Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order Instituting Proceedings To Determine Whether To Approve or Disapprove Proposed Rule Change To Establish “Benchmark Orders” Under NASDAQ Rule 4751(f), 50191-50193 [2012-20318]
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Federal Register / Vol. 77, No. 161 / Monday, August 20, 2012 / Notices
2. Statutory Basis
The statutory basis for the proposed
rule change is Section 6(b)(5) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),4 which requires the rules of an
exchange to promote just and equitable
principles of trade, 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 believes
that the proposed rule change removes
impediments to and perfects the
mechanism of a free and open market by
reducing the potential for two orders
that are marketable against one another
from resting on the NYSE Arca book and
not executing. The proposed rule
change will also provide transparency
in the Exchange rules of how MPL
Orders with ALO Order instructions
would interact.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
mstockstill on DSK4VPTVN1PROD with NOTICES
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 5 and Rule
19b–4(f)(6) thereunder.6 Because the
proposed rule change does not: (i)
Significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)(iii)
thereunder.7
4 15
U.S.C. 78f(b).
U.S.C. 78s(b)(3)(A)(iii).
6 17 CFR 240.19b–4(f)(6).
7 17 CFR 240.19b–4(f)(6)(iii). In addition, Rule
19b-4(f)(6)(iii) requires a self-regulatory
organization to provide the Commission with
written notice of its intent to file the proposed rule
change, along with a brief description and text of
5 15
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At any time within 60 days of the
filing of such 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 (https://www.sec.gov/
rules/sro.shtml ); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–NYSEArca–2012–83 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–NYSEArca–2012–83. 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
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
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 fulfilled this
requirement.
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50191
be posted without change; the
Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
publicly available. All submissions
should refer to File Number SR–
NYSEArca–2012–83 and should be
submitted on or before September 10,
2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.8
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012–20316 Filed 8–17–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67655; File No. SR–
NASDAQ–2012–059]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Order
Instituting Proceedings To Determine
Whether To Approve or Disapprove
Proposed Rule Change To Establish
‘‘Benchmark Orders’’ Under NASDAQ
Rule 4751(f)
August 14, 2012.
I. Introduction
On May 1, 2012, The NASDAQ Stock
Market LLC (‘‘NASDAQ’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
establish various ‘‘Benchmark Orders’’
under NASDAQ Rule 4751(f). The
proposed rule change was published for
comment in the Federal Register on
May 17, 2012.3 The Commission
received no comments on the proposal.
On June 26, 2012, the Commission
extended to August 15, 2012, the time
period in which to approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether to
disapprove the proposed rule change.4
This order institutes proceedings under
Section 19(b)(2)(B) of the Act to
determine whether to approve or
disapprove the proposed rule change.
8 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 66972
(May 11, 2012), 77 FR 29435 (May 17, 2012)
(‘‘Notice’’).
4 See Securities Exchange Act Release No. 67258
(June 26, 2012), 77 FR 39314 (July 2, 2012).
1 15
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50192
Federal Register / Vol. 77, No. 161 / Monday, August 20, 2012 / Notices
II. Description of the Proposal
As set forth in more detail in the
Notice, the Exchange has proposed to
offer Benchmark Orders that would seek
to achieve the performance of a
specified benchmark—Volume
Weighted Average Price (‘‘VWAP’’),
Time Weighted Average Price
(‘‘TWAP’’), or Percent of Volume
(‘‘POV’’)—over a specified period of
time for a specified security.5 The
entering party would specify the
benchmark, period of time, and security,
as well as the other order information
common to all order types, such as buy/
sell side, shares and price.6
Benchmark Orders would be received
by NASDAQ but by their terms would
not be executable by the NASDAQ
matching engine upon entry.7 Rather,
NASDAQ would direct them to a system
application (‘‘Application’’) that is
licensed from a third-party provider and
dedicated to processing Benchmark
Orders.8 The Application would process
Benchmark Orders by generating ‘‘Child
Orders’’ in a manner designed to
achieve the desired benchmark
performance, i.e., VWAP, TWAP or
POV, in accordance with the member’s
instructions.9 Child Orders would be
executed within the NASDAQ system
under NASDAQ’s existing rules, or
made available for routing under
NASDAQ’s current routing rules.10 The
Application would not be capable of
executing Child Orders, but instead
would send Child Orders, using the
proper system protocol, to the NADAQ
matching engine or to the NASDAQ
router as needed to complete the
Benchmark Order.11 NASDAQ
represents that it considers the
Application to be a functional offering
of the NASDAQ Stock Market, and that
it would be integrated closely with the
NASDAQ system and provided to
members subject to NASDAQ’s
obligations and responsibilities as a selfregulatory organization.12
NASDAQ also represents that it
would test the Application rigorously
and regularly, monitor the Application
performance on a real-time and
5 See
proposed NASDAQ Rule 4751(f)(15).
