Federal Register / Vol. 75, No. 193 / Wednesday, October 6, 2010 / Notices 61795 

27 Id. 

28 Id. 

29See Abel/Noser Letter, Great Nation Letter, 

NAIBD Letter, PSE Letter, Triad Letter I, Triad 

Letter II, and Wulff Hansen Letter. 

30See, e.g., Great Nation Letter, NAIBD Letter, 

and PSE Letter. 

31See Wulff Hansen Letter. 

32See FINRA Letter. 

33 Id. 

34 Id. 

35See NAIBD Letter, PSE Letter, and Great Nation 

Letter. 

36See FINRA Letter. 

37 Id. 

38 Id. 

39 Id. 

40 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). 

41 15 U.S.C. 78o–3(b)(6). 

42 15 U.S.C. 78s(b)(2). 

43 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

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

4 17 CFR 240.19b–4(f)(6). 

and for members to determine, the types 

of information that should or should not 

be encrypted under the rule.’’ 27 FINRA 

believes that the suggested alternatives 

would be more costly than the proposal 

and believes the proposal ‘‘further 

supports compliance with the laws in 

some jurisdictions.’’ 28

Seven commenters believed that the 

proposal was difficult or costly to 

implement.29 For example, some 

commenters believe that small firms 

lack the technical experience to 

implement the proposal and may have 

to hire third parties.30 One commenter 

suggested an exception when 

information is provided directly to 

FINRA staff or on the FINRA 

premises.31 FINRA questioned the 

burden on members ‘‘given the 

availability of web-based encryption 

solutions currently available at low- or 

no-cost.’’ 32 FINRA noted that ‘‘members 

may be subject to various data 

protection laws that are in part the 

impetus’’ of the proposal.33 FINRA 

stated that it would ‘‘help educate its 

members about the process of 

encryption’’ and would ‘‘endeavor to 

provide information regarding various 

options for encrypting data, including 

low- or no-cost web-based encryption 

software.’’ 34

Three commenters suggested that the 

proposed requirement to use an 

encryption method that ‘‘meets industry 

standards for strong encryption’’ is too 

vague and suggested alternatives such as 

providing members with the specific 

method of encryption.35 FINRA 

acknowledged that, as proposed, the 

rule does not mandate a specific method 

of encryption.36 However, FINRA 

believes that this standard, which it 

stated is ‘‘identical to that employed by 

Massachusettes and Nevada,’’ is 

necessary to ‘‘adapt to changing 

technology regarding encryption.’’ 37

FINRA stated that it does not believe 

that it is ‘‘appropriate at this time to 

dictate a ‘one size fits all’ approach’’ to 

encryption.38 As designed, this 

requirement will allow each member to 

choose an appropriate method of 

encryption that works for it.39

The Commission finds that the 

proposed rule change is consistent with 

the requirements of the Act and the 

rules and regulations thereunder 

applicable to a national securities 

association.40 In particular, the 

Commission finds that the proposed 

rule change is consistent with the 

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

Act,41 which requires, among other 

things, that FINRA rules 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. 

The Commission believes that the 

proposed rule change is reasonably 

designed to ensure that information 

provided to FINRA on a portable media 

device in response to Rule 8210 is 

secure. FINRA has represented that this 

requirement is necessary to address 

laws in some jurisdictions that establish 

safeguards for personal information and 

records. The Commission also notes 

FINRA’s representation that there are 

low- or no-cost ways to encrypt files and 

that it will help educate its members 

about the process of encryption and 

meeting their obligations under the rule. 

Although the Commission recognizes 

that the proposed rule change does not 

mandate a specific encryption method, 

the Commission believes that some 

flexibility is appropriate to allow for 

changes in technology and for members 

to choose encryption methods that meet 

their needs. Finally, the Commission 

believes that the fact that information 

produced to it in other forms, such as 

paper-based forms, for which there is no 

comparable means of protecting the 

information from unwanted disclosure, 

should not preclude the protection of 

information that can be protected. 

