Federal Register / Vol. 74, No. 145 / Thursday, July 30, 2009 / Notices 38075 

20 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3The Commission notes that The NASDAQ Stock 

Market LLC refers to itself in a variety of ways 

throughout this notice. 

4 17 CFR 240.19b–4(f)(6). 

5Changes are marked to the rules of The 

NASDAQ Stock Market LLC found at http:// 

nasdaqomx.cchwallstreet.com/. 

6 If the order were a NASDAQ-only unpriced 

order that is not eligible for routing, NASDAQ 

would execute against the liquidity available on 

NASDAQ up to the Collared Order thresholds and 

cancel the remainder of the order, provided, 

however, that a NASDAQ-only order will never 

trade through a protected quote on another market 

center. 

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–2009–069 and should be 

submitted on or before August 20, 2009. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.20

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–18165 Filed 7–29–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60371; File No. SR– 

NASDAQ–2009–070] 

Self-Regulatory Organizations; The 

NASDAQ Stock Market LLC; Notice of 

Filing and Immediate Effectiveness of 

a Proposed Rule Change To Amend 

NASDAQ Rule 4751 To Provide System 

Functionality That Will Cancel Any 

Portion of Most Types of Unpriced 

Orders 

July 23, 2009. 

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 July 20, 

2009, The NASDAQ Stock Market LLC 

(the ‘‘NASDAQ Exchange’’) 3 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 NASDAQ 

Exchange. The NASDAQ Exchange has 

designated the proposed rule change as 

constituting a non-controversial rule 

change under Rule 19b–4(f)(6) under the 

Act,4 which renders the proposal 

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 the Substance 

of the Proposed Rule Change 

The NASDAQ Exchange is proposing 

a rule change with the Securities and 

Exchange Commission [sic] to amend 

NASDAQ Rule 4751 to provide system 

functionality that will cancel any 

portion of most types of unpriced orders 

(also known as market orders) submitted 

to the Exchange that would execute at 

a price that is more than $0.25 or 5 

percent worse than the national best bid 

and offer at the time the order initially 

reaches the Exchange, whichever is 

greater. This would apply both to orders 

executing on NASDAQ and the portion 

of any order routed to another market 

center. 

(a) The text of the proposed rule 

change is below. Proposed new 

language is underlined; deletions are 

bracketed.[sic] 5

* * * * * 

Rule 4751. Definitions 

(a)–(e) No change. 

(f)(1)–(11) No change. 

(12) ‘‘Unpriced Orders’’ are any order 

types permitted by the System to buy or 

sell shares of a security at the national 

best bid (best offer) (‘‘NBBO’’) at the 

time when the order reaches the System. 

(13) ‘‘Collared Orders’’ are all 

Unpriced Orders except: (1) Market On 

Open Orders as defined in Rule 4752; 

(2) Market On Close Orders as defined 

in Rule 4754; (3) Unpriced Orders 

included by the System in any Nasdaq 

Halt Cross or Nasdaq Imbalance Cross, 

each as defined in Rule 4753; or (4) 

Unpriced Orders that are Reference 

Price Cross Orders as defined in Rule 

4770. Any portion of a Collared Order 

that would execute (either on NASDAQ 

or when routed to another market 

center) at a price more than $0.25 or 5 

percent worse than the NBBO at the 

time when the order reaches the System, 

whichever is greater, will be cancelled. 

(g)–(i) No change. 

* * * * * 

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 

NASDAQ 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 

NASDAQ 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 proposed rule 

change is to protect market participants 

by reducing the risk that unpriced 

orders, also known as market orders, 

will execute at prices that are 

significantly worse than the national 

best bid and offer (‘‘NBBO’’) at the time 

the Exchange receives the order. 

NASDAQ believes that most market 

participants expect that their order will 

be executed at its full size at a price 

reasonably related to the prevailing 

market. However, participants may not 

be aware that there is insufficient 

liquidity at or near the NBBO to fill the 

entire order, particularly for more 

thinly-traded securities. These unpriced 

orders can disrupt both on [sic] 

NASDAQ and other markets to which 

all or a portion of these orders are 

routed. 

