR 74538 (December 8, 2008) (File No. 4–
533). On December 22, 2008, NYSE, NYSE Arca,
and NYSE Alternext (‘‘NYSE Group Exchanges’’)
and CBOE filed with the Commission amendments
to the Plan to add the NYSE Group Exchanges and
CBOE as members to the Plan. See Securities
Exchange Act Release No. 59162 (December 24,
2008), 74 FR 132 (January 2, 2009) (File No. 4–533).
On December 24, 2008, BSE filed with the
Commission an amendment to the Plan to add BSE
as a member to the Plan. See Securities Exchange
Act Release No. 59187 (December 30, 2008), 74 FR
729 (January 7, 2009) (File No. 4–533). On
September 30, 2009, BATS filed with the
Commission an amendment to the Plan to add
BATS as a member to the Plan. See Securities
Exchange Act Release No. 60856 (October 21, 2009),
74 FR 55276 (October 27, 2009) (File No. 4–533).
On July 7, 2010, EDGA and EDGX filed with the
Commission an amendment to the Plan to add
EDGA and EDGX, each as a party to the Symbology
Plan. See Securities Exchange Act Release No.
62573 (July 26, 2010), 75 FR 45682 (August 3, 2010)
(File No. 4–533).
5 ‘‘Plan Securities’’ are defined in the Symbology
Plan as securities that: (i) Are NMS securities as
currently defined in Rule 600(a)(46) under the Act;
and (ii) any other equity securities quoted, traded
and/or trade reported through an SRO facility.
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suffix or special conditional identifier;
(ii) it signs a current copy of the Plan;
and (iii) it pays to the other parties a
proportionate share of the aggregate
development costs, based upon the
number of symbols reserved by the new
party during the first twelve (12) months
of such party’s membership.6
BOX has submitted a signed copy of
the Symbology Plan to the Commission
in accordance with the requirement set
forth in the Symbology Plan regarding
new parties to the plan. Additionally,
BOX represented that it maintains a
market for the listing or trading of Plan
Securities. Finally, BOX has agreed to
pay all costs required by BOX pursuant
to the Symbology Plan, including its
proportionate share of the aggregate
development costs previously paid by
the other parties to the Processor.
II. Effectiveness of the Proposed
Symbology Plan Amendment
The foregoing proposed Symbology
Plan amendment has become effective
pursuant to Rule 608(b)(3)(iii) 7 because
it involves solely technical or
ministerial matters. At any time within
sixty days of the filing of the
amendment, the Commission may
summarily abrogate the amendment and
require that it be refiled pursuant to
paragraph (b)(1) of Rule 608,8 if it
appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors or the maintenance of fair and
orderly markets, to remove impediments
to, and perfect the mechanisms of, a
national market system or otherwise in
furtherance of the purposes of the Act.
III. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the amendment 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 email to rulecomments@sec.gov. Please include File
Number 4–533 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 4–533. This file number should
be included on the subject line if email
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 10:00 a.m.
and 3:00 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of BOX.
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 4–533 and should be submitted
on or before June 6, 2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.9
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–11792 Filed 5–15–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–66964; File No. SR–
NASDAQ–2012–057]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing of Proposed Rule Change With
Respect to the Authority of NASDAQ
or NASDAQ Execution Services To
Cancel Orders When a Technical or
System Issue Occurs and To Describe
the Operation of an Error Account
May 10, 2012.
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 April 30,
2012, The NASDAQ Stock Market LLC
6 Sections
9 17
7 17
1 15
I(c) and V(a) of the Plan.
CFR 242.608(b)(3)(iii).
8 17 CFR 242.608(b)(1).
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28905
CFR 200.30–3(a)(29).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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Federal Register / Vol. 77, No. 95 / Wednesday, May 16, 2012 / Notices
(‘‘NASDAQ’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) a
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 proposes a rule change with
respect to the authority of the Exchange
or NASDAQ Execution Services
(‘‘NES’’) to cancel orders when a
technical or system issue occurs and to
describe the operation of an error
account for NES. NASDAQ will
implement the proposed change upon
approval by the Commission. The text of
the proposed rule change is available 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, the
self-regulatory organization 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 those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
srobinson on DSK4SPTVN1PROD with NOTICES
1. Purpose
The Exchange proposes to amend
Rule 4758 by adding a new paragraph
(d) that addresses the authority of the
Exchange or NES to cancel orders when
a technical or systems issue occurs and
to describe the operation of an error
account for NES.3
3 NES is a facility of the Exchange. Accordingly,
under Rule 4758, the Exchange is responsible for
filing with the Commission rule changes and fees
relating to NES’s functions. In addition, the
Exchange is using the phrase ‘‘NES or the
Exchange’’ in this rule filing to reflect the fact that
a decision to take action with respect to orders
affected by a technical or systems issue may be
made in the capacity of NES or the Exchange
depending on where those orders are located at the
time of that decision.
From time to time, the Exchange also uses nonaffiliate third-party broker-dealers to provide
outbound routing services (i.e., third-party Routing
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NES is the approved routing broker of
the Exchange, subject to the conditions
listed in Rule 4758. The Exchange relies
on NES to provide outbound routing
services from itself to routing
destinations of NES (‘‘routing
destinations’’).4 When NES routes
orders to a routing destination, it does
so by sending a corresponding order in
its own name to the routing destination.
