Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Inbound Routing of Options Orders, 6262-6264 [2014-02134]

Download as PDF 6262 Federal Register / Vol. 79, No. 22 / Monday, February 3, 2014 / Notices customer/pro rata in comparison to price/time) impacts their view. 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– NYSEArca-2014–04 on the subject line. mstockstill on DSK4VPTVN1PROD with NOTICES Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSEArca-2014–04. 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 20549–1090, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– NYSEArca-2014–04, and should be submitted on or before February 24, 2014. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.15 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–02141 Filed 1–31–14; 8:45 am] SECURITIES AND EXCHANGE COMMISSION [Release No. 34–71418; File No. SR– NASDAQ–2014–008] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Inbound Routing of Options Orders January 28, 2014. 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 January 15, 2014, The NASDAQ Stock Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II, and III, below, which Items have been prepared by 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 The Exchange proposes to permit the NASDAQ Options Market (‘‘NOM’’) to receive inbound orders in options routed through Nasdaq Execution Services, LLC (‘‘NES’’) from affiliated exchanges, as described in detail below. 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 Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. (A) Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of the filing is to permit the receipt of inbound orders routed from affiliated exchanges in options through NES. The Exchange filed a proposed rule change to use NES rather than Nasdaq Options Services LLC BILLING CODE 8011–01–P 1 15 15 17 CFR 200.30–3(a)(12). VerDate Mar<15>2010 20:46 Jan 31, 2014 2 17 Jkt 232001 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00119 Fmt 4703 Sfmt 4703 (‘‘NOS’’) for the outbound routing of options orders and the Exchange also updated its equities and options rules to reflect the use of a third party unaffiliated routing broker.3 Now, the Exchange proposes to continue to receive orders from its affiliated exchanges. Specifically, the Exchange proposes to receive options orders, through NES directly from the options market of NASDAQ OMX PHLX LLC (‘‘PHLX’’) 4 as well as from NASDAQ OMX BX, Inc. (‘‘BX’’),5 under the same terms and conditions as NOS currently does. BX and PHLX have filed to use NES for outbound routing,6 as well as to receive options orders routed from PHLX through NES.7 NOS and NES are broker-dealers and members of NASDAQ, PHLX and BX. Currently, NOS provides all options routing functions for BX Options, PHLX, and NOM. BX, NASDAQ, NOM, PHLX, NES and NOS are affiliates.8 Accordingly, the affiliate relationship between NASDAQ and NOS, its member, raises the issue of an exchange’s affiliation with a member of such exchange. Specifically, in connection with prior filings, the Commission has expressed concern that the affiliation of an exchange with one of its members raises the potential for unfair competitive advantage and potential conflicts of interest between an exchange’s self-regulatory obligations and its commercial interests.9 Similarly, under this proposal, the affiliate relationship between NASDAQ and NES raises this issue. Recognizing that the Commission has previously expressed concern regarding the potential for conflicts of interest in instances where a member firm is affiliated with an exchange of which it is a member, the Exchange previously proposed, and the Commission approved, limitations and conditions on 3 See SR–NASDAQ–2014–007. Exchange Act Release No. 58135 (July 10, 2008), 73 FR 40898 (July 16, 2008) (SR– NASDAQ–2008–061). 5 Securities Exchange Act Release No. 67256 (June 26, 2012), 77 FR 39277 (July 2, 2012) (SR–BX– 2012–030). 6 See SR–BX–2014–003 and SR–Phlx–2014–004. 7 See SR–BX–2014–004 and SR–Phlx–2014–005. 8 See Securities Exchange Act Release Nos. 58324 (August 7, 2008), 73 FR 46936 (August 12, 2008) (SR–BSE–2008–02; SR–BSE–2008–23; SR–BSE– 2008–25; SR–BSECC–2008–01) (order approving NASDAQ OMX’s acquisition of BX); and 58179 (July 17, 2008), 73 FR 42874 (July 23, 2008) (order approving NASDAQ OMX’s acquisition of PHLX). 9 See Securities Exchange Act Release Nos. 59153 (December 23, 2008), 73 FR 80485 (December 31, 2008) (SR–NASDAQ–2008–098); and 62736 (August 17, 2010), 75 FR 51861 (August 23, 2010) (SR– NASDAQ–2010–100). See also Securities Exchange Act Release No. 58135 (July 10, 2008), 73 FR 40898 (July 16, 2008)(SR–NASDAQ–2008–061)(Permitting NOS to be affiliated with PHLX). 