Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Notices 51453 

51 15 U.S.C. 78f(b) and 15 U.S.C. 78s(b). 

52 Id. 

53 15 U.S.C. 78s(b)(2). 

54 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

listed which would raise unfair 

discrimination issues under the Act. 

While some commenters have argued 

that the Commission’s approval of the 

NYSE’s proposal will mean the 

Commission has implicitly approved 

the particular service providers NYSE 

currently uses, the Commission 

disagrees. The Commission, in 

approving the Exchange’s proposal, is 

not endorsing, specifically or implicitly, 

any party with which the NYSE has 

chosen to do business. 

The Commission has carefully 

considered the comment letters. 

Although some of the alternative 

proposals by the commenters might also 

satisfy the standards under Sections 6(b) 

and 19(b) of the Act51 depending on the 

facts and circumstances, those proposals 

are not before us, and the Commission 

believes that the NYSE’s proposal is 

consistent with these standards and, 

therefore, should be approved. Other 

commenters raised certain issues 

beyond the scope of the Commission’s 

review of this rule proposal, such as the 

fee arrangements between the NYSE and 

the providers of the services described 

in this order. The Commission has 

carefully considered these comments 

but believes that the proposal before the 

Commission satisfies the requirements 

for approval under Sections 6(b) and 

19(b) of the Act52 for the reasons 

discussed above. 

V. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,53 that the 

proposed rule change (SR–NYSE–2011– 

20) be, and it hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.54

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2011–21035 Filed 8–17–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–65125; File No. SR– 

NASDAQ–2011–105] 

Self-Regulatory Organizations; The 

NASDAQ Stock Market LLC; Notice of 

Filing of Proposed Rule Change To 

Establish an Acceptable Trade Range 

for Quotes and Orders Entered on the 

NASDAQ Options Market 

August 12, 2011. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

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

notice is hereby given that on August 2, 

2011, The NASDAQ Stock Market LLC 

(‘‘NASDAQ’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by NASDAQ. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of the Substance 

of the Proposed Rule Change 

NASDAQ proposes to establish an 

Acceptable Trade Range for quotes and 

orders entered on the NASDAQ Options 

Market (‘‘NOM’’). Similar mechanisms 

are used successfully on other 

exchanges to protect investors and 

members by limiting volatility and 

obvious errors. 

The text of the proposed rule change 

is available at http:// 

NASDAQ.cchwallstreet.com/, at 

NASDAQ’s principal office, and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

NASDAQ included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. 

NASDAQ has prepared summaries, set 

forth in Sections A, B, and C below, of 

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

Background. In the current highspeed electronic market environment, 

various trading centers grapple with 

issues associated with thinly traded 

securities such as price dislocations, 

wide quotes, and erroneous executions 

that can result in trade cancellations. 

Though these situations are not overly 

prevalent, they can produce confusion 

and frustration among market 

participants. As a custodian and 

operator of several U.S. exchanges, 

NASDAQ believes that it is always 

prudent and appropriate to consider 

system enhancements that will preclude 

potential future issues with or 

unforeseen gaps in the existing structure 

of its trading systems. 

Accordingly, NASDAQ is proposing 

to adopt a mechanism that will prevent 

the NOM trading system (‘‘System’’) 

from experiencing dramatic price 

swings. This circumstance can exist if, 

for example, a market order or 

aggressively priced limit order is 

entered that is larger than the total 

volume of contracts quoted at the topof-book across all U.S. options 

exchanges. Currently, without any 

protections in place, this could result in 

options executing at prices that have 

little or no relation to the theoretical 

price of the option. 

For example, in a thinly traded 

option: 

Away Exchange Quotes: 

Exchange Bid size Bid price Offer price Offer size 

PHLX ................................................................................................................ 10 $1.00 $1.05 10 

NYSE Arca ....................................................................................................... 10 1.00 1.05 10

NYSE Amex ..................................................................................................... 10 1.00 1.10 10 

BOX ................................................................................................................. 10 1.00 1.15 10 

NOM Price Levels: 

Exchange Bid size Bid price Offer price Offer size 

NOM ................................................................................................................. 10 $1.00 $1.05 10 

mstockstill on DSK4VPTVN1PROD with NOTICES

51454 Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Notices 

3NASDAQ believes that the proposed Acceptable 

Trade Range mechanism is superior to the market 

collar orders currently used in equity markets 

because the Acceptable Trade Range will apply to 

all orders rather than just unpriced orders. 