In the normal course, routed orders that
are executed at routing destinations are
submitted for clearance and settlement
in the name of NES, and NES arranges
for any resulting securities positions to
be delivered to the member that
submitted the corresponding order to
the Exchange. From time to time,
however, the Exchange and NES
encounter situations in which it
becomes necessary to cancel orders and
resolve error positions.5
Examples of Circumstances That May
Lead to Canceled Orders
A technical or systems issue may arise
at NES, a routing destination, or the
Exchange that may cause the Exchange
or NES to take steps to cancel orders if
the Exchange or NES determines that
such action is necessary to maintain a
fair and orderly market. The examples
Brokers). In those cases, orders are submitted to the
third-party Routing Broker through NES, the thirdparty Routing Broker routes the orders to the
routing destination in its name, and any executions
are submitted for clearance and settlement in the
name of NES so that any resulting positions are
delivered to NES upon settlement. As described
above, NES normally arranges for any resulting
securities positions to be delivered to the member
that submitted the corresponding order to the
Exchange. If error positions (as defined in proposed
Rule 4758(d)(2)) result in connection with the
Exchange’s use of a third-party Routing Broker for
outbound routing, and those positions are delivered
to NES through the clearance and settlement
process, NES would be permitted to resolve those
positions in accordance with proposed Rule
4758(d). If the third-party Routing Broker received
error positions in connection with its role as a
routing broker for the Exchange, and the error
positions were not delivered to NES through the
clearance and settlement process, then the thirdparty Routing Broker would resolve the error
positions itself, and NES would not be permitted to
accept the error positions, as set forth in proposed
Rule 4758(d)(2)(B).
4 The Exchange has authority to receive inbound
routes of equities orders by NES from NASDAQ
OMX BX (‘‘BX’’) and the NASDAQ OMX PSX
(‘‘PSX’’) of NASDAQ OMX PHLX on a pilot basis.
See Securities Exchange Act Release No. 65554
(October 13, 2011), 76 FR 65311 (October 20, 2011)
(SR–NASDAQ–2011–142).
5 The examples described in this filing are not
intended to be exclusive. Proposed Rule 4758(d)
would provide general authority for the Exchange
or NES to cancel orders in order to maintain fair
and orderly markets when technical and systems
issues are occurring, and Rule 4758(d) also would
set forth the manner in which error positions may
be handled by the Exchange or NES. The proposed
rule change is not limited to addressing order
cancellation or error positions resulting only from
the specific examples described in this filing.
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set forth below describe some of the
circumstances in which the Exchange or
NES may decide to cancel orders.
Example 1. If NES or a routing destination
experiences a technical or systems issue that
results in NES not receiving responses to
immediate or cancel (‘‘IOC’’) orders that it
sent to the routing destination, and that issue
is not resolved in a timely manner, NES or
the Exchange would seek to cancel the routed
orders affected by the issue.6 For instance, if
NES experiences a connectivity issue
affecting the manner in which it sends or
receives order messages to or from routing
destinations, it may be unable to receive
timely execution or cancellation reports from
the routing destinations, and NES or the
Exchange may consequently seek to cancel
the affected routed orders. Once the decision
is made to cancel those routed orders, any
cancellation that a member submitted to the
Exchange on its initial order during such a
situation would be honored.7
Example 2. If the Exchange experiences a
systems issue, the Exchange may take steps
to cancel all outstanding orders affected by
that issue and notify affected members of the
cancellations. In those cases, the Exchange
would seek to cancel any routed orders
related to the members’ initial orders.
Examples of Circumstances That May
Lead to Error Positions
In some instances, the technical or
systems issue at NES, a routing
destination, the Exchange, or a nonaffiliate third party Routing Broker may
also result in NES acquiring an error
position that it must resolve. The
examples set forth below describe some
of the circumstances in which error
positions may arise.
Example A. Error positions may result from
routed orders that the Exchange or NES
attempts to cancel but that are executed
before the routing destination receives the
cancellation message or that are executed
because the routing destination is unable to
process the cancellation message. Using the
situation described in Example 1 above,
assume that the Exchange seeks to cancel
orders routed to a routing destination
because it is not receiving timely execution
or cancellation reports from the routing
destination. In such a situation, NES may
6 In a normal situation (i.e., one in which a
technical or systems issue does not exist), NES
should receive an immediate response to an IOC
order from a routing destination, and would pass
the resulting fill or cancellation on to the Exchange
member. After submitting an order that is routed to
a routing destination, if a member sends an
instruction to cancel that order, the cancellation is
held by the Exchange until a response is received
from the routing destination. For instance, if the
routing destination executes that order, the
execution would be passed on to the member and
the cancellation instruction would be disregarded.
7 If a member did not submit a cancellation to the
Exchange, however, that initial order would remain
‘‘live’’ and thus be eligible for execution or posting
on the Exchange, and neither the Exchange nor NES
would treat any execution of that initial order or
any subsequent routed order related to that initial
order as an error.
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Federal Register / Vol. 77, No. 95 / Wednesday, May 16, 2012 / Notices
still receive executions from the routing
destination after connectivity is restored,
which it would not then allocate to members
because of the earlier decision to cancel the
affected routed orders. Instead, NES would
post those positions into its error account
and resolve the positions in the manner
described below.
Example B. Error positions may result from
an order processing issue at a routing
destination. For instance, if a routing
destination experienced a systems problem
that affects its order processing, it may
transmit back a message purporting to cancel
a routed order, but then subsequently submit
an execution of that same order (i.e., a
locked-in trade) to The Depository Trust &
Clearing Corporation (‘‘DTCC’’) for clearance
and settlement. In such a situation, the
Exchange would not then allocate the
execution to the member because of the
earlier cancellation message from the routing
destination. Instead, NES would post those
positions into its error account and resolve
the positions in the manner described below.