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19b(2) of the Act,42 that the 

proposed rule change (SR–FINRA– 

2010–021) be, and hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.43

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–25067 Filed 10–5–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63017; File No. SR–ISE– 

2010–95] 

Self-Regulatory Organizations; 

International Securities Exchange, 

LLC; Notice of Filing and Immediate 

Effectiveness of Proposed Rule 

Change Amending Rule 717 

September 29, 2010. 

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

Securities Exchange Act of 1934 (the 

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

notice is hereby given that on 

September 21, 2010, the International 

Securities Exchange, LLC (the 

‘‘Exchange’’ or the ‘‘ISE’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which items have been prepared 

by the Exchange. The Exchange has 

filed the proposal as a ‘‘noncontroversial’’ proposed rule change 

pursuant to Section 19(b)(3)(A)(iii) of 

the Act 3 and Rule 19b–4(f)(6) 

thereunder.4 The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend to 

amend [sic] ISE Rule 717 (Limitations 

on Orders) to eliminate some of its 

restrictions. The text of the proposed 

rule change is available on the 

Exchange’s Web site http:// 

www.ise.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 

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61796 Federal Register / Vol. 75, No. 193 / Wednesday, October 6, 2010 / Notices 

5See ISE Rule 100(37B). 

6 ‘‘Professional Order’’ means an order that is for 

the account of a person or entity that is not a 

Priority Customer. See ISE Rule 100(37C). 

7The Exchange notes that the Commission has 

previously found that it is consistent with the Act 

for an options exchange not to prohibit a user of its 

market from effectively operating as a market maker 

by holding itself out as willing to buy and sell 

options contracts on a regular or continuous basis 

without registering as a market maker. See 

Securities Exchange Act Release No. 57478 (March 

12, 2008), 73 FR 14521 (March 18, 2008) (SR– 

NASDAQ–2007–004) (Order approving, among 

other things, a proposed rule change to establish 

rules governing the trading of options on NASDAQ 

Options Market (‘‘NOM’’)). 

The Exchange notes that in the order approving 

a Chicago Board Options Exchange (‘‘CBOE’’) rule 

change to amend its rules prohibiting members 

from functioning as market makers, the Commission 

stated that any entity that acts as a ‘‘dealer,’’ as 

defined in Section 3(a)(5) of the Act, 15 U.S.C. 

78c(a)(5), would be required to register with the 

Commission under Section 15 of the Act, 15 U.S.C. 

78o, and the rules and regulations thereunder, or 

qualify for any exception or exemption from 

registration. Activity that may cause a person to be 

deemed a dealer includes ‘‘ ‘quoting a market in or 

publishing quotes for securities (other than quotes 

on one side of the market on a quotations system 

generally available to non-broker-dealers, such as a 

retail screen broker for government securities).’ ’’ 

See Definitions of Terms in and Specific 

Exemptions for Banks, Savings Associations, and 

Savings Banks Under Sections 3(a)(4) and 3(a)(5) of 

the Securities Exchange Act of 1934, Securities 

Exchange Act Release No. 47364, 68 FR 8686, 8689, 

note 26 (February 24, 2003) (quoting OTC 

Derivatives Dealers, Securities Exchange Act 

Release No. 40594 (October 23, 1998), 63 FR 59362, 

59370, note 61 (November 3, 1998)). See [sic] 

Securities Exchange Act Release No. 59701 (April 

3, 2009), 74 FR 16247 (April 9, 2009). The 

Commission notes that the immediately preceding 

citation (Notice of filing and immediate 

effectiveness of SR–ISE–2009–15) is incorrect. The 

correct citation should be to Securities Exchange 

Act Release No. 59700 (April 2, 2009), 74 FR 16246 

(April 9, 2009) (order approving SR–CBOE–2009– 

009). 

8The Commission notes ISE incorrectly stated 

that ‘‘Priority Orders are not subject to any priority 

that is any better than market makers * * *.’’ The 

Commission believes that the term ‘‘Priority Orders’’ 

in the above-referenced sentence should be 

replaced with the term ‘‘Professional Orders.’’ See 

Securities Exchange Act Release No. See Securities 

Exchange Act Release No. 59287 (January 23, 2009), 

74 FR 5964 (January 30, 2009) (SR–ISE–2006–26) 

(order approving ISE proposal to create Priority 

Customer and Professional order types). 