4 Securities E:\FR\FM\03FEN1.SGM 03FEN1 Federal Register / Vol. 79, No. 22 / Monday, February 3, 2014 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES NOS’s affiliation with the Exchange. Also recognizing that the Commission has expressed concern regarding the potential for conflicts of interest in instances where a member firm is affiliated with an exchange to which it is routing orders, the Exchange previously proposed, and the Commission approved,10 NOS’s affiliation with the Exchange to permit the Exchange to accept inbound orders that NOS routes in its capacity as a facility of PHLX and BX, subject to certain limitations and conditions. The Exchange now proposes to permit NOM to accept inbound options orders that NES (rather than NOS) routes in its capacity as a facility of PHLX and BX, subject to the same limitations that currently apply to NOM accepting inbound orders from PHLX and BX through NOS, as follows: • First, the Exchange and FINRA maintain a Regulatory Contract, as well as an agreement pursuant to Rule 17d– 2 under the Act (‘‘17d–2 Agreement’’).11 Pursuant to the Regulatory Contract and the 17d–2 Agreement, FINRA will be allocated regulatory responsibilities to review NES’s compliance with certain Exchange rules.12 Pursuant to the Regulatory Contract, however, NASDAQ retains ultimate responsibility for enforcing its rules with respect to NES. • Second, FINRA will monitor NES for compliance with the Exchange’s trading rules, and will collect and maintain certain related information.13 • Third, FINRA will provide a report to the Exchange’s chief regulatory officer (‘‘CRO’’), on a quarterly basis, that: (i) Quantifies all alerts (of which FINRA is aware) that identify NES as a participant that has potentially violated Commission or Exchange rules, and (ii) lists all investigations that identify NES as a participant that has potentially violated Commission or Exchange rules. • Fourth, the Exchange has in place NASDAQ 2140(c) which requires The 10 See Securities Exchange Act Release Nos. 58135 (July 10, 2008), 73 FR 40898 (July 16, 2008) (SR–NASDAQ–2008–061); and 69755 (June 13, 2013), 78 FR 36800 (June 19, 2013) (SR–NASDAQ– 2013–070). 11 17 CFR 240.17d–2. 12 NES is also subject to independent oversight by FINRA, its designated examining authority, for compliance with financial responsibility requirements. 13 Pursuant to the Regulatory Contract, both FINRA and the Exchange will collect and maintain all alerts, complaints, investigations and enforcement actions in which NES (in its capacity as a facility of PHLX and BX routing orders to NOM) is identified as a participant that has potentially violated applicable Commission or Exchange rules. The Exchange and FINRA will retain these records in an easily accessible manner in order to facilitate any potential review conducted by the Commission’s Office of Compliance Inspections and Examinations. VerDate Mar<15>2010 20:46 Jan 31, 2014 Jkt 232001 NASDAQ OMX Group, Inc., as the holding company owning both the Exchange and NES, to establish and maintain procedures and internal controls reasonably designed to ensure that NES does not develop or implement changes to its system, based on nonpublic information obtained regarding planned changes to the Exchange’s systems as a result of its affiliation with the Exchange, until such information is available generally to similarly situated Exchange members, in connection with the provision of inbound order routing to the Exchange. By meeting the above conditions, the Exchange will have set up mechanisms that protect the independence of the Exchange’s regulatory responsibility with respect to NES, as well as demonstrate that NES cannot use any information advantage it may have because of its affiliation with the Exchange. For several weeks, the Exchange has been working with the Financial Regulatory Authority (‘‘FINRA’’) and The Options Clearing Corporation (‘‘OCC’’) to secure the necessary approvals for NES to perform these functions. The Exchange has now secured those approvals. The Exchange seeks to complete this process and implement this proposal in January or February. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act 14 in general, and furthers the objectives of Section 6(b)(5) of the Act 15 in particular, in that it is designed 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, because the proposed rule change will allow the Exchange to continue to receive inbound orders from an affiliate (NES rather than NOS), acting in its capacity as a facility of PHLX and BX, in a manner consistent with prior approvals and established protections. The Exchange believes that these conditions establish mechanisms that protect the independence of the Exchange’s regulatory responsibility with respect to NES, as well as ensure that NES cannot use any information it may have because of its affiliation with the Exchange to its advantage. 