37074 Federal Register / Vol. 74, No. 142 / Monday, July 27, 2009 / Notices 

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

2 17 CFR 240.19b–4. 

3 In Amendment Nos. 1 and 2, Nasdaq made 

minor non-substantive corrections to the rule text. 

4 17 CFR 240.19b–4(f)(6). 

5Pursuant to Chapter VI, Section 1(b), ‘‘System 

Securities’’ are all options that are currently trading 

on NOM pursuant to Chapter IV of the NOM rules. 

All other options are ‘‘Non-System Securities.’’ 

6Chapter VI, Section (1)(e)(7) of the NOM Rules. 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60354; File No. SR– 

NASDAQ–2009–065] 

Self-Regulatory Organizations; the 

NASDAQ Stock Market LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change, as Modified by 

Amendment Nos. 1 and 2 Thereto, To 

Modify Routing of Orders From 

NASDAQ Options Market to an Affiliate 

Exchange 

July 21, 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 June 29, 

2009, The NASDAQ Stock Market LLC 

(‘‘Nasdaq’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’) 

the proposed rule change as described 

in Items I, II, and III below, which Items 

have been prepared by Nasdaq. On July 

17, 2009, Nasdaq filed Amendment No. 

1 to the proposed rule change. On July 

17, 2009, Nasdaq filed Amendment No. 

2 to the proposed rule change.3 Nasdaq 

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, 

as amended, from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

Nasdaq proposes to amend Chapter 

VI, Sections 1(e)(7) and 11(b) of the 

Rules of the NASDAQ Options Market 

(‘‘NOM’’) to modify the restriction on 

routing of certain orders to a facility of 

an exchange that is an affiliate of NOM. 

The text of the proposed rule change 

is below. Proposed new language is 

italicized; proposed deletions are in 

brackets. 

Options Rules 

Chapter VI Trading System 

* * * * * 

Sec. 1 Definitions 

The following definitions apply to 

Chapter VI for the trading of options 

listed on NOM. 

(a)–(d) No change. 

(e) The term ‘‘Order Type’’ shall mean 

the unique processing prescribed for 

designated orders that are eligible for 

entry into the System, and shall include: 

(1)–(6) No change. 

(7) ‘‘Exchange Direct Orders’’ are 

orders that are directed to an exchange 

other than NOM as directed by the 

entering party without checking the 

NOM book. If unexecuted, the order (or 

unexecuted portion thereof) shall be 

returned to the entering party. This 

order type may only be used for orders 

with time-in-force parameters of IOC. 

Directed Orders may not be directed 

to a facility of an exchange that is an 

affiliate of Nasdaq other than the Boston 

Options Exchange. 

(f)–(h) No change. 

Sec. 11 Order Routing 

(a) No change. 

(b) For Non-System securities, the 

order routing process shall be available 

to Participants from 9:30 a.m. Eastern 

Time until market close and shall route 

orders based on the participant’s 

instructions. Notwithstanding the 

foregoing, the order routing process will 

not be available to route Non-System 

Securities to a facility of an exchange 

that is an affiliate of Nasdaq other than 

the Boston Options Exchange. 

(c)–(e) 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, 

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 

a. Background 

The NASDAQ OMX Group, Inc. 

(‘‘NASDAQ OMX’’), a Delaware 

corporation, acquired the Boston Stock 

Exchange (‘‘BSE’’) in August 2008. Prior 

to the acquisition, BSE owned a 21.87% 

interest in Boston Options Exchange 

Group, LLC, the operator of the Boston 

Options Exchange facility (‘‘BOX’’). 

Boston Options Exchange Regulation, 

LLC (‘‘BOXR’’) was a wholly-owned 

subsidiary of BSE, to which BSE was 

delegated, pursuant to a delegation plan, 

certain self-regulatory responsibilities 

related to BOX. 