see also Notice, 77 FR at 29436.
7 See proposed NASDAQ Rule 4751(f)(15); see
also Notice, 77 FR at 29435–36.
8 See Notice, 77 FR at 29436.
9 See proposed NASDAQ Rule 4751(f)(15); see
also Notice, 77 FR at 29435–36.
10 See Notice, 77 FR at 29435. Child Orders that
require routing would be routed by NASDAQ
Execution Services (‘‘NES’’), NASDAQ’s whollyowned routing broker-dealer. See Notice, 77 FR at
29436 n.8. In addition, fees applicable to existing
orders and trades would apply to Child Orders. See
Notice, 77 FR at 29436.
11 See Notice, 77 FR at 29435–36.
12 See Notice, 77 FR at 29436.
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6 Id.;
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continuous basis, and have access to the
technology, employees, books and
records of the third-party provider that
are related to the Application and its
interaction with NASDAQ.13 In
addition, NASDAQ represents that it
would maintain control of and
responsibility for the Application.14
III. Proceedings To Determine Whether
To Approve or Disapprove SR–
NASDAQ–2012–059 and Grounds for
Disapproval Under Consideration
The Commission is instituting
proceedings pursuant to Section
19(b)(2)(B) of the Act to determine
whether the proposed rule change
should be approved or disapproved.
Institution of such proceedings is
appropriate at this time in view of the
legal and policy issues raised by the
proposed rule change. Institution of
these proceedings does not indicate that
the Commission has reached any
conclusions with respect to any of the
issues involved. Rather, as described in
greater detail below, the Commission
seeks and encourages interested persons
to provide additional comment on the
proposed rule change to inform the
Commission’s analysis of whether to
approve or disapprove the proposed
rule change.
As discussed above, the Benchmark
Order would allow NASDAQ members
to enter a single order in a single
security that seeks to match the
performance of one of three selected
benchmarks—VWAP, TWAP or POV—
over a pre-determined period of time.
Benchmark Orders would not be
executed by the NASDAQ matching
engine, but would be directed to the
Application that is dedicated to
processing Benchmark Orders. The
Application would generate and send
Child Orders to the NASDAQ matching
engine or to the NASDAQ router,
pursuant to current NASDAQ order
handling and routing rules, in a manner
designed to achieve the desired
benchmark selected by the entering
firm.
Pursuant to Section 19(b)(2)(B), the
Commission is providing notice of the
grounds for disapproval under
consideration. The sections of the Act
applicable to the proposed rule change
that provide the grounds for approval or
disapproval under consideration are
Section 6(b)(5) 15 and Section 6(b)(8).16
Section 6(b)(5) of the Act 17 requires,
among other things, that the rules of a
13 Id.
14 See
Notice, 77 FR at 29437.
U.S.C. 78f(b)(5).
16 15 U.S.C. 78f(b)(8).
17 15 U.S.C. 78f(b)(5).
15 15
PO 00000
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Sfmt 4703
national securities exchange be
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest; and
are not designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers. Section
6(b)(8) of the Act 18 requires that the
rules of the exchange do not impose any
burden on competition not necessary or
appropriate in furtherance of the Act.