NASDAQ is proposing to implement 

new functionality in its trading and 

routing systems that would cancel any 

portion of most unpriced orders that 

would execute either on NASDAQ or 

when routed to another market center at 

a price that is the greater of $0.25 or 5 

percent worse than the NBBO at the 

time NASDAQ receives the order. 

Unpriced orders that would be subject 

to this calculation and potential 

cancellation are defined as ‘‘Collared 

Orders.’’ 

The following example illustrates 

how the Collared Order process would 

work. A market participant submits a 

SCAN Order (routable order) to buy 500 

shares.6 A SCAN order executes within 

NASDAQ to the extent liquidity is 

available at the NBBO and then routes 

to other market centers. The NBBO is 

$6.00 bid by $6.05 offer, with 100 shares 

available on each side. Both sides of the 

NBBO are set by another market center 

(‘‘Away Market’’), but NASDAQ has 100 

shares available at the $6.05 to sell at 

the offer price and also has reserve 

orders to sell 100 shares at $6.32 and 

400 shares at $6.40. No other market 

center is publishing offers to sell the 

security in between $6.05 and $6.40. 

In this example, the Collared Order 

would be executed in the following 

manner: 


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38076 Federal Register / Vol. 74, No. 145 / Thursday, July 30, 2009 / Notices 

7This assumes that the Away Market’s offer was 

still available and that the Away Market had no 

additional non-displayed orders at this price. 

8The Halt Cross is used to resume trading in 

stocks that have been halted, such as in cases of 

regulatory halts, and for the release of initial public 

offerings for trading. 

9The Crossing Network occurs at four scheduled 

times during the trading day for orders designated 

for the network. 

10See Securities Exchange Act Release No. 59258 

(Jan. 15, 2009), 74 FR 4788 (Jan. 27, 2009) (SR– 

BATS–2009–001) (Amendment to BATS Rule 11.9, 

entitled ‘‘Orders and Modifiers’’). NASDAQ’s 

proposed thresholds of the greater of $0.25 or 5 

percent are tighter than the BATS thresholds of the 

greater of $0.50 or 5 percent. NASDAQ believes the 

tighter thresholds may reduce the impact of 

unpriced orders at lower prices, where $0.50 

constitutes a comparatively large percentage move. 

11 15 U.S.C. 78f(b). 

12 15 U.S.C. 78f(b)(5). 

13 15 U.S.C. 78s(b)(3)(A). 

14 17 CFR 240.19b–4(f)(6). 

15For purposes only of waiving the 30-day 

operative delay, the Commission has considered the 

proposed rule change’s impact on efficiency, 

competition, and capital formation. 15 U.S.C. 78c(f). 

• 100 shares would be executed by 

NASDAQ at the $6.05; 

• 400 shares would be routed to the 

Away Market as an immediate or cancel 

order with a price of $6.05; 

• 100 shares executed by the Away 

Market; 7

• 300 shares returned to NASDAQ; 

• 100 shares executed by NASDAQ at 

$6.32 (more than $0.25 but less than 5 

percent worse than the NBBO); and 

• 200 shares, representing the 

remainder of the Collared Order, would 

be cancelled because the remaining 

liquidity available at $6.40 is more than 

5 percent worse than the NBBO. 

The following unpriced orders would 

be excluded from the definition of 

Collared Orders: 

• Market On Open Orders that are 

included in the NASDAQ Opening 

Cross; 

• Market On Close Orders that are 

included in the NASDAQ Closing Cross; 

• Unpriced orders that are included 

in NASDAQ Halt and Imbalance 

Crosses; 8

• Unpriced orders that meet the 

definition of Reference Price Cross 

Orders for purposes of the NASDAQ 

Crossing Network.9

NASDAQ proposes to exclude these 

unpriced orders because in each case 

the crossing mechanism is designed to 

lessen or eliminate the impact that an 

individual unpriced order may have on 

price discovery. For example, the 

Crossing Network is designed to execute 

as many shares as can be paired at the 

midpoint of the NBBO at the time the 

cross is timed to occur. Therefore, an 

unpriced order in the Crossing Network, 

which can never itself impact the 

NBBO, would not affect the price at 

which the trades occur. Any portion of 

the unpriced order that was not 

executed in the Crossing Network 

would be cancelled or carried forward 

to the next Crossing Network if so 

instructed. 