14 15 15 15 PO 00000 U.S.C. 78f(b). U.S.C. 78f(b)(5). Frm 00120 Fmt 4703 Sfmt 4703 6263 (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 not necessary or appropriate in furtherance of the purposes of the Act. Receiving orders through NES rather than NOS does not raise any issues of intra-market competition because it involves inbound routing from an affiliated exchange. Nor does it result in a burden on competition among exchanges, because there are many competing options exchanges that provide routing services, including through an affiliate. (C) Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act 16 and subparagraph (f)(6) of Rule 19b–4 thereunder.17 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. 16 15 U.S.C. 78s(b)(3)(a)(ii). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 17 17 E:\FR\FM\03FEN1.SGM 03FEN1 6264 Federal Register / Vol. 79, No. 22 / Monday, February 3, 2014 / Notices Comments may be submitted by any of the following methods: SECURITIES AND EXCHANGE COMMISSION 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–2014–008 on the subject line. Paper Comments Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Outbound Routing January 28, 2014. • 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–2014–008. 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–2014–008 and should be submitted on or before February 24, 2014 mstockstill on DSK4VPTVN1PROD with NOTICES [Release No. 34–71421; File No. SR–BX– 2014–003] For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.18 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–02134 Filed 1–31–14; 8:45 am] 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 January 15, 2014, NASDAQ OMX BX, Inc. (‘‘BX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II, and III, below, which Items have been prepared by 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 The Exchange proposes to use Nasdaq Execution Services, LLC (‘‘NES’’) as opposed to Nasdaq Options Services LLC (‘‘NOS’’) for outbound order routing from the BX Options market, as explained further below. The Exchange also proposes to permit the Exchange to route equities and options orders through NES either directly or through a third party routing broker-dealer, as explained further below. The text of the proposed rule change is available on the Exchange’s Web site at https://nasdaqomxbx. cchwallstreet.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 In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. BILLING CODE 8011–01–P U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. CFR 200.30–3(a)(12). VerDate Mar<15>2010 20:46 Jan 31, 2014 Jkt 232001 PO 00000 Frm 00121 Fmt 4703 1. Purpose The purpose of the proposal is to update the Exchange’s rules to reflect the ability to route orders to other exchanges using either the Exchange’s affiliated broker-dealer or a third party unaffiliated broker-dealer, which the Exchange may choose to use for efficiency and potential cost savings. Today, the relevant Exchange rules provide that the Exchange shall route orders in options via NOS and in equities via NES. Both NOS and NES are affiliates and members of BX. As a result, certain conditions have been imposed on the existing routing arrangements.3 Replacing NOS With NES The Exchange proposes to amend its rules to provide that it shall use NES for routing orders in options rather than NOS. The Exchange has determined to use NES for outbound routing in options, in addition to equities. The Exchange originally set up its affiliated broker-dealers as two separate entities. Now, the Exchange believes that this is unnecessary and costly. Accordingly, pursuant to BX Rules, Chapter VI, Section 11, NES will now be the outbound routing broker for BX Options. As the new Routing Facility for options, NES will operate the same way as NOS currently does, in terms of routing options orders to destination options exchanges. This is substantially similar to NYSEArca’s use of its affiliate Archipelago Securities LLC for order routing in both equities and options. Third-Party Routing Broker The Exchange also proposes to codify in its rules the ability to use a thirdparty routing broker to route to away exchanges, rather than routing directly through NES, for both equities and options. To date, the Exchange has used a third-party routing broker in equities and is amending Rule 4758 to clarify this and incorporate the use of a thirdparty routing broker expressly into that rule. Specifically, today, the Exchange routes equities orders to away markets through NES, which, in turn, sometimes routes directly to away markets; in addition, sometimes when the Exchange routes equities orders through NES today, NES routes those orders through a third-party routing broker. 3 See, e.g., Securities Exchange Act Release No. 67256 (June 26, 2012), 77 FR 39277 (July 2, 2012) (SR–BX–2012–030) at 39280. 1 15 18 17 (A) Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change Sfmt 4703 E:\FR\FM\03FEN1.SGM 03FEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 79, Number 22 (Monday, February 3, 2014)]
[Notices]
[Pages 6262-6264]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-02134]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71418; File No. SR-NASDAQ-2014-008]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to 
Inbound Routing of Options Orders