NASDAQ’s proposal raises concerns
under the Act regarding whether
Benchmark Orders and Child Orders
would be subject to appropriate controls
to manage risk. In particular, the
Commission is concerned that NASDAQ
has not adequately addressed how or
whether Child Orders, which would be
generated solely by the Application and
presumably outside the control and
supervision of the broker-dealer firm
that entered the initial Benchmark
Order, would be subject to adequate pretrade risk checks. NASDAQ’s proposal
makes reference to the Market Access
Rule, Rule 15c3–5 under the Act,19
which requires pre-trade controls to be
applied by brokers entering orders onto
an exchange but NASDAQ’s proposal
does not indicate how or whether pretrade controls would be applied to Child
Orders generated by the Application.20
The application of appropriate risk
controls under Rule 15c3–5 is critically
important to maintaining a robust
market infrastructure supporting the
protection of investors, investor
confidence, and fair, orderly, and
efficient markets for all participants.
Another concern stems from the
requirements in Sections 6(b)(5) and
6(b)(8) of the Act that exchange rules
not be designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers, or to impose
an unnecessary burden on competition.
NASDAQ’s Benchmark Order
functionality would compete with the
algorithms that member firms and other
market participants currently use to
achieve VWAP, TWAP or POV
performance. The Commission is
concerned whether NASDAQ’s proposal
18 15
U.S.C. 78f(b)(8).
CFR 240.15c3–5. Rule 15c3–5 is designed to
ensure that broker-dealers appropriately control the
risks associated with market access, so as not to
jeopardize their own financial condition, that of
other market participants, the integrity of trading on
the securities markets, or the stability of the
financial system. See Securities Exchange Act
Release No. 63241 (November 3, 2010), 75 FR 69792
at 69794 (November 15, 2010).
20 See Notice, 77 FR at 29436.
19 17
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Federal Register / Vol. 77, No. 161 / Monday, August 20, 2012 / Notices
would enable Benchmark Orders and
Child Orders generated by the
Application to receive unfair or
unreasonable preferential treatment by
NASDAQ (such as through more
effective access to the matching engine)
as compared to orders generated by
market participants that may choose to
use a competing algorithm.
mstockstill on DSK4VPTVN1PROD with NOTICES
IV. Procedure: Request for Written
Comments
The Commission requests that
interested persons provide written
submissions of their views, data, and
arguments with respect to the issues
identified above, as well as any others
they may have identified with the
Exchange’s proposal. In particular, the
Commission invites the written views of
interested persons concerning whether
the proposal is consistent with Sections
6(b)(5) and 6(b)(8) under the Act, or any
other provision of the Act or rule or
regulation thereunder. Although there
do not appear to be any issues relevant
to approval or disapproval which would
be facilitated by an oral presentation of
views, data, and arguments, the
Commission will consider, pursuant to
Rule 19b-4, any request for an
opportunity to make an oral
presentation.21
The Commission is asking that
commenters address the merit of
NASDAQ’s statements in support of the
proposal, in addition to any other
comments they may wish to submit
about the proposed rule change.
Specifically, the Commission is
requesting comment on the following:
• What are commenters’ views as to
whether NASDAQ has adequately
addressed the potential risks to the
market related to the handling of Child
Orders by NASDAQ’s Application? How
could such risks be addressed and
mitigated by NASDAQ?
• What are commenters’ views with
regard to whether NASDAQ’s proposal
to offer trading algorithms that would
compete with other market participants
would impose an undue burden on
competition or result in unfair
discrimination? In this regard, has
NASDAQ provided adequate assurances
and information regarding whether or
not it would offer preferential treatment
to its service as compared to similar
21 Section 19(b)(2) of the Act, as amended by the
Securities Act Amendments of 1975, Public Law
94–29 (June 4, 1975), grants the Commission
flexibility to determine what type of proceeding—
either oral or notice and opportunity for written
comments—is appropriate for consideration of a
particular proposal by a self-regulatory
organization. See Securities Act Amendments of
1975, Senate Comm. on Banking, Housing & Urban
Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30
(1975).