With respect to the Opening Crosses, 

Closing Crosses and Halt Crosses, the 

crosses are designed to aggregate orders 

input into the cross and to execute the 

most orders that can be matched at a 

single price. In addition, NASDAQ 

displays to the market both the size of 

any order imbalances and the likely 

price at which the cross will execute. 

This transparency incentivizes firms to 

enter orders on the opposite side of a 

large imbalance, causing the execution 

price to move closer to the prior market 

price for the security. This process 

mitigates the impact of a large unpriced 

order. NASDAQ also notes that orders 

entered into crosses are not immediately 

executed, unlike unpriced orders in the 

continuous market. In many cases this 

gives a participant time to cancel an 

order before the crossing process begins. 

NASDAQ believes that market 

participants who wish to trade at prices 

further away from the NBBO than the 

Collared Order thresholds would 

permit, may still accomplish their 

strategy by submitting a marketable 

limit order to NASDAQ. In the example 

above, a market participant with such a 

strategy could have input a limit order 

with a price of $7.00, which would have 

executed up to its full size, either on 

NASDAQ or on other market centers if 

the order was routable. 

NASDAQ’s proposal is similar to a 

rule change recently implemented by 

BATS Exchange, Inc.10

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act 11 in general, and furthers the 

objectives of Section 6(b)(5) of the Act 12

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, by 

avoiding execution of unpriced orders 

(either on NASDAQ or on other market 

centers as a result of orders routed by 

NASDAQ) at prices that are significantly 

worse than the NBBO at the time the 

order is initially received by NASDAQ. 

NASDAQ believes that the NBBO 

provides reasonable guidance of the 

current value of a given security and 

therefore that market participants 

should have confidence that their 

unpriced orders will not be executed at 

a significantly worse price than the 

NBBO. NASDAQ also believes that this 

proposal is similar to thresholds for 

market orders recently implemented by 

BATS Exchange, Inc. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The NASDAQ Exchange does not 

believe that the proposed rule change 

will result in any burden on 

competition that is not necessary or 

appropriate in furtherance of the 

purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Written comments on the proposed 

rule change were neither solicited nor 

received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the foregoing proposed rule 

change does not: (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) of the Act 13 and Rule 19b– 

4(f)(6) thereunder.14

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission may summarily abrogate 

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. 

NASDAQ has requested that the 

Commission waive the 30-day operative 

delay set forth in Rule 19b–4(f)(6). The 

Commission notes (i) the proposal is 

similar to existing thresholds on market 

orders adopted by the BATS Exchange, 

Inc.; (ii) it presents no novel issues; and 

(iii) the functionality is voluntary, and 

it may provide a benefit to market 

participants. For these reasons, the 

Commission believes it is consistent 

with the protection of investors and the 

public interest to waive the 30-day 

operative delay, and hereby grants such 

waiver.15

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 


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Federal Register / Vol. 74, No. 145 / Thursday, July 30, 2009 / Notices 38077 

16 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Release No. 60070 

(June 8, 2009), 74 FR 28302 (‘‘Notice’’). 

4The current FINRA rulebook consists of (1) 

FINRA Rules; (2) NASD Rules; and (3) rules 

incorporated from NYSE (‘‘Incorporated NYSE 

Rules’’) (together, the NASD Rules and Incorporated 

NYSE Rules are referred to as the ‘‘Transitional 

Rulebook’’). While the NASD Rules generally apply 

to all FINRA members, the Incorporated NYSE 

Rules apply only to those members of FINRA that 

are also members of the NYSE (‘‘Dual Members’’). 

The FINRA Rules apply to all FINRA members, 

unless such rules have a more limited application 

by their terms. For more information about the 

rulebook consolidation process, see FINRA 

Information Notice, March 12, 2008 (Rulebook 

Consolidation Process). 

5 15 U.S.C. 78o–3(b)(6). 