In connection with the closing of the 

acquisition by NASDAQ OMX, BSE 

transferred its interest in Boston 

Options Exchange Group to MX US, a 

wholly-owned subsidiary of the 

Montreal Exchange Inc. NASDAQ OMX 

renamed BSE as NASDAQ OMX BX, 

Inc. (‘‘BX’’) and relaunched its equity 

trading market as the NASDAQ OMX 

BX Equities Market in January 2009. 

Although BX no longer holds an 

ownership interest in Boston Options 

Exchange Group, it continues to hold 

self-regulatory obligations with respect 

to BOX, a facility of BX. BX, together 

with BOXR, retains regulatory control 

over BOX and BX, as the SRO, remains 

responsible for ensuring compliance 

with the federal securities laws and all 

applicable rules and regulations. 

NASDAQ OMX also currently 

indirectly owns NASDAQ Options 

Services, LLC (‘‘NOS’’ or the ‘‘Routing 

Facility’’), a registered broker-dealer and 

a BOX market participant. Thus, NOS is 

deemed an affiliate of BX, BOX and 

BOXR. 

b. Affiliation and Order Routing 

Nasdaq is proposing that NOS be 

permitted to route Exchange Direct 

Orders in System Securities 5 to BOX 

without checking the NOM book prior 

to routing. Exchange Direct Orders are 

orders that route directly to other 

options markets on an immediate-or 

cancel basis without first checking the 

NOM book for liquidity.6 In addition, 

the proposed rule change would permit 

the routing by NOS of orders (including 

Exchange Direct Orders) in Non-System 

Securities from NOM to BOX. 

NOS is the approved outbound 

routing facility of Nasdaq for NOM. 

Under NOM Rule Chapter VI, Section 

11: (1) NOM routes orders in options via 

NOS, which serves as the sole ‘‘Routing 

Facility’’ of NOM; (2) the sole function 

of the Routing Facility is to route orders 

in options to away markets pursuant to 

NOM rules, solely on behalf of NOM; (3) 

NOS is a member of an unaffiliated selfregulatory organization, which is the 

designated examining authority for the 

broker-dealer; (4) the Routing Facility is 

subject to regulation as a facility of 

Nasdaq, including the requirement to 

file proposed rule changes under 

Section 19 of the Act; (5) NOM must 

establish and maintain procedures and 


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7Because only Nasdaq members who are Options 

Participants may enter orders into NOM, it also 

follows that routing by NOS is available only to 

Nasdaq members who are Options Participants. 

Pursuant to Chapter I, Section 1(a)(40) of the NOM 

Rules, the term ‘‘Options Participant’’ means a firm, 

or organization that is registered with Nasdaq for 

purposes of participating in options trading on 

NOM as a ‘‘Nasdaq Options Order Entry Firm’’ or 

‘‘Nasdaq Options Market Maker’’. 

8See Securities Exchange Act Release No. 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). 

9See Securities Exchange Act Release Nos. 59153 

(December 23, 2008), 73 FR 80485 (December 31, 

2008) (SR–NASDAQ–2008–098); 59154 (December 

23, 2008), 73 FR 80468 (December 31, 2008) (SR– 

BSE–2008–48); 59010 (November 24, 2008), 73 FR 

73373 (December 2, 2008) (SR–NYSEArca–2008– 

130); 58681 (September 29, 2008), 73 FR 58285 

(October 6, 2008) (SR–NYSEArca–2008–90); 58680 

(September 29, 2008), 73 FR 58283 (October 6, 

2008) (SR–NYSE–2008–76); 58673 (September 29, 

2008), 73 FR 57707 (October 3, 2008) (SR–Amex– 

2008–62) (collectively, the ‘‘Affiliation Orders’’). 

10See SR–BX–2009–35. 

11 15 U.S.C. 78f. 

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). 