Example C. Error positions may result if
NES receives an execution report from a
routing destination but does not receive
clearing instructions for the execution from
the routing destination. For instance, assume
that a member sends the Exchange an order
to buy 100 shares of ABC stock, which causes
NES to send an order to a routing destination
that is subsequently executed, cleared, and
closed out by that routing destination, and
the execution is ultimately communicated
back to that member. On the next trading day
(T+1), if the routing destination does not
provide clearing instructions for that
execution, NES would still be responsible for
settling that member’s purchase, but would
be left with a short position in its error
account.8 NES would resolve the position in
the manner described below.
Example D. Error positions may result from
a technical or systems issue that causes
orders to be executed in the name of NES that
are not related to NES’s function as the
Exchange’s routing broker and are not related
to any corresponding orders of members. As
a result, NES would not be able to assign any
positions resulting from such an issue to
members. Instead, NES would post those
positions into its error account and resolve
the positions in the manner described below.
Example E. Error positions may result from
a technical or systems issue through which
the Exchange does not receive sufficient
notice that a member that has executed trades
on the Exchange has lost the ability to clear
trades through DTCC. In such a situation, the
Exchange would not have valid clearing
information, which would prevent the trade
from being automatically processed for
clearance and settlement on a locked-in
basis. Accordingly, NES would assume that
member’s side of the trades so that the
counterparties can settle the trades. NES
would post those positions into its error
account and resolve the positions in the
manner described below.
Example F. Error positions may result from
a technical or systems issue at the Exchange
8 To the extent that NES incurred a loss in
covering its short position, it would submit a
reimbursement claim to that routing destination.
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that does not involve routing of orders
through NES. For example, a situation may
arise in which a posted quote/order was
validly cancelled but the system erroneously
matched that quote/order with an order that
was seeking to access it. In such a situation,
NES would have to assume the side of the
trade opposite the order seeking to access the
cancelled quote/order. NES would post the
position in its error account and resolve the
position in the manner described below.
In the circumstances described above,
neither the Exchange nor NES may learn
about an error position until T+1, either:
(1) During the clearing process when a
routing destination has submitted to
DTCC a transaction for clearance and
settlement for which NES never
received an execution confirmation; or
(2) when a routing destination does not
recognize a transaction submitted by
NES to DTCC for clearance and
settlement. Moreover, the affected
members’ trade may not be nullified
absent express authority under
Exchange rules.9
Proposed Amendments to Rule 4758
The Exchange proposes to amend
Rule 4758 to add new paragraph (d) to
address the cancellation of orders due to
technical or systems issues and the use
of an error account by NES.
Specifically, under paragraph (d)(1) of
the proposed rule, the Exchange or NES
would be expressly authorized to cancel
orders as may be necessary to maintain
fair and orderly markets if a technical or
systems issue occurred at the Exchange,
NES, or a routing destination.10 The
Exchange or NES would be required to
provide notice of the cancellation to
affected members as soon as practicable.
Paragraph (d)(2) of the proposed rule
would permit NES to maintain an error
account for the purpose of addressing
positions that result from a technical or
systems issue at NES, the Exchange, a
routing destination, or a non-affiliate
third-party Routing Broker that affects
one or more orders (‘‘error positions’’).
By definition, an error position would
not include any position that results
from an order submitted by a member to
the Exchange that is executed on the
Exchange and automatically processed
for clearance and settlement on a
locked-in basis. NES also would not be
permitted to accept any positions in its
9 See, e.g., Rule 11890 (regarding clearly
erroneous executions).
10 Such a situation may not cause the Exchange
to declare self-help against the routing destination
pursuant to Rule 611 of Regulation NMS. If the
Exchange or NES determines to cancel orders
routed to a routing destination under proposed Rule
4758(d), but does not declare self-help against that
routing destination, the Exchange would continue
to be subject to the trade-through requirements in
Rule 611 with respect to that routing destination.
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28907
error account from an account of a
member and could not permit any
member to transfer any positions from
the member’s account to NES’s error
account under the proposed rule.11
However, if a technical or systems issue
results in the Exchange not having valid
clearing instructions for a member to a
trade, NES may assume that member’s
side of the trade so that the trade can be
processed for clearance and settlement
on a locked-in basis.12
Under paragraph (d)(3), in connection
with a particular technical or systems
issue, NES or the Exchange would be
permitted to either (i) assign all
resulting error positions to members, or
(ii) have all resulting error positions
liquidated, as described below. Any
determination to assign or liquidate
error positions, as well as any resulting
assignments, would be required to be
made in a nondiscriminatory fashion.
NES or the Exchange would be
required to assign all error positions
resulting from a particular technical or
systems issue to the applicable members
affected by that technical or systems
issue if NES or the Exchange:
• Determined that it has accurate and
sufficient information (including valid
clearing information) to assign the
positions to all of the applicable
members affected by that technical or
systems issue;
• Determined that it has sufficient
time pursuant to normal clearance and
settlement deadlines to evaluate the
information necessary to assign the
11 The purpose of this provision is to clarify that
NES may address error positions under the
proposed rule that are caused by a technical or
systems issue, but that NES may not accept from a
member positions that are delivered to the member
through the clearance and settlement process, even
if those positions may have been related to a
technical or systems issue at NES, the Exchange, a
routing destination of NES, or a non-affiliate thirdparty Routing Broker. This provision would not
apply, however, to situations like the one described
in Example C in which NES incurred a short
position to settle a member’s purchase, as the
member did not yet have a position in its account
as a result of the purchase at the time of NES’s
action (i.e., NES’s action was necessary for the
purchase to settle into the member’s account).
Similarly, the provision would not apply to
situations like the one described in Example F,
where a system issue caused one member to receive
an execution for which there was not an available
contraparty, in which case action by NES would be
necessary for the position to settle into that
member’s account. Moreover, to the extent a
member receives locked-in positions in connection
with a technical or systems issue, that member may
seek to rely on NASDAQ Rule 4626 if it experiences
a loss. That rule provides members with the ability
to file claims against the Exchange for ‘‘losses
directly resulting from the [NASDAQ] systems’
actual failure to correctly process an order, Quote/
Order, message, or other data, provided the Nasdaq
Market Center has acknowledged receipt of the
order, Quote/Order, message, or data.’’