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competing services offered by other
market participants? For example, what
are commenters’ views regarding
whether NASDAQ’s proposal could
allow for more effective access to the
matching engine that could confer
advantages related to timing, priority, or
otherwise?
Interested persons are invited to
submit written data, views and
arguments regarding whether the
proposal should be approved or
disapproved by October 4, 2012. Any
person who wishes to file a rebuttal to
any other person’s submission must file
that rebuttal by October 19, 2012.
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–2012–059 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–2012–059. 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
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of
NASDAQ. All comments received will
be posted without change; the
Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
PO 00000
Frm 00116
Fmt 4703
Sfmt 4703
50193
available publicly. All submissions
should refer to File Number SR–
NASDAQ–2012–059 and should be
submitted on or before October 4, 2012.
Rebuttal comments should be submitted
by October 19, 2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012–20318 Filed 8–17–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67656; File No. SR–BYX–
2012–018]
Self-Regulatory Organizations; BATS
Y–Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change by BATS Y–Exchange,
Inc. To Amend BYX Rules Related to
Price Sliding Functionality
August 14, 2012.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on August 3,
2012, BATS Y–Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BYX’’) 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 Exchange has
designated this proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A) of the
Act 3 and Rule 19b–4(f)(6)(iii)
thereunder,4 which renders it effective
upon filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 11.9, entitled ‘‘Orders and
Modifiers’’ to modify the operation of
the Exchange’s price sliding
functionality described in Rule 11.9.
The Exchange also proposes other minor
changes, including changes to the terms
used to describe price sliding and a
cross-reference contained in Rule 11.13.
22 17
CFR 200.30–3(a)(57).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6)(iii).
1 15
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]]>Agencies
[Federal Register Volume 77, Number 161 (Monday, August 20, 2012)]
[Notices]
[Pages 50191-50193]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-20318]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67655; File No. SR-NASDAQ-2012-059]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order
Instituting Proceedings To Determine Whether To Approve or Disapprove
Proposed Rule Change To Establish ``Benchmark Orders'' Under NASDAQ
Rule 4751(f)
August 14, 2012.
I. Introduction
On May 1, 2012, The NASDAQ Stock Market LLC (``NASDAQ'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to establish various ``Benchmark Orders'' under
NASDAQ Rule 4751(f). The proposed rule change was published for comment
in the Federal Register on May 17, 2012.\3\ The Commission received no
comments on the proposal. On June 26, 2012, the Commission extended to
August 15, 2012, the time period in which to approve the proposed rule
change, disapprove the proposed rule change, or institute proceedings
to determine whether to disapprove the proposed rule change.\4\ This
order institutes proceedings under Section 19(b)(2)(B) of the Act to
determine whether to approve or disapprove the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 66972 (May 11,
2012), 77 FR 29435 (May 17, 2012) (``Notice'').
\4\ See Securities Exchange Act Release No. 67258 (June 26,
2012), 77 FR 39314 (July 2, 2012).
---------------------------------------------------------------------------
[[Page 50192]]
II. Description of the Proposal
As set forth in more detail in the Notice, the Exchange has
proposed to offer Benchmark Orders that would seek to achieve the
performance of a specified benchmark--Volume Weighted Average Price
(``VWAP''), Time Weighted Average Price (``TWAP''), or Percent of
Volume (``POV'')--over a specified period of time for a specified
security.\5\ The entering party would specify the benchmark, period of
time, and security, as well as the other order information common to
all order types, such as buy/sell side, shares and price.\6\
---------------------------------------------------------------------------
\5\ See proposed NASDAQ Rule 4751(f)(15).
\6\ Id.; see also Notice, 77 FR at 29436.