9The Exchange notes that this rule change would 

only eliminate the restrictions of Rule 717(b) in the 

manner proposed. Members would continue to 

remain subject to the requirements of Rule 408 

(which requires Members to establish, maintain and 

enforce written policies and procedures reasonably 

designed, taking into consideration the nature of 

such Member’s business, to prevent the misuse of 

material, nonpublic information by such Member or 

persons associated with such Member), 

Supplementary Material .02 to Rule 400 (which 

may consider it conduct inconsistent with just and 

equitable principles of trade for any person 

associated with a Member who has knowledge of 

all material terms and conditions of (i) an order and 

a solicited order; (ii) an order being facilitated; or 

(iii) orders being crossed; the execution of which 

are imminent, to enter, based on such knowledge, 

an order to buy or sell an option for the same 

underlying security as any option that is the subject 

of the order, or an order to buy or sell the security 

underlying such class, or an order to buy or sell any 

related instrument until (a) the terms of the order 

and any change in the terms of the order of which 

the person associated with the Member has 

knowledge are disclosed to the trading crowd, or (b) 

the trade can no longer reasonably be considered 

imminent in the view of the passage of time since 

the order was received); Rule 717(d) (which state 

that EAMs may not execute as principal orders they 

represent as agent unless (i) agency orders are first 

exposed on the Exchange for at least one (1) second, 

(ii) the EAM has been bidding or offering on the 

Exchange for at least one (1) second prior to 

receiving an agency order that is executable against 

such bid or offer, (iii) the Member utilizes the 

Facilitation Mechanism pursuant to Rule 716(d), or 

(iv) the Member utilizes the Price Improvement 

Mechanism for Crossing Transactions pursuant to 

Rule 723); and Rule 717(e) (which states that EAMs 

may not execute orders they represent as agent on 

the Exchange against orders solicited from Members 

and non-member broker-dealers to transact with 

such orders unless (i) the unsolicited order is first 

exposed on the Exchange for at least one (1) second, 

(ii) the Member utilizes the Solicited Order 

Mechanism pursuant to Rule 716(e), (iii) the 

Member utilizes the Facilitation Mechanism 

pursuant to Rule 716(d) or (iv) the Member utilizes 

the Price Improvement Mechanism for Crossing 

Transactions pursuant to Rule 723). 

10See note 7 and Securities Exchange Act Release 

No. 59700 (April 2, 2009), 74 FR 16246 (April 9, 

2009) (SR–CBOE–2009–009). 

11 15 U.S.C. 78f (b) [sic]. 

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

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 

self-regulatory organization 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 Exchange is proposing to amend 

Rule 717(b) in order to eliminate some 

of its restrictions. First, Rule 717(b) 

currently provides that an Electronic 

Access Member (‘‘EAM’’), acting either 

as principal or agent, may not enter 

orders in the same options series, for the 

account or accounts of the same or 

related beneficial owner(s), in such a 

manner that the EAM or the beneficial 

owner(s) effectively is operating as a 

market maker by holding itself out as 

willing to buy and sell such options 

contracts on a regular or continuous 

basis. The Exchange is proposing that 

these restrictions be amended to only be 

applicable to Priority Customer Orders 5

(i.e., non-broker-dealer orders) and not 

Professional Orders 6 (as described 

below), since such Priority Customer 

Orders have priority at any price over 

bids and offers of Professional Orders.7

Rule 717(b) was adopted to limit the 

ability of EAMs that are not market 

makers to compete on preferential terms 

within ISE’s automated systems. 