12 See Example E above.
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Federal Register / Vol. 77, No. 95 / Wednesday, May 16, 2012 / Notices
positions to all of the applicable
members affected by that technical or
systems issue; and
• Had not determined to cancel all
orders affected by that technical or
systems issue.
For example, a technical or systems
issue of limited scope or duration may
occur at a routing destination, and the
resulting trades may be submitted for
clearance and settlement by such
routing destination to DTCC. If there
were a small number of trades, there
may be sufficient time to match
positions with member orders and avoid
using the error account.
There may be scenarios, however,
where NES determines that it is unable
to assign all error positions resulting
from a particular technical or systems
issue to all of the affected members, or
determines to cancel all affected routed
orders. For example, in some cases, the
volume of questionable executions and
positions resulting from a technical or
systems issue might be such that the
research necessary to determine which
members to assign those executions to
could be expected to extend past the
normal settlement cycle for such
executions. Furthermore, if a routing
destination experiences a technical or
systems issue after NES has transmitted
IOC orders to it that prevents NES from
receiving responses to those orders, NES
or the Exchange may determine to
cancel all routed orders affected by that
issue. In such a situation, NES or the
Exchange would not pass on to the
members any executions on the routed
orders received from the routing
destination.
The proposed rule also would require
NES to liquidate error positions as soon
as practicable.13 In liquidating error
positions, NES would be required to
provide complete time and price
discretion for the trading to liquidate
the error positions to a third-party
broker-dealer and could not attempt to
exercise any influence or control over
the timing or methods of trading to
liquidate the error positions.14 NES also
would be required to establish and
enforce policies and procedures
srobinson on DSK4SPTVN1PROD with NOTICES
13 If
NES determines in connection with a
particular technical or systems issue that some error
positions can be assigned to some affected members
but other error positions cannot be assigned, NES
would be required under the proposed rule to
liquidate all such error positions (including those
positions that could be assigned to the affected
members).
14 This provision is not intended to preclude NES
from providing the third-party broker with standing
instructions with respect to the manner in which
it should handle all error account transactions. For
example, NES might instruct the broker to treat all
orders as ‘‘not held’’ and to attempt to minimize
any market impact on the price of the stock being
traded.
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reasonably designed to restrict the flow
of confidential and proprietary
information between the third-party
broker-dealer and NES/the Exchange
associated with the liquidation of the
error positions.
Under proposed paragraph (d)(4), NES
and the Exchange would be required to
make and keep records to document all
determinations to treat positions as error
positions and all determinations for the
assignment of error positions to
members or the liquidation of error
positions, as well as records associated
with the liquidation of error positions
through the third-party broker-dealer.
2. Statutory Basis
The proposed rule change is
consistent with Section 6(b) 15 of the
Securities Exchange Act of 1934 (the
‘‘Act’’), in general, and furthers the
objectives of Section 6(b)(5),16 in
particular, in that 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, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system and, in
general, to protect investors and the
public interest, and it is not designed to
permit unfair discrimination among
customers, brokers, or dealers. The
Exchange believes that this proposal is
in keeping with those principles since
NES’s or the Exchange’s ability to cancel
orders during a technical and systems
issue and to maintain an error account
facilitates the smooth and efficient
operations of the market. Specifically,
the Exchange believes that allowing
NES or the Exchange to cancel orders
during a technical or systems issue
would allow the Exchange to maintain
fair and orderly markets. Moreover, the
Exchange believes that allowing NES to
assume error positions in an error
account and to liquidate those positions,
subject to the conditions set forth in the
proposed amendments to Rule 4758,
would be the least disruptive means to
correct these errors, except in cases
where NES can assign all such error
positions to all affected members of the
Exchange. Overall, the proposed
amendments are designed to ensure full
trade certainty for market participants
and to avoid disrupting the clearance
and settlement process. The proposed
amendments are also designed to
provide a consistent methodology for
handling error positions in a manner
15 15
16 15
PO 00000
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
Frm 00058
Fmt 4703
Sfmt 4703
that does not discriminate among
members. The proposed amendments
are also consistent with Section 6 of the
Act insofar as they would require NES
to establish controls to restrict the flow
of any confidential information between
the third-party broker and NES/the
Exchange associated with the
liquidation of error positions.
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 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
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be 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 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 email to rulecomments@sec.gov. Please include File
Number SR–NASDAQ–2012–057 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.
E:\FR\FM\16MYN1.SGM
16MYN1
Federal Register / Vol. 77, No. 95 / Wednesday, May 16, 2012 / Notices
All submissions should refer to File
Number SR–NASDAQ–2012–057. This
file number should be included on the
subject line if email 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
10:00 a.m. and 3:00 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–2012–057, and should be
submitted on or before June 6, 2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–11819 Filed 5–15–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–66958; File No. SR–NSX–
2012–07]
srobinson on DSK4SPTVN1PROD with NOTICES
Self-Regulatory Organizations;
National Stock Exchange, Inc.; Notice
of Filing and Immediate Effectiveness
of Proposed Rule Change To Clarify
the Purpose of, and Statutory Basis
for, the May 1, 2012 Changes to the
NSX Fee and Rebate Schedule
May 10, 2012.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 1 and Rule 19b–4 thereunder,2
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
18:41 May 15, 2012
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
National Stock Exchange, Inc.