Additionally, rather than immediately cancelling 

the order, the market would continue to work the 

order for execution. See NASDAQ Stock Market 

rule 4751(f)(13), NASDAQ OMX BX 4751(f)(10), 

and NASDAQ OMX PSX 3301(f)(9). 

4The value that is to be added to the reference 

price will be set by the exchange and posted on the 

exchange Web site: http://www.nasdasqtrader.com. 

5 If a new NBB is received that is greater than a 

buy order posted at the Acceptable Trade Range 

threshold, or a new NBO is received that is lower 

than a sell order posted at the Acceptable Trade 

Range threshold, the new NBB (for buy orders) or 

NBO (for sell orders) will be the new reference 

price. 

6Non-firm quote indication values are described 

on page 18 of the specifications disseminated by the 

Options Price Regulatory Authority. See http:// 

www.opradata.com/specs/ 

participant_interface_specification.pdf. 

7 17 CFR 242.602. 

8For example, the NASDAQ Acceptable Trade 

Range mechanism will pause for a briefer period 

than the Liquidity Replenishment Point or ‘‘LRP’’ 

employed by the New York Stock Exchange. The 

LRP resembles the Acceptable Trade Range in that 

it also is designed to dampen volatility under 

similar circumstances, it pauses the market in the 

affected security, and it disseminates to the network 

processor a non-firm quote condition during the 

resulting pause. See NYSE Rules 1000(a)(iv) and 

60(e)(ii). Unlike the Acceptable Trade Range 

mechanism, the LRP can exceed one second in 

duration. 

Exchange Bid size Bid price Offer price Offer size 

NOM ................................................................................................................. ........................ ........................ 1.10 10 

NOM ................................................................................................................. ........................ ........................ 1.40 10 

NOM ................................................................................................................. ........................ ........................ 5.00 10 

If NOM receives a routable market 

order to buy 80 contracts, the System 

will respond as described below: 

—10 contracts will be executed at $1.05 

against NOM 

—10 contracts will be executed at $1.05 

against PHLX 

—10 contracts will be executed at $1.05 

against NYSE Arca. 

—10 contracts will be executed at $1.10 

against NOM 

—10 contracts will be executed at $1.10 

against NYSE AMEX 

—10 contracts will be executed at $1.15 

against BOX 

After these executions, there are no 

other known valid away exchange 

quotes. The NBBO is therefore 

comprised of the remaining interest on 

the NOM book, specifically 10 contracts 

at $1.40 and 10 contracts at $5.00. In the 

absence of an Acceptable Trade Range 

mechanism, the order would execute 

against the remaining interest at $1.40 

and $5.00, resulting in potential harm to 

investors. 

To bolster the normal resilience and 

market behavior that persistently 

produces robust reference prices, NOM 

is proposing to create a level of 

protection that prevents the market from 

moving beyond set thresholds. The 

thresholds consist of a reference price 

plus (minus) set dollar amounts based 

on the nature of the option and the 

premium of the option. The exchange is 

not introducing a new concept. In fact, 

The NASDAQ Stock Market, NASDAQ 

OMX PSX, and NASDAQ OMX BX all 

place a limit on the prices at which 

market orders will be allowed to 

execute.3

System Operation. The proposed 

Acceptable Trade Range would work as 

follows: Prior to executing orders 

received by the exchange, an Acceptable 

Trade Range is calculated to determine 

the range of prices at which orders may 

be executed. When an order is initially 

received, the threshold is calculated by 

adding (for buy orders) or subtracting 

(for sell orders) a value,4 as discussed 

below, to the National Best Offer for buy 

orders or the National Best Bid for sell 

orders to determine the range of prices 

that are valid for execution. A buy (sell) 