---------------------------------------------------------------------------
Benchmark Orders would be received by NASDAQ but by their terms
would not be executable by the NASDAQ matching engine upon entry.\7\
Rather, NASDAQ would direct them to a system application
(``Application'') that is licensed from a third-party provider and
dedicated to processing Benchmark Orders.\8\ The Application would
process Benchmark Orders by generating ``Child Orders'' in a manner
designed to achieve the desired benchmark performance, i.e., VWAP, TWAP
or POV, in accordance with the member's instructions.\9\ Child Orders
would be executed within the NASDAQ system under NASDAQ's existing
rules, or made available for routing under NASDAQ's current routing
rules.\10\ The Application would not be capable of executing Child
Orders, but instead would send Child Orders, using the proper system
protocol, to the NADAQ matching engine or to the NASDAQ router as
needed to complete the Benchmark Order.\11\ NASDAQ represents that it
considers the Application to be a functional offering of the NASDAQ
Stock Market, and that it would be integrated closely with the NASDAQ
system and provided to members subject to NASDAQ's obligations and
responsibilities as a self-regulatory organization.\12\
---------------------------------------------------------------------------
\7\ See proposed NASDAQ Rule 4751(f)(15); see also Notice, 77 FR
at 29435-36.
\8\ See Notice, 77 FR at 29436.
\9\ See proposed NASDAQ Rule 4751(f)(15); see also Notice, 77 FR
at 29435-36.
\10\ See Notice, 77 FR at 29435. Child Orders that require
routing would be routed by NASDAQ Execution Services (``NES''),
NASDAQ's wholly-owned routing broker-dealer. See Notice, 77 FR at
29436 n.8. In addition, fees applicable to existing orders and
trades would apply to Child Orders. See Notice, 77 FR at 29436.
\11\ See Notice, 77 FR at 29435-36.
\12\ See Notice, 77 FR at 29436.
---------------------------------------------------------------------------
NASDAQ also represents that it would test the Application
rigorously and regularly, monitor the Application performance on a
real-time and continuous basis, and have access to the technology,
employees, books and records of the third-party provider that are
related to the Application and its interaction with NASDAQ.\13\ In
addition, NASDAQ represents that it would maintain control of and
responsibility for the Application.\14\
---------------------------------------------------------------------------
\13\ Id.
\14\ See Notice, 77 FR at 29437.
---------------------------------------------------------------------------
III. Proceedings To Determine Whether To Approve or Disapprove SR-
NASDAQ-2012-059 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act to determine whether the proposed rule change
should be approved or disapproved. Institution of such proceedings is
appropriate at this time in view of the legal and policy issues raised
by the proposed rule change. Institution of these proceedings does not
indicate that the Commission has reached any conclusions with respect
to any of the issues involved. Rather, as described in greater detail
below, the Commission seeks and encourages interested persons to
provide additional comment on the proposed rule change to inform the
Commission's analysis of whether to approve or disapprove the proposed
rule change.
As discussed above, the Benchmark Order would allow NASDAQ members
to enter a single order in a single security that seeks to match the
performance of one of three selected benchmarks--VWAP, TWAP or POV--
over a pre-determined period of time. Benchmark Orders would not be
executed by the NASDAQ matching engine, but would be directed to the
Application that is dedicated to processing Benchmark Orders. The
Application would generate and send Child Orders to the NASDAQ matching
engine or to the NASDAQ router, pursuant to current NASDAQ order
handling and routing rules, in a manner designed to achieve the desired
benchmark selected by the entering firm.
Pursuant to Section 19(b)(2)(B), the Commission is providing notice
of the grounds for disapproval under consideration. The sections of the
Act applicable to the proposed rule change that provide the grounds for
approval or disapproval under consideration are Section 6(b)(5) \15\
and Section 6(b)(8).\16\ Section 6(b)(5) of the Act \17\ requires,
among other things, that the rules of a national securities exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general, to protect investors and the public
interest; and are not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers. Section 6(b)(8) of the Act
\18\ requires that the rules of the exchange do not impose any burden
on competition not necessary or appropriate in furtherance of the Act.
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\15\ 15 U.S.C. 78f(b)(5).
\16\ 15 U.S.C. 78f(b)(8).
\17\ 15 U.S.C. 78f(b)(5).
\18\ 15 U.S.C. 78f(b)(8).