(‘‘NSX®’’ or ‘‘Exchange’’) is proposing to
clarify the purpose of, and statutory
basis for, its amended Fee and Rebate
Schedule (the ‘‘Fee Schedule’’) issued
pursuant to Exchange Rule 16.1(c) that
went into effect on May 1, 2012
pursuant to SR–NSX–2012–06 to adjust
the take fee and rebates for certain
orders executed in the Exchange’s
Automatic Execution Mode, adjust the
rebates and for certain orders executed
in the Exchange’s Order Delivery Mode,
and re-introduce a market data revenue
rebate sharing program, and to reinstate
the fee changes that were implemented
in SR–NSX–2012–06 which was
withdrawn on May 8, 2012.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://www.nsx.com, at the principal
office of the Exchange, 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
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
With this rule change, the Exchange is
proposing to more clearly state the
purpose of, and statutory basis for, its
amended Fee Schedule that went into
effect on May 1, 2012, pursuant to SR–
NSX–2012–06, and to reinstate the fee
changes that were implemented in SR–
NSX–2012–06 which was withdrawn on
May 8, 2012. No changes to the Fee
Schedule are proposed other than those
described in SR–NSX–2012–06.3
The fee change proposed by SR–NSX–
2012–06 modified the Fee Schedule in
four respects. First, SR–NSX–2012–06
amended the rebates applicable to
liquidity adding order executions in
securities priced at least one dollar in
3 As a result of this filing, the fee changes that
were implemented on May 1, 2012 will continue
uninterrupted despite the withdrawal of SR–NSX–
2012–06.
17 17
VerDate Mar<15>2010
notice is hereby given that on May 9,
2012, National Stock Exchange, Inc.
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 the Exchange. The
Commission is publishing this notice to
solicit comment on the proposed rule
change from interested persons.
Jkt 226001
PO 00000
Frm 00059
Fmt 4703
Sfmt 4703
28909
the Exchange’s Automatic Execution
Mode of order interaction (‘‘AutoEx’’).
Second, SR–NSX–2012–06 amended the
take fee applicable to order executions
in securities priced at least one dollar in
AutoEx. Third, SR–NSX–2012–06
amended the rebate tiers applicable to
order executions in securities priced at
least one dollar in the Exchange’s Order
Delivery Mode of order interaction
(‘‘Order Delivery’’). Finally, with respect
to the rebate adjustments in both
AutoEx and Order Delivery, SR–NSX–
2012–06 re-established a market data
rebate sharing program with Exchange
ETP Holders. Each of the changes is
further addressed below.
1. Rebates for Executions in Securities
Priced at Least One Dollar in AutoEx
SR–NSX–2012–06 proposed to modify
the rebates applicable to liquidity
adding order executions in securities
priced one dollar or more in AutoEx.
These changes can be found in Section
I of the Fee Schedule.
Prior to May 1, 2012, a flat $0.0026
rebate per share applied to an ETP
Holder’s displayed liquidity adding
order executions of securities of at least
one dollar in AutoEx. Under SR–NSX–
2012–06, progressively greater rebates,
of $0.0024, $0.0026, $0.0027, $0.0028 or
$0.0029 per share, plus 50% of market
data revenues attributable to such orders
if the second (or higher) volume tier is
achieved, apply depending on an ETP
Holder’s ‘‘Average Daily Volume’’
(‘‘ADV’’) (as such term is further
discussed below). A $0.0024 per share
rebate (with no market data revenue
sharing) applies to an ETP Holder’s
AutoEx, dollar or higher displayed order
executions that add liquidity where the
ETP Holder’s ADV is less than 500,000
shares; a $0.0026 per share rebate (plus
50% market data revenue sharing, as
further described below) applies to an
ETP Holder’s AutoEx, dollar or higher
displayed order executions that add
liquidity where the ETP Holder’s ADV
is at least 500,000 shares but less than
1,500,000 shares; a $0.0027 per share
rebate (plus 50% market data revenue
sharing) applies to an ETP Holder’s
AutoEx, dollar or higher displayed order
executions that add liquidity where the
ETP Holder’s ADV is at least 1,500,000
shares but less than 5,000,000 shares; a
$0.0028 per share rebate (plus 50%
market data revenue sharing) applies to
an ETP Holder’s AutoEx, dollar or
higher displayed order executions that
add liquidity where the ETP Holder’s
ADV is at least 5,000,000 shares but less
than 10,000,000 shares; and a $0.0029
per share rebate (plus 50% market data
revenue sharing) applies to an ETP
Holder’s AutoEx, dollar or higher
E:\FR\FM\16MYN1.SGM
16MYN1
]]>Agencies
[Federal Register Volume 77, Number 95 (Wednesday, May 16, 2012)]
[Notices]
[Pages 28905-28909]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-11819]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-66964; File No. SR-NASDAQ-2012-057]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing of Proposed Rule Change With Respect to the Authority
of NASDAQ or NASDAQ Execution Services To Cancel Orders When a
Technical or System Issue Occurs and To Describe the Operation of an
Error Account
May 10, 2012.
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 April 30, 2012, The NASDAQ Stock Market LLC
[[Page 28906]]
(``NASDAQ'' or the ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') a 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
NASDAQ proposes a rule change with respect to the authority of the
Exchange or NASDAQ Execution Services (``NES'') to cancel orders when a
technical or system issue occurs and to describe the operation of an
error account for NES. NASDAQ will implement the proposed change upon
approval by the Commission. The text of the proposed rule change is
available 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, the self-regulatory organization
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 those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 4758 by adding a new paragraph
(d) that addresses the authority of the Exchange or NES to cancel
orders when a technical or systems issue occurs and to describe the
operation of an error account for NES.\3\
---------------------------------------------------------------------------
\3\ NES is a facility of the Exchange. Accordingly, under Rule
4758, the Exchange is responsible for filing with the Commission
rule changes and fees relating to NES's functions. In addition, the
Exchange is using the phrase ``NES or the Exchange'' in this rule
filing to reflect the fact that a decision to take action with
respect to orders affected by a technical or systems issue may be
made in the capacity of NES or the Exchange depending on where those
orders are located at the time of that decision.