15Securities Exchange Act Release No. 58092 

(July 3, 2008), 73 FR 40144 (July 11, 2008). 

internal controls reasonably designed to 

adequately restrict the flow of 

confidential and proprietary 

information between Nasdaq and its 

facilities (including the Routing 

Facility), and any other entity; and (6) 

the books, records, premises, officers, 

directors, agents, and employees of the 

Routing Facility, as a facility of Nasdaq, 

shall be deemed to be the books, 

records, premises, officers, directors, 

agents, and employees of Nasdaq for 

purposes of and subject to oversight 

pursuant to the Act, and the books and 

records of the Routing Facility, as a 

facility of Nasdaq, shall be subject at all 

times to inspection and copying by 

Nasdaq and the Commission. 

The Commission has approved NOS’s 

affiliation with BX subject to the 

conditions that: (1) NOS remains a 

facility of Nasdaq; (2) use of NOS’s 

routing function by Nasdaq members 

continues to be optional 7 and (3) NOS 

does not provide routing of orders in 

options from NOM to BX or any trading 

facilities thereof, unless such orders first 

attempt to access any liquidity on the 

NOM book.8

In order to modify the conditions 

noted above regarding the operation of 

NOS and allow NOS to route Exchange 

Direct Orders directly to BOX, Nasdaq is 

proposing to amend the restriction in 

Chapter VI, Section (1)(e)(7) of the NOM 

Rules that prohibit the routing of 

Exchange Direct Orders to a facility of 

an exchange that is an affiliate of 

Nasdaq. Under the proposed rule 

change, an Options Participant could 

enter an order into NOM designated as 

an ‘‘Exchange Direct Order’’ with 

instructions to route that order directly 

to BOX without first checking the NOM 

book. 

In addition, Nasdaq is proposing to 

amend Chapter VI, Section 11(b) of the 

NOM Rules to permit the routing of 

orders in Non-System Securities via 

NOS from NOM to BOX. As a result, 

orders in Non-System Securities that are 

routed to away markets under normal 

procedures could be routed to BOX, as 

well as those that are entered as 

Exchange Direct Orders with 

instructions to route directly to BOX. 

Other exchanges previously have 

adopted rules that permit exchanges to 

accept routing of inbound orders from 

affiliates, subject to certain limitations 

and conditions intended to address the 

Commission’s concerns regarding 

affiliation.9 In the orders approving 

these rule changes, the Commission 

noted its concerns about potential 

informational advantages and conflicts 

of interest between an exchange’s selfregulatory obligations and its 

commercial interest when the exchange 

is affiliated with one of its members, but 

determined that the proposed 

limitations and conditions were 

sufficient to mitigate its concerns. 

With respect to concerns identified by 

the Commission regarding the potential 

for informational advantages favoring 

NOS vis-a`-vis other non-affiliated BOX 

market participants, these concerns are 

addressed by existing NOM Rule 

Chapter VI, Section 11(e) which requires 

NOS to establish and maintain 

procedures and internal controls 

reasonably designed to adequately 

restrict the flow of confidential and 

proprietary information between Nasdaq 

and its facilities (including NOS) and 

any other entity. 

In addition, BX is proposing a rule 

change and certain undertakings 

intended to manage the flow of 

confidential and proprietary 

information between NOS and BOX and 

to minimize potential conflicts of 

interest.10

2. Statutory Basis 

Nasdaq believes that the proposed 

rule change is consistent with the 

provisions of Section 6 of the Act,11 in 

general, and with Section 6(b)(5) of the 

Act,12 in particular, in that the proposal 

is designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, to foster cooperation and 

coordination with persons engaged in 

regulating, clearing, settling, processing 

information with respect to, and 

facilitating transactions in securities, 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 rule 

change would permit routing of 

Exchange Direct Orders from NOM to 

BOX through NOS while minimizing 

the potential for conflicts of interest and 

informational advantages involved 

where a broker-dealer is affiliated with 

an exchange facility to which it is 

routing orders. 

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 

The foregoing rule change has become 

effective pursuant to Section 19(b)(3)(A) 

of the Act 13 and Rule 19b–4(f)(6) 14

thereunder in that it effects a change 

that