Because Priority Customer Orders are 

provided with certain benefits, such as 

priority of bids and offers, the Exchange 

continues to believe that Priority 

Customer Orders should be subject to 

the Rule’s restrictions. However, 

because Priority Orders 8 are not subject 

to any priority that is any better than 

market makers, the Exchange no longer 

believes it is necessary to impose the 

Rule’s restrictions on the entry of 

broker-dealer orders. Similarly, because 

Voluntary Professionals are not subject 

to priority that is any better than market 

makers, we do not believe it is necessary 

to impose the Rule’s restrictions on 

Voluntary Professionals.9

Second, in those instances where the 

restrictions are applicable, Rule 717(b) 

currently provides that, in determining 

whether an EAM or beneficial owner 

effectively is operating as a market 

maker, the Exchange will consider, 

among other things, the simultaneous or 

near-simultaneous entry of limit orders 

to buy and sell the same options 

contract; the multiple acquisition and 

liquidation of positions in the same 

options series during the same day; and 

the entry of multiple limit orders at 

different prices in the same options 

series. The Exchange is proposing to 

remove the condition pertaining to the 

multiple acquisition and liquidation of 

positions from its list of factors used for 

determining whether a beneficial owner 

is operating as a market maker. In light 

of the proliferation of day trading 

activity and the fact that such a 

prohibition does not exist on other 

markets,10 the Exchange no longer 

believes that this activity should be 

considered a factor in determining 

whether an EAM or beneficial owner is 

effectively acting as a market maker. 

2. Basis 

The Exchange believes that the 

proposed rule change 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, because it is 

designed to prevent fraudulent and 

manipulative acts and practices, and to 

promote just and equitable principles of 

trade, to remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system, and, in general to protect 

investors and the public interest. The 

proposed changes should contribute to 

the Exchange’s ability to maintain a fair 

and orderly market in a manner that 

will limit unfair advantage and 

encourage competition. Specifically, 

because broker-dealer orders are not 

subject to priority on the ISE that is any 

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Federal Register / Vol. 75, No. 193 / Wednesday, October 6, 2010 / Notices 61797 

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

14 17 CFR 240.19b–4(f)(6). 

15The text of the proposed rule change is 

available on the Commission’s Web site at http:// 

www.sec.gov/rules/sro.shtml. 

16 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

better than market makers, the Exchange 

does not believe it is necessary to 

impose the Rule’s restrictions on the 

entry of broker-dealer orders. The 

Exchange believes that the elimination 

of these restrictions will permit entities 

other than market makers to enter orders 

on both sides of the market more freely, 

resulting in more orders on the ISE book 

and therefore increase liquidity on the 

ISE market, all to the benefit of 

investors. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The proposed rule change does not 

impose 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 

The Exchange has not solicited, and 

does not intend to solicit, comments on 

this proposed rule change. The 

Exchange has not received any 

unsolicited written comments from 

members or other interested parties. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the foregoing proposed rule 

change does not significantly affect the 

protection of investors or the public 

interest, does not impose any significant 

burden on competition, and, by its 

terms, does not 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) 13 of the Act and Rule 19b– 

4(f)(6) 14 thereunder. The Exchange 

provided the Commission with written 

notice of its intent to file the proposed 

rule change, along with a brief 

description and text of the proposed 

rule change, at least five business days 

prior to the date of filing the proposed 

rule change. 

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 necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

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

rules/sro.shtml); or 

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

Number SR–ISE–2010–95 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–ISE–2010–95. 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,15 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 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–ISE–2010–95 and should be 

submitted on or before October 27, 

2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.16

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–25068 Filed 10–5–10; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63022; File No. SR– 

NASDAQ–2010–116)] 

Self-Regulatory Organizations; The 

NASDAQ Stock Market LLC; Notice of 

Filing and Immediate Effectiveness of 

a Proposed Rule Change To Modify 

Nasdaq’s Order Routing Rule 

September 30, 2010. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on 

September 27, 2010, The NASDAQ 

Stock Market LLC (‘‘Nasdaq’’) filed with 

the Securities and Exchange 

Commission (‘‘SEC’’ or ‘‘Commission’’) 

the proposed rule change as described 

in Items I and II, 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 Substance of 

the Proposed Rule Change 

Nasdaq is filing a proposal for the 

NASDAQ Options Market (‘‘NOM’’ or 

‘‘Exchange’’) to modify Chapter VI, 

Section 11 of the NOM rules, to add a 

new order routing option and to assign 

a name to the existing routing option. 

The text of the proposed rule change 

is available from Nasdaq’s Web site 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, 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 

mstockstill on DSKH9S0YB1PROD with NOTICES