From time to time, the Exchange also uses non-affiliate third-
party broker-dealers to provide outbound routing services (i.e.,
third-party Routing Brokers). In those cases, orders are submitted
to the third-party Routing Broker through NES, the third-party
Routing Broker routes the orders to the routing destination in its
name, and any executions are submitted for clearance and settlement
in the name of NES so that any resulting positions are delivered to
NES upon settlement. As described above, NES normally arranges for
any resulting securities positions to be delivered to the member
that submitted the corresponding order to the Exchange. If error
positions (as defined in proposed Rule 4758(d)(2)) result in
connection with the Exchange's use of a third-party Routing Broker
for outbound routing, and those positions are delivered to NES
through the clearance and settlement process, NES would be permitted
to resolve those positions in accordance with proposed Rule 4758(d).
If the third-party Routing Broker received error positions in
connection with its role as a routing broker for the Exchange, and
the error positions were not delivered to NES through the clearance
and settlement process, then the third-party Routing Broker would
resolve the error positions itself, and NES would not be permitted
to accept the error positions, as set forth in proposed Rule
4758(d)(2)(B).
---------------------------------------------------------------------------
NES is the approved routing broker of the Exchange, subject to the
conditions listed in Rule 4758. The Exchange relies on NES to provide
outbound routing services from itself to routing destinations of NES
(``routing destinations'').\4\ When NES routes orders to a routing
destination, it does so by sending a corresponding order in its own
name to the routing destination. In the normal course, routed orders
that are executed at routing destinations are submitted for clearance
and settlement in the name of NES, and NES arranges for any resulting
securities positions to be delivered to the member that submitted the
corresponding order to the Exchange. From time to time, however, the
Exchange and NES encounter situations in which it becomes necessary to
cancel orders and resolve error positions.\5\
---------------------------------------------------------------------------
\4\ The Exchange has authority to receive inbound routes of
equities orders by NES from NASDAQ OMX BX (``BX'') and the NASDAQ
OMX PSX (``PSX'') of NASDAQ OMX PHLX on a pilot basis. See
Securities Exchange Act Release No. 65554 (October 13, 2011), 76 FR
65311 (October 20, 2011) (SR-NASDAQ-2011-142).
\5\ The examples described in this filing are not intended to be
exclusive. Proposed Rule 4758(d) would provide general authority for
the Exchange or NES to cancel orders in order to maintain fair and
orderly markets when technical and systems issues are occurring, and
Rule 4758(d) also would set forth the manner in which error
positions may be handled by the Exchange or NES. The proposed rule
change is not limited to addressing order cancellation or error
positions resulting only from the specific examples described in
this filing.
---------------------------------------------------------------------------
Examples of Circumstances That May Lead to Canceled Orders
A technical or systems issue may arise at NES, a routing
destination, or the Exchange that may cause the Exchange or NES to take
steps to cancel orders if the Exchange or NES determines that such
action is necessary to maintain a fair and orderly market. The examples
set forth below describe some of the circumstances in which the
Exchange or NES may decide to cancel orders.
Example 1. If NES or a routing destination experiences a
technical or systems issue that results in NES not receiving
responses to immediate or cancel (``IOC'') orders that it sent to
the routing destination, and that issue is not resolved in a timely
manner, NES or the Exchange would seek to cancel the routed orders
affected by the issue.\6\ For instance, if NES experiences a
connectivity issue affecting the manner in which it sends or
receives order messages to or from routing destinations, it may be
unable to receive timely execution or cancellation reports from the
routing destinations, and NES or the Exchange may consequently seek
to cancel the affected routed orders. Once the decision is made to
cancel those routed orders, any cancellation that a member submitted
to the Exchange on its initial order during such a situation would
be honored.\7\
---------------------------------------------------------------------------
\6\ In a normal situation (i.e., one in which a technical or
systems issue does not exist), NES should receive an immediate
response to an IOC order from a routing destination, and would pass
the resulting fill or cancellation on to the Exchange member. After
submitting an order that is routed to a routing destination, if a
member sends an instruction to cancel that order, the cancellation
is held by the Exchange until a response is received from the
routing destination. For instance, if the routing destination
executes that order, the execution would be passed on to the member
and the cancellation instruction would be disregarded.
\7\ If a member did not submit a cancellation to the Exchange,
however, that initial order would remain ``live'' and thus be
eligible for execution or posting on the Exchange, and neither the
Exchange nor NES would treat any execution of that initial order or
any subsequent routed order related to that initial order as an
error.
---------------------------------------------------------------------------
Example 2. If the Exchange experiences a systems issue, the
Exchange may take steps to cancel all outstanding orders affected by
that issue and notify affected members of the cancellations. In
those cases, the Exchange would seek to cancel any routed orders
related to the members' initial orders.
Examples of Circumstances That May Lead to Error Positions
In some instances, the technical or systems issue at NES, a routing
destination, the Exchange, or a non-affiliate third party Routing
Broker may also result in NES acquiring an error position that it must
resolve. The examples set forth below describe some of the
circumstances in which error positions may arise.
Example A. Error positions may result from routed orders that
the Exchange or NES attempts to cancel but that are executed before
the routing destination receives the cancellation message or that
are executed because the routing destination is unable to process
the cancellation message. Using the situation described in Example 1
above, assume that the Exchange seeks to cancel orders routed to a
routing destination because it is not receiving timely execution or
cancellation reports from the routing destination. In such a
situation, NES may
[[Page 28907]]
still receive executions from the routing destination after
connectivity is restored, which it would not then allocate to
members because of the earlier decision to cancel the affected
routed orders. Instead, NES would post those positions into its
error account and resolve the positions in the manner described
below.