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NASDAQ's proposal raises concerns under the Act regarding whether
Benchmark Orders and Child Orders would be subject to appropriate
controls to manage risk. In particular, the Commission is concerned
that NASDAQ has not adequately addressed how or whether Child Orders,
which would be generated solely by the Application and presumably
outside the control and supervision of the broker-dealer firm that
entered the initial Benchmark Order, would be subject to adequate pre-
trade risk checks. NASDAQ's proposal makes reference to the Market
Access Rule, Rule 15c3-5 under the Act,\19\ which requires pre-trade
controls to be applied by brokers entering orders onto an exchange but
NASDAQ's proposal does not indicate how or whether pre-trade controls
would be applied to Child Orders generated by the Application.\20\ The
application of appropriate risk controls under Rule 15c3-5 is
critically important to maintaining a robust market infrastructure
supporting the protection of investors, investor confidence, and fair,
orderly, and efficient markets for all participants.
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\19\ 17 CFR 240.15c3-5. Rule 15c3-5 is designed to ensure that
broker-dealers appropriately control the risks associated with
market access, so as not to jeopardize their own financial
condition, that of other market participants, the integrity of
trading on the securities markets, or the stability of the financial
system. See Securities Exchange Act Release No. 63241 (November 3,
2010), 75 FR 69792 at 69794 (November 15, 2010).
\20\ See Notice, 77 FR at 29436.
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Another concern stems from the requirements in Sections 6(b)(5) and
6(b)(8) of the Act that exchange rules not be designed to permit unfair
discrimination between customers, issuers, brokers, or dealers, or to
impose an unnecessary burden on competition. NASDAQ's Benchmark Order
functionality would compete with the algorithms that member firms and
other market participants currently use to achieve VWAP, TWAP or POV
performance. The Commission is concerned whether NASDAQ's proposal
[[Page 50193]]
would enable Benchmark Orders and Child Orders generated by the
Application to receive unfair or unreasonable preferential treatment by
NASDAQ (such as through more effective access to the matching engine)
as compared to orders generated by market participants that may choose
to use a competing algorithm.
IV. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any others they may have identified
with the Exchange's proposal. In particular, the Commission invites the
written views of interested persons concerning whether the proposal is
consistent with Sections 6(b)(5) and 6(b)(8) under the Act, or any
other provision of the Act or rule or regulation thereunder. Although
there do not appear to be any issues relevant to approval or
disapproval which would be facilitated by an oral presentation of
views, data, and arguments, the Commission will consider, pursuant to
Rule 19b-4, any request for an opportunity to make an oral
presentation.\21\
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\21\ Section 19(b)(2) of the Act, as amended by the Securities
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Act Amendments of 1975, Senate Comm. on
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
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The Commission is asking that commenters address the merit of
NASDAQ's statements in support of the proposal, in addition to any
other comments they may wish to submit about the proposed rule change.
Specifically, the Commission is requesting comment on the following:
What are commenters' views as to whether NASDAQ has
adequately addressed the potential risks to the market related to the
handling of Child Orders by NASDAQ's Application? How could such risks
be addressed and mitigated by NASDAQ?
What are commenters' views with regard to whether NASDAQ's
proposal to offer trading algorithms that would compete with other
market participants would impose an undue burden on competition or
result in unfair discrimination? In this regard, has NASDAQ provided
adequate assurances and information regarding whether or not it would
offer preferential treatment to its service as compared to similar
competing services offered by other market participants? For example,
what are commenters' views regarding whether NASDAQ's proposal could
allow for more effective access to the matching engine that could
confer advantages related to timing, priority, or otherwise?
Interested persons are invited to submit written data, views and
arguments regarding whether the proposal should be approved or
disapproved by October 4, 2012. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
October 19, 2012. 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-2012-059 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-2012-059. 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 a.m. and 3
p.m. Copies of the filing also will be available for inspection and
copying at the principal office of NASDAQ. All comments received will
be posted without change; the Commission does not edit personal
identifying information from submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NASDAQ-2012-059 and should be submitted
on or before October 4, 2012. Rebuttal comments should be submitted by
October 19, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(57).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012-20318 Filed 8-17-12; 8:45 am]
BILLING CODE 8011-01-P