order will be allowed to execute up 

(down) to and including the maximum 

(minimum) price within the Acceptable 

Trade Range. The Acceptable Trade 

Range threshold becomes the reference 

price for the next Acceptable Trade 

Range calculation. If an order cannot be 

completely executed within the 

Acceptable Trade Range, and the limit 

price of the order is greater (for buy 

orders) or less (for sell orders) than the 

Acceptable Trade Range threshold, the 

unexecuted portion of the original order 

will be posted at the Acceptable Trade 

Range threshold. The order will remain 

posted for a brief period, not to exceed 

one second, to allow the market to 

refresh and to determine whether or not 

more liquidity will become available (on 

NOM or any other exchange if the order 

is designated as routable) within the 

posted price of the order before moving 

on to a new Threshold Price. The 

Acceptable Trade Range threshold, at 

which the order is posted, then becomes 

the new reference price 5 and a new 

threshold is calculated. Once the brief 

pause has expired, if the order has not 

been fully executed, it will be allowed 

to execute up to and including the new 

Acceptable Trade Range Threshold 

Price. 

During the brief pause, NOM will 

display the Acceptable Trade Range 

Threshold Price on one side of the 

market and the best available price on 

the opposite side of the market using a 

‘‘non-firm’’ indicator.6 This allows the 

order setting the Acceptable Trade 

Range Threshold Price to retain price/ 

time priority in the NOM book and also 

prevents any later-entered order from 

accessing liquidity ahead of it. If NOM 

were to display trading interest 

available on the opposite side of the 

market, that trading interest would be 

automatically accessible to later-entered 

orders during the period when the order 

triggering the Acceptable Trade Range is 

paused. Following the Posting Period, 

the Exchange will return to a normal 

trading state and disseminate its best 

bid and offer. 

NASDAQ believes that disseminating 

a non-firm quotation message as 

described above is consistent with its 

obligations under the SEC Quote Rule.7

The fact that NASDAQ is experiencing 

volatility that is strong enough to trigger 

the Acceptable Trade Range mechanism 

qualifies as an unusual market 

condition. NASDAQ expects such 

situations to be rare, and as described 

below it will set the parameters of the 

mechanism at levels that will ensure 

that it is triggered quite infrequently. In 

addition, the Acceptable Trade Range 

mechanism will cause the market to 

pause for no more than one second, a 

briefer pause than occurs in other 

markets that are experiencing and 

attempting to dampen volatility.8

Importantly, the brief pause only occurs 

after the Exchange has already executed 

transactions—potentially at multiple 

price levels—rather than pausing before 

executing any transactions in the hopes 

of attracting initial liquidity. 

Importantly, the Acceptable Trade 

Range is neutral with respect to away 

markets. The order may route to other 

destinations to access liquidity priced 

within the Acceptable Trade Range 

provided the order is designated as 

routable. If the order still remains 

unexecuted, this process will repeat 

until the order is executed, cancelled, or 

posted at its limit price. If after an order 

is routed to the full size of an away 

exchange and additional size remains 

available, the remaining contracts will 

be posted on NOM at a price that 

mstockstill on DSK4VPTVN1PROD with NOTICES

Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Notices 51455 

9See Options Order Protection and Locked/ 

Crossed Markets Plan; Securities Exchange Act 

Release No. 60405 (July 30, 2009), 74 FR 39362 

(August 6, 2009); NOM Rules Chapter VI, Section 

7(b)(3)(C). Section 5(b)(v) of the Plan provides an 

exception from trade through prevention when: 

‘‘[t]he transaction that constituted the TradeThrough was effected by a Participant that 

simultaneously routed an Intermarket Sweep Order 

to execute against the full displayed size of any 

Protected Quotation that was traded through;’’ [sic] 

10The brief pause described above will not 

disadvantage customers seeking the best price in 

any market. For example, if in the example above 

an NYSE ARCA quote of $0.75 x $0.96 with size 

of 10 x 10 is received, a routable order would first 

route to NYSE ARCA at $0.96, then execute against 

NOM at $0.97. 