Example B. Error positions may result from an order processing
issue at a routing destination. For instance, if a routing
destination experienced a systems problem that affects its order
processing, it may transmit back a message purporting to cancel a
routed order, but then subsequently submit an execution of that same
order (i.e., a locked-in trade) to The Depository Trust & Clearing
Corporation (``DTCC'') for clearance and settlement. In such a
situation, the Exchange would not then allocate the execution to the
member because of the earlier cancellation message from the routing
destination. Instead, NES would post those positions into its error
account and resolve the positions in the manner described below.
Example C. Error positions may result if NES receives an
execution report from a routing destination but does not receive
clearing instructions for the execution from the routing
destination. For instance, assume that a member sends the Exchange
an order to buy 100 shares of ABC stock, which causes NES to send an
order to a routing destination that is subsequently executed,
cleared, and closed out by that routing destination, and the
execution is ultimately communicated back to that member. On the
next trading day (T+1), if the routing destination does not provide
clearing instructions for that execution, NES would still be
responsible for settling that member's purchase, but would be left
with a short position in its error account.\8\ NES would resolve the
position in the manner described below.
---------------------------------------------------------------------------
\8\ To the extent that NES incurred a loss in covering its short
position, it would submit a reimbursement claim to that routing
destination.
---------------------------------------------------------------------------
Example D. Error positions may result from a technical or
systems issue that causes orders to be executed in the name of NES
that are not related to NES's function as the Exchange's routing
broker and are not related to any corresponding orders of members.
As a result, NES would not be able to assign any positions resulting
from such an issue to members. Instead, NES would post those
positions into its error account and resolve the positions in the
manner described below.
Example E. Error positions may result from a technical or
systems issue through which the Exchange does not receive sufficient
notice that a member that has executed trades on the Exchange has
lost the ability to clear trades through DTCC. In such a situation,
the Exchange would not have valid clearing information, which would
prevent the trade from being automatically processed for clearance
and settlement on a locked-in basis. Accordingly, NES would assume
that member's side of the trades so that the counterparties can
settle the trades. NES would post those positions into its error
account and resolve the positions in the manner described below.
Example F. Error positions may result from a technical or
systems issue at the Exchange that does not involve routing of
orders through NES. For example, a situation may arise in which a
posted quote/order was validly cancelled but the system erroneously
matched that quote/order with an order that was seeking to access
it. In such a situation, NES would have to assume the side of the
trade opposite the order seeking to access the cancelled quote/
order. NES would post the position in its error account and resolve
the position in the manner described below.
In the circumstances described above, neither the Exchange nor NES
may learn about an error position until T+1, either: (1) During the
clearing process when a routing destination has submitted to DTCC a
transaction for clearance and settlement for which NES never received
an execution confirmation; or (2) when a routing destination does not
recognize a transaction submitted by NES to DTCC for clearance and
settlement. Moreover, the affected members' trade may not be nullified
absent express authority under Exchange rules.\9\
---------------------------------------------------------------------------
\9\ See, e.g., Rule 11890 (regarding clearly erroneous
executions).
---------------------------------------------------------------------------
Proposed Amendments to Rule 4758
The Exchange proposes to amend Rule 4758 to add new paragraph (d)
to address the cancellation of orders due to technical or systems
issues and the use of an error account by NES.
Specifically, under paragraph (d)(1) of the proposed rule, the
Exchange or NES would be expressly authorized to cancel orders as may
be necessary to maintain fair and orderly markets if a technical or
systems issue occurred at the Exchange, NES, or a routing
destination.\10\ The Exchange or NES would be required to provide
notice of the cancellation to affected members as soon as practicable.
---------------------------------------------------------------------------
\10\ Such a situation may not cause the Exchange to declare
self-help against the routing destination pursuant to Rule 611 of
Regulation NMS. If the Exchange or NES determines to cancel orders
routed to a routing destination under proposed Rule 4758(d), but
does not declare self-help against that routing destination, the
Exchange would continue to be subject to the trade-through
requirements in Rule 611 with respect to that routing destination.
---------------------------------------------------------------------------
Paragraph (d)(2) of the proposed rule would permit NES to maintain
an error account for the purpose of addressing positions that result
from a technical or systems issue at NES, the Exchange, a routing
destination, or a non-affiliate third-party Routing Broker that affects
one or more orders (``error positions''). By definition, an error
position would not include any position that results from an order
submitted by a member to the Exchange that is executed on the Exchange
and automatically processed for clearance and settlement on a locked-in
basis. NES also would not be permitted to accept any positions in its
error account from an account of a member and could not permit any
member to transfer any positions from the member's account to NES's
error account under the proposed rule.\11\ However, if a technical or
systems issue results in the Exchange not having valid clearing
instructions for a member to a trade, NES may assume that member's side
of the trade so that the trade can be processed for clearance and
settlement on a locked-in basis.\12\
---------------------------------------------------------------------------
\11\ The purpose of this provision is to clarify that NES may
address error positions under the proposed rule that are caused by a
technical or systems issue, but that NES may not accept from a
member positions that are delivered to the member through the
clearance and settlement process, even if those positions may have
been related to a technical or systems issue at NES, the Exchange, a
routing destination of NES, or a non-affiliate third-party Routing
Broker. This provision would not apply, however, to situations like
the one described in Example C in which NES incurred a short
position to settle a member's purchase, as the member did not yet
have a position in its account as a result of the purchase at the
time of NES's action (i.e., NES's action was necessary for the
purchase to settle into the member's account). Similarly, the
provision would not apply to situations like the one described in
Example F, where a system issue caused one member to receive an
execution for which there was not an available contraparty, in which
case action by NES would be necessary for the position to settle
into that member's account. Moreover, to the extent a member
receives locked-in positions in connection with a technical or
systems issue, that member may seek to rely on NASDAQ Rule 4626 if
it experiences a loss. That rule provides members with the ability
to file claims against the Exchange for ``losses directly resulting
from the [NASDAQ] systems' actual failure to correctly process an
order, Quote/Order, message, or other data, provided the Nasdaq
Market Center has acknowledged receipt of the order, Quote/Order,
message, or data.''