January 28, 2014.
    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 January 15, 2014, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III, below, which Items have been prepared by 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to permit the NASDAQ Options Market (``NOM'') 
to receive inbound orders in options routed through Nasdaq Execution 
Services, LLC (``NES'') from affiliated exchanges, as described in 
detail below.

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

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

1. Purpose
    The purpose of the filing is to permit the receipt of inbound 
orders routed from affiliated exchanges in options through NES. The 
Exchange filed a proposed rule change to use NES rather than Nasdaq 
Options Services LLC (``NOS'') for the outbound routing of options 
orders and the Exchange also updated its equities and options rules to 
reflect the use of a third party unaffiliated routing broker.\3\
---------------------------------------------------------------------------

    \3\ See SR-NASDAQ-2014-007.
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    Now, the Exchange proposes to continue to receive orders from its 
affiliated exchanges. Specifically, the Exchange proposes to receive 
options orders, through NES directly from the options market of NASDAQ 
OMX PHLX LLC (``PHLX'') \4\ as well as from NASDAQ OMX BX, Inc. 
(``BX''),\5\ under the same terms and conditions as NOS currently does. 
BX and PHLX have filed to use NES for outbound routing,\6\ as well as 
to receive options orders routed from PHLX through NES.\7\
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    \4\ Securities Exchange Act Release No. 58135 (July 10, 2008), 
73 FR 40898 (July 16, 2008) (SR-NASDAQ-2008-061).
    \5\ Securities Exchange Act Release No. 67256 (June 26, 2012), 
77 FR 39277 (July 2, 2012) (SR-BX-2012-030).
    \6\ See SR-BX-2014-003 and SR-Phlx-2014-004.
    \7\ See SR-BX-2014-004 and SR-Phlx-2014-005.
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    NOS and NES are broker-dealers and members of NASDAQ, PHLX and BX. 
Currently, NOS provides all options routing functions for BX Options, 
PHLX, and NOM. BX, NASDAQ, NOM, PHLX, NES and NOS are affiliates.\8\ 
Accordingly, the affiliate relationship between NASDAQ and NOS, its 
member, raises the issue of an exchange's affiliation with a member of 
such exchange. Specifically, in connection with prior filings, the 
Commission has expressed concern that the affiliation of an exchange 
with one of its members raises the potential for unfair competitive 
advantage and potential conflicts of interest between an exchange's 
self-regulatory obligations and its commercial interests.\9\ Similarly, 
under this proposal, the affiliate relationship between NASDAQ and NES 
raises this issue.
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    \8\ See Securities Exchange Act Release Nos. 58324 (August 7, 
2008), 73 FR 46936 (August 12, 2008) (SR-BSE-2008-02; SR-BSE-2008-
23; SR-BSE-2008-25; SR-BSECC-2008-01) (order approving NASDAQ OMX's 
acquisition of BX); and 58179 (July 17, 2008), 73 FR 42874 (July 23, 
2008) (order approving NASDAQ OMX's acquisition of PHLX).
    \9\ See Securities Exchange Act Release Nos. 59153 (December 23, 
2008), 73 FR 80485 (December 31, 2008) (SR-NASDAQ-2008-098); and 
62736 (August 17, 2010), 75 FR 51861 (August 23, 2010) (SR-NASDAQ-
2010-100). See also Securities Exchange Act Release No. 58135 (July 
10, 2008), 73 FR 40898 (July 16, 2008)(SR-NASDAQ-2008-
061)(Permitting NOS to be affiliated with PHLX).
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    Recognizing that the Commission has previously expressed concern 
regarding the potential for conflicts of interest in instances where a 
member firm is affiliated with an exchange of which it is a member, the 
Exchange previously proposed, and the Commission approved, limitations 
and conditions on

[[Page 6263]]