assumes the away market has executed 

the routed order. This practice of 

routing and then posting is consistent 

with the national market system plan 

governing trading and routing of options 

orders and the NOM policies and 

procedures that implement that plan.9

For example, assume that the 

Acceptable Trade Range is set for $0.05 

and the following quotations are posted 

in all markets: 

Away Exchange Quotes: 

Exchange Bid size Bid price Offer price Offer size 

ISE ................................................................................................................... 10 $0.75 $0.90 10 

AMEX ............................................................................................................... 10 0.75 0.92 10 

PHLX ................................................................................................................ 10 0.75 0.94 10 

NOM Price Levels: 

Exchange Bid size Bid price Offer price Offer size 

NOM ................................................................................................................. 10 $0.75 $0.90 10 

NOM ................................................................................................................. ........................ ........................ 0.95 10 

NOM ................................................................................................................. ........................ ........................ 0.97 10 

NOM ................................................................................................................. ........................ ........................ 1.00 20 

NOM receives a routable order to buy 

70 contracts at $1.10. The Acceptable 

Trade Range is $0.05 and the reference 

price is the National Best Offer—$0.90. 

The Acceptable Trade Range threshold 

is then $0.90 + $0.05 = $0.95. The order 

is allowed to execute up to and 

including $0.95. The System then 

pauses for a brief period not to exceed 

one second to allow the market 

(including other exchanges) to refresh 

and to determine whether additional 

liquidity will become available within 

the order’s posted price. If additional 

liquidity becomes available on NOM or 

any away market, that liquidity will be 

accessed and executed. 

• 10 contracts will be executed at 

$0.90 against NOM 

• 10 contracts will be executed at 

$0.90 against ISE 

• 10 contracts will be executed at 

$0.92 against AMEX 

• 10 contracts will be executed at 

$0.94 against PHLX 

• 10 contracts will be executed at 

$0.95 against NOM 

• Then, after executing at multiple 

price levels, the order is posted at $0.95 

for a brief period not to exceed one 

second to determine whether additional 

liquidity will become available. 

• A new Acceptable Trade Range 

Threshold Price of $1.00 is determined 

(new reference price of $0.95 + $0.05 = 

$1.00) 

• If, during the brief pause not to 

exceed 1 second, no liquidity becomes 

available within the order’s posted price 

of $0.95, the System will then execute 

10 contracts at $0.97, and 10 contracts 

at $1.00 10

Similarly, if a new order is received 

when a previous order has reached the 

Acceptable Trade Range threshold, the 

Threshold Price will be used as the 

reference price for the new Acceptable 

Trade Range threshold. Both orders 

would then be allowed to execute up 

(down) to the new Threshold Price. 

For example: 

Away Exchange Quotes: 

Exchange Bid size Bid price Offer price Offer size 

ISE ................................................................................................................... 10 $0.75 $0.90 10 

AMEX ............................................................................................................... 10 $0.75 $0.92 10 

PHLX ................................................................................................................ 10 $0.75 $0.94 10 

NOM Price Levels: 

Exchange Bid size Bid price Offer price Offer size 

NOM ................................................................................................................. 10 $0.75 $0.90 10 

NOM ................................................................................................................. ........................ ........................ $0.95 10 

NOM ................................................................................................................. ........................ ........................ $1.05 20 

• NOM receives a routable order to 

buy 60 contracts at $1.10. The 

Acceptable Trade Range is $0.05 and the 

reference price is the National Best 

Offer—$0.90. The Acceptable Trade 

Range threshold is then $0.90 + $0.05 = 

$0.95. The order is allowed to execute 

up to and including $0.95. 

• 10 contracts will be executed at 

$0.90 against NOM 

• 10 contracts will be executed at 

$0.90 against ISE 

mstockstill on DSK4VPTVN1PROD with NOTICES

51456 Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Notices 

11NASDAQ notes that the Acceptable Range Test 

in place at NASDAQ OMX PHLX—PHLX Rule 

1082(a)(ii)(B)(3)(f)—currently provides for this 

flexibility. 