\12\ See Example E above.
---------------------------------------------------------------------------
Under paragraph (d)(3), in connection with a particular technical
or systems issue, NES or the Exchange would be permitted to either (i)
assign all resulting error positions to members, or (ii) have all
resulting error positions liquidated, as described below. Any
determination to assign or liquidate error positions, as well as any
resulting assignments, would be required to be made in a
nondiscriminatory fashion.
NES or the Exchange would be required to assign all error positions
resulting from a particular technical or systems issue to the
applicable members affected by that technical or systems issue if NES
or the Exchange:
Determined that it has accurate and sufficient information
(including valid clearing information) to assign the positions to all
of the applicable members affected by that technical or systems issue;
Determined that it has sufficient time pursuant to normal
clearance and settlement deadlines to evaluate the information
necessary to assign the
[[Page 28908]]
positions to all of the applicable members affected by that technical
or systems issue; and
Had not determined to cancel all orders affected by that
technical or systems issue.
For example, a technical or systems issue of limited scope or
duration may occur at a routing destination, and the resulting trades
may be submitted for clearance and settlement by such routing
destination to DTCC. If there were a small number of trades, there may
be sufficient time to match positions with member orders and avoid
using the error account.
There may be scenarios, however, where NES determines that it is
unable to assign all error positions resulting from a particular
technical or systems issue to all of the affected members, or
determines to cancel all affected routed orders. For example, in some
cases, the volume of questionable executions and positions resulting
from a technical or systems issue might be such that the research
necessary to determine which members to assign those executions to
could be expected to extend past the normal settlement cycle for such
executions. Furthermore, if a routing destination experiences a
technical or systems issue after NES has transmitted IOC orders to it
that prevents NES from receiving responses to those orders, NES or the
Exchange may determine to cancel all routed orders affected by that
issue. In such a situation, NES or the Exchange would not pass on to
the members any executions on the routed orders received from the
routing destination.
The proposed rule also would require NES to liquidate error
positions as soon as practicable.\13\ In liquidating error positions,
NES would be required to provide complete time and price discretion for
the trading to liquidate the error positions to a third-party broker-
dealer and could not attempt to exercise any influence or control over
the timing or methods of trading to liquidate the error positions.\14\
NES also would be required to establish and enforce policies and
procedures reasonably designed to restrict the flow of confidential and
proprietary information between the third-party broker-dealer and NES/
the Exchange associated with the liquidation of the error positions.
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\13\ If NES determines in connection with a particular technical
or systems issue that some error positions can be assigned to some
affected members but other error positions cannot be assigned, NES
would be required under the proposed rule to liquidate all such
error positions (including those positions that could be assigned to
the affected members).
\14\ This provision is not intended to preclude NES from
providing the third-party broker with standing instructions with
respect to the manner in which it should handle all error account
transactions. For example, NES might instruct the broker to treat
all orders as ``not held'' and to attempt to minimize any market
impact on the price of the stock being traded.
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Under proposed paragraph (d)(4), NES and the Exchange would be
required to make and keep records to document all determinations to
treat positions as error positions and all determinations for the
assignment of error positions to members or the liquidation of error
positions, as well as records associated with the liquidation of error
positions through the third-party broker-dealer.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) \15\ of
the Securities Exchange Act of 1934 (the ``Act''), in general, and
furthers the objectives of Section 6(b)(5),\16\ in particular, in that
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, to remove impediments to and perfect the
mechanism of a free and open market and a national market system and,
in general, to protect investors and the public interest, and it is not
designed to permit unfair discrimination among customers, brokers, or
dealers. The Exchange believes that this proposal is in keeping with
those principles since NES's or the Exchange's ability to cancel orders
during a technical and systems issue and to maintain an error account
facilitates the smooth and efficient operations of the market.
Specifically, the Exchange believes that allowing NES or the Exchange
to cancel orders during a technical or systems issue would allow the
Exchange to maintain fair and orderly markets. Moreover, the Exchange
believes that allowing NES to assume error positions in an error
account and to liquidate those positions, subject to the conditions set
forth in the proposed amendments to Rule 4758, would be the least
disruptive means to correct these errors, except in cases where NES can
assign all such error positions to all affected members of the
Exchange. Overall, the proposed amendments are designed to ensure full
trade certainty for market participants and to avoid disrupting the
clearance and settlement process. The proposed amendments are also
designed to provide a consistent methodology for handling error
positions in a manner that does not discriminate among members. The
proposed amendments are also consistent with Section 6 of the Act
insofar as they would require NES to establish controls to restrict the
flow of any confidential information between the third-party broker and
NES/the Exchange associated with the liquidation of error positions.
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\15\ 15 U.S.C. 78f(b).
\16\ 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 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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be 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 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 email to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2012-057 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.
[[Page 28909]]
All submissions should refer to File Number SR-NASDAQ-2012-057. This
file number should be included on the subject line if email 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
10:00 a.m. and 3:00 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-2012-057, and should
be submitted on or before June 6, 2012.
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\17\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-11819 Filed 5-15-12; 8:45 am]
BILLING CODE 8011-01-P