NOS's affiliation with the Exchange. Also recognizing that the 
Commission has expressed concern regarding the potential for conflicts 
of interest in instances where a member firm is affiliated with an 
exchange to which it is routing orders, the Exchange previously 
proposed, and the Commission approved,\10\ NOS's affiliation with the 
Exchange to permit the Exchange to accept inbound orders that NOS 
routes in its capacity as a facility of PHLX and BX, subject to certain 
limitations and conditions. The Exchange now proposes to permit NOM to 
accept inbound options orders that NES (rather than NOS) routes in its 
capacity as a facility of PHLX and BX, subject to the same limitations 
that currently apply to NOM accepting inbound orders from PHLX and BX 
through NOS, as follows:
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    \10\ See Securities Exchange Act Release Nos. 58135 (July 10, 
2008), 73 FR 40898 (July 16, 2008) (SR-NASDAQ-2008-061); and 69755 
(June 13, 2013), 78 FR 36800 (June 19, 2013) (SR-NASDAQ-2013-070).
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     First, the Exchange and FINRA maintain a Regulatory 
Contract, as well as an agreement pursuant to Rule 17d-2 under the Act 
(``17d-2 Agreement'').\11\ Pursuant to the Regulatory Contract and the 
17d-2 Agreement, FINRA will be allocated regulatory responsibilities to 
review NES's compliance with certain Exchange rules.\12\ Pursuant to 
the Regulatory Contract, however, NASDAQ retains ultimate 
responsibility for enforcing its rules with respect to NES.
---------------------------------------------------------------------------

    \11\ 17 CFR 240.17d-2.
    \12\ NES is also subject to independent oversight by FINRA, its 
designated examining authority, for compliance with financial 
responsibility requirements.
---------------------------------------------------------------------------

     Second, FINRA will monitor NES for compliance with the 
Exchange's trading rules, and will collect and maintain certain related 
information.\13\
---------------------------------------------------------------------------

    \13\ Pursuant to the Regulatory Contract, both FINRA and the 
Exchange will collect and maintain all alerts, complaints, 
investigations and enforcement actions in which NES (in its capacity 
as a facility of PHLX and BX routing orders to NOM) is identified as 
a participant that has potentially violated applicable Commission or 
Exchange rules. The Exchange and FINRA will retain these records in 
an easily accessible manner in order to facilitate any potential 
review conducted by the Commission's Office of Compliance 
Inspections and Examinations.
---------------------------------------------------------------------------

     Third, FINRA will provide a report to the Exchange's chief 
regulatory officer (``CRO''), on a quarterly basis, that: (i) 
Quantifies all alerts (of which FINRA is aware) that identify NES as a 
participant that has potentially violated Commission or Exchange rules, 
and (ii) lists all investigations that identify NES as a participant 
that has potentially violated Commission or Exchange rules.
     Fourth, the Exchange has in place NASDAQ 2140(c) which 
requires The NASDAQ OMX Group, Inc., as the holding company owning both 
the Exchange and NES, to establish and maintain procedures and internal 
controls reasonably designed to ensure that NES does not develop or 
implement changes to its system, based on non-public information 
obtained regarding planned changes to the Exchange's systems as a 
result of its affiliation with the Exchange, until such information is 
available generally to similarly situated Exchange members, in 
connection with the provision of inbound order routing to the Exchange.
    By meeting the above conditions, the Exchange will have set up 
mechanisms that protect the independence of the Exchange's regulatory 
responsibility with respect to NES, as well as demonstrate that NES 
cannot use any information advantage it may have because of its 
affiliation with the Exchange.
    For several weeks, the Exchange has been working with the Financial 
Regulatory Authority (``FINRA'') and The Options Clearing Corporation 
(``OCC'') to secure the necessary approvals for NES to perform these 
functions. The Exchange has now secured those approvals. The Exchange 
seeks to complete this process and implement this proposal in January 
or February.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \14\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \15\ in particular, in that it is designed 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, because the proposed rule change will allow the Exchange to 
continue to receive inbound orders from an affiliate (NES rather than 
NOS), acting in its capacity as a facility of PHLX and BX, in a manner 
consistent with prior approvals and established protections. The 
Exchange believes that these conditions establish mechanisms that 
protect the independence of the Exchange's regulatory responsibility 
with respect to NES, as well as ensure that NES cannot use any 
information it may have because of its affiliation with the Exchange to 
its advantage.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
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(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 not necessary or appropriate in 
furtherance of the purposes of the Act. Receiving orders through NES 
rather than NOS does not raise any issues of intra-market competition 
because it involves inbound routing from an affiliated exchange. Nor 
does it result in a burden on competition among exchanges, because 
there are many competing options exchanges that provide routing 
services, including through an affiliate.

 (C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(ii) of the Act \16\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\17\
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    \16\ 15 U.S.C. 78s(b)(3)(a)(ii).
    \17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act.

[[Page 6264]]

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-2014-008 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-2014-008. 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-2014-008 and should 
be submitted on or before February 24, 2014

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-02134 Filed 1-31-14; 8:45 am]
BILLING CODE 8011-01-P

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