6 In approving this proposal, the Commission has 

considered the proposed rule’s impact on 

efficiency, competition and capital formation. See 

15 U.S.C. 78c(f). 

7 15 U.S.C. 78s(b)(2). 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–NASDAQ–2009–070 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

Station Place, 100 F Street, NE., 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–NASDAQ–2009–070. This 

file number should be included on the 

subject line if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for inspection and copying in 

the Commission’s Public Reference 

Room 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 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–2009–070 and should be 

submitted on or before August 20, 2009. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.16

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–18164 Filed 7–29–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60367; File No. SR–FINRA– 

2009–038] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Order Granting 

Approval of Proposed Rule Change to 

Repeal Incorporated NYSE Rule 134 

(Differences and Omissions—Cleared 

Transactions) and NYSE Rule 440I 

(Records of Compensation 

Arrangements—Floor Brokerage) as 

Part of the Process To Develop the 

Consolidated FINRA Rulebook 

July 22, 2009. 

On June 1, 2009, Financial Industry 

Regulatory Authority, Inc. (‘‘FINRA’’) 

(f/k/a National Association of Securities 

Dealers, Inc. (‘‘NASD’’)) filed with the 

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘Commission’’) a proposed 

rule change pursuant to Section 19(b)(1) 

of the Securities Exchange Act of 1934 

(‘‘Act’’) 1 and Rule 19b–4 thereunder.2

Notice of the proposal was published for 

comment in the Federal Register on 

June 15, 2009.3 The Commission 

received no comments on the proposed 

rule change. This order approves the 

proposed rule change. 

I. Description of the Proposal 

As part of the process of developing 

a new consolidated rulebook 

(‘‘Consolidated FINRA Rulebook’’),4

FINRA proposed not to transfer from the 

Transitional Rulebook to the FINRA 

Consolidated Rulebook two rules that 

are specific to the New York Stock 

Exchange LLC (‘‘NYSE’’) marketplace 

and relate primarily to activities by floor 

brokers. Specifically, FINRA proposed 

not to include in the Consolidated 

FINRA Rulebook NYSE Incorporated 

Rule 134 (Differences and Omissions— 

Cleared Transactions) and NYSE 

Incorporated Rule 440I (Records of 

Compensation Arrangements—Floor 

Brokerage). 

As more fully described in the Notice, 

Incorporated NYSE Rule 134, sets forth 

procedures for clearing member firms to 

identify uncompared transactions and 

resolve them by making any necessary 

additions, deletions or changes to their 

data through the facilities of the NYSE 

Correction System. Further, NYSE Rule 

134(d) requires floor brokers to maintain 

or participate in an error account in 

which all bona fide error transactions 

are processed and recorded. 

Incorporated NYSE Rule 440I also 

applies to floor brokers. As more fully 

described in the Notice, NYSE Rule 440I 

requires each member and member 

organization that is ‘‘primarily engaged 

as an agent in executing transactions on 

the Floor of the Exchange’’ to maintain 

certain records of compensation 

arrangements in excess of $5,000 per 

year. 

In the Notice, FINRA noted that the 

NYSE may choose to retain NYSE Rule 

134 and Rule 440I for its own purposes. 

In addition, FINRA stated that it would 

announce the implementation date of 

the proposed rule change in a 

Regulatory Notice to be published no 

later than 90 days following 

Commission approval. 

II. Discussion and Commission’s 

Findings 

After careful review of the proposal, 

the Commission finds that the proposed 

rule change is consistent with the 

provisions of Section 15A(b)(6) of the 

Act,5 which requires, among other 

things, that FINRA rules must be 

designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, and, in general, to protect 

investors and the public interest.6 The 

Commission notes that Dual Members 

remain subject to both the Consolidated 

FINRA Rulebook and the NYSE 

Rulebook. Therefore, FINRA’s proposal 

to repeal from the Transitional Rulebook 

two Incorporated NYSE Rules that are 

specific to the NYSE marketplace does 

not relieve Dual Members of their 

obligation to comply with rules retained 

by the NYSE. 

III. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,7 that the 

proposed rule change (SR–FINRA– 


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