12 15 U.S.C. 78f. 

13 15 U.S.C. 78f(b)(5). 

• 10 contracts will be executed at 

$0.92 against AMEX 

• 10 contracts will be executed at 

$0.94 against PHLX 

• 10 contracts will be executed at 

$0.95 against NOM 

• Then, after executing at multiple 

price levels, the order is posted at $0.95 

for a brief period not to exceed one 

second to determine whether additional 

liquidity will become available. 

• A new Acceptable Trade Range 

Threshold Price of $1.00 is determined 

(new reference price of $0.95 + $0.05 = 

$1.00) 

• If, during the brief period not to 

exceed one second, a second order is 

received to buy 10 contracts at $1.25, 

the two orders would then post at the 

new Acceptable Trade Range Threshold 

price of $1.00 for a brief period not to 

exceed one second to determine 

whether additional liquidity will 

become available. 

• A new Acceptable Trade Range 

threshold of $1.05 will be calculated. 

• If no additional liquidity becomes 

available within the posted price of the 

orders ($1.00) during the brief period 

not to exceed one, the orders would 

execute 10 contracts each against the 

order on the NOM book at $1.05 

Setting Acceptable Range Values. The 

options class premium will be the 

dominant factor in determining the 

Acceptable Trade Range. Generally, 

options with lower premiums tend to be 

more liquid and have tighter bid/ask 

spreads; options with higher premiums 

have wider spreads and less liquidity. 

Accordingly, a table consisting of 

several steps based on the premium of 

the option will be used to determine 

how far the market for a given option 

will be allowed to move. This table or 

tables would be listed on the 

NASDAQTrader.com Web site and any 

periodic updates to the table would be 

announced via an Options Trader Alert. 

For example, looking at some SPY 

January 2011 Call options on December 

27th of 2010: 

Bid/Offer of SPY Jan 126 Call (at or 

near-the-money): $1.78 × $1.79 (several 

hundred contracts on bid and offer) 

Bid/Offer of SPY Jan 80 Call (deep inthe-money): $45.61 × $45.87 (20 

contracts on each side) 

The deep in-the-money calls (Jan 80 

calls) have a wider spread ($45.87– 

$45.61 = $0.26) compared to a spread of 

$0.01 for the at-the-money calls (Jan 126 

calls). Therefore, it is appropriate to 

have different thresholds for the two 

options. For instance, it may make sense 

to have a $0.05 threshold for the at-themoney strikes (Premium < $2) and a 

$0.50 threshold for the deep in-themoney strikes (Premium > $10). 

To consider another example, the 

January 2011 CSCO put options on 

December 27th of 2010: 

Bid/Offer of CSCO 20 Jan Put (at or 

near-the-money): $0.11 × $0.12 

(300×550) 

Bid/Offer of CSCO 35 Jan Put (deep 

in-the-money): $14.35 × $15.20 (48×18) 

Even though CSCO has a much lower 

share price than SPY, and is a different 

type of security (it is a common stock 

of a technology company whereas SPY 

is an ETF based on the S&P 500 Index), 

the pattern is the same. The option with 

the lower premium has a very narrow 

spread of $0.01 with significant size 

displayed whereas the higher premium 

option has a wide spread ($0.85) and 

less size displayed. 

The Acceptable Trade Range settings 

will be tied to the option premium. 

However, other factors will be 

considered when determining the exact 

settings. For example, Acceptable 

Ranges may change if market-wide 

volatility is as high as it was during the 

financial crisis in 2008 and 2009, or if 

overall liquidity is low based on 

historical trends. These different market 

conditions may present the need to 

adjust the threshold amounts from time 

to time to ensure a well-functioning 

market. Without adjustments, the 

market may become too constrained or 

conversely, prone to wide price swings. 

As stated above, the Exchange would 

publish the Acceptable Trade Range 

table or tables on the 

NASDAQTrader.com Web site. The 

Exchange does not foresee updating the 

table(s) often or intraday. The Exchange 

will provide sufficient advanced notice 

of changes to the Acceptable Trade 

Range table to its membership via 

Options Trader Alerts. 

The Acceptable Trade Range settings 

would generally be the same across all 

options traded on NOM, although 

NASDAQ proposes to maintain 

flexibility to set them separately based 

on characteristics of the underlying 

security. For instance, Google is a stock 

with a high share price ($602.38 closing 

price on December 27th). Google 

options therefore may require special 

settings due to the risk involved in 

actively quoting options on such a highpriced stock. Option spreads on Google 

are wider and the size available at the 

best bid and offer is smaller. Google 

could potentially need a wider 

threshold setting compared to other 

lower-priced stocks. There are other 

options that fit into this category (e.g. 

AAPL) which makes it necessary to 

have threshold settings that have 

flexibility based on the underlying 

security. Additionally, it is generally 

observed that options subject to the 

Penny Pilot program quote with tighter 

spreads than options not subject to the 

Penny Pilot. Currently, NASDAQ 

expects to set Acceptable Trade Ranges 

for three categories of options: Standard 

Penny Pilot, Special Penny Pilot (IWM, 

QQQQ, SPY), and Non-Penny Pilot.11

2. Statutory Basis 

NASDAQ believes the proposed rule 

change is consistent with the provisions 

of Section 6 of the Act,12 in general and 

with Section 6(b)(5) of the Act,13 in 

particular, which requires that the rules 

of an exchange be designed to prevent 

fraudulent and manipulative acts and 

practices, promote just and equitable 

principles of trade, foster cooperation 

and coordination with persons engaged 

in regulating, clearing, settling, 

processing information with respect to, 

and facilitating transactions in 

securities, remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system, and, in general, protect 

investors and the public interest. The 

proposed rule change is consistent with 

these requirements in that it will reduce 

the negative impacts of sudden, 

unanticipated volatility in individual 

NOM options, and serve to preserve an 

orderly market in a transparent and 

uniform manner, enhance the pricediscovery process, increase overall 

market confidence, and promote fair 

and orderly markets and the protection 

of investors. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

NASDAQ does not believe that the 

proposed rule change will result in any 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act, as amended. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Written comments were neither 

solicited nor received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period (i) 

as the Commission may designate up to 

90 days of such date if it finds such 

longer period to be appropriate and 

mstockstill on DSK4VPTVN1PROD with NOTICES

Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Notices 51457 

14 17 CFR 200.30–3(a)(12). 

1See 17 CFR 240.15c3–5(f). 

2See also Exchange Act Section 36(a)(1), 15 

U.S.C. 78mm(a)(1) (providing general authority for 

Commission to grant exemptions from provisions of 

Exchange Act and rules thereunder, provided the 

Commission makes certain required findings). 

3See 17 CFR 240.15c3–5(c)(1)(ii). 

4See 17 CFR 240.15c3–5(c)(2). 

5On June 27, 2011, the Commission extended the 

compliance date, until November 30, 2011, for all 

of the requirements of Rule 15c3–5 for fixed income 

securities, and the requirements of Rule 15c3– 

5(c)(1)(i) for all securities. See Securities Exchange 

Act Release No. 64748 (June 27, 2011), 76 FR 38293 

(June 30, 2011). 

6See Exchange Act Release No. 63241 (Nov. 3, 

2010), 75 FR 69792 (Nov. 15, 2010) (‘‘Rule 15c3– 

5 Adopting Release’’). 

7Rule 15c3–5 applies to trading in all securities 

on an exchange or ATS. Id. at 69765. 

8See 17 CFR 240.15c3–5(c)(1). 

9See 17 CFR 240.15c3–5(c)(2). 

10See 17 CFR 240.15c3–5(c)(1)(i). 

11See 17 CFR 240.15c3–5(c)(1)(ii). 

12See 17 CFR 240.15c3–5(c)(2)(i). 

13See 17 CFR 240.15c3–5(c)(2)(ii). 

14See 17 CFR 240.15c3–5(c)(2)(iii). 

15See 17 CFR 240.15c3–5(c)(2)(iv). 

16See letter from Janet McGinness, Senior Vice 

President—Legal and Corporate Secretary, NYSE 

Euronext, on behalf of NYSE Amex, NYSE Arca, 

and NYSE, to Elizabeth Murphy, Secretary, 

Continued 

publishes its reasons for so finding or 

(ii) as to which the self-regulatory 

organization consents, the Commission 

will: 

(A) By order approve or disapprove 

the proposed rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

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

rules/sro.shtml); or 

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

Number SR–NASDAQ–2011–105 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–NASDAQ–2011–105. This 

file number should be included on the 

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

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

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

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room 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–2011–105 and 

should be submitted on or before 

September 8, 2011. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.14

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2011–21034 Filed 8–17–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–65132] 

Order Temporarily Exempting the Floor 

Broker Operations of Broker-Dealers 

With Market Access That Handle 

Orders on a Manual Basis From the 

Automated Controls Requirement of 

Rule 15c3–5(c)(1)(ii) and Rule 

15c3–5(c)(2) Under the Securities 

Exchange Act of 1934 

August 15, 2011. 

I. Introduction 

Pursuant to Rule 15c3–5(f) under the 

Securities Exchange Act of 1934 

(‘‘Exchange Act’’),1 the Securities and 

Exchange Commission (‘‘Commission’’), 

by order, may exempt from the 

provisions of Rule 15c3–5 (‘‘Rule’’), 

either unconditionally or on specified 

terms and conditions, any broker or 

dealer, if the Commission determines 

that such exemption is necessary or 

appropriate in the public interest, and is 

consistent with the protection of 

investors.2 As discussed below, the 

Commission temporarily is exempting 

the floor broker operations of brokerdealers with market access that handle 

orders on a manual basis (‘‘Floor 

Brokers’’) from the automated controls 

requirement of Rules 15c3–5(c)(1)(ii) 3

and (c)(2) 4 until November 30, 2011.5

II. Background 

On November 3, 2010, the 

Commission adopted Rule 15c3–5 under 

the Exchange Act.6 Among other things, 

Rule 15c3–5 requires each broker-dealer 

with access to trading securities 7

directly on an exchange or ATS, 

including a broker-dealer providing 

sponsored or direct market access to 

customers or other persons, and each 

broker-dealer operator of an ATS that 

provides access to trading securities 

directly on its ATS to a person other 

than a broker-dealer, to establish, 

document, and maintain a system of risk 

management controls and supervisory 

procedures that, among other things, is 

reasonably designed to (1) 

Systematically limit the financial 

exposure of the broker-dealer that could 

arise as a result of market access,8 and 

(2) ensure compliance with all 

regulatory requirements that are 

applicable in connection with market 

access.9 The required financial risk 

management controls and supervisory 

procedures must be reasonably designed 

to prevent the entry of orders that 

exceed appropriate pre-set credit or 

capital thresholds,10 or that appear to be 

erroneous.11 The regulatory risk 

management controls and supervisory 

procedures must also be reasonably 

designed to prevent the entry of orders 

unless there has been compliance with 

all regulatory requirements that must be 

satisfied on a pre-order entry basis,12

prevent the entry of orders that the 

broker-dealers or customer is restricted 

from trading,13 restrict market access 

technology and systems to authorized 

persons,14 and assure appropriate 

surveillance personnel receive 

immediate post-trade execution 

reports.15

The Commission has received a 

request from NYSE Amex LLC (‘‘NYSE 

Amex’’), NYSE Arca, Inc. (‘‘NYSE 

Arca’’), and New York Stock Exchange 

LLC (‘‘NYSE’’) (collectively, ‘‘NYSE 

Euronext’’) to extend the compliance 

date for the automated controls 

requirement pursuant to Rules 15c3– 

5(c)(1)(ii) and (c)(2) for Floor Brokers 

until November 30, 2011.16 Specifically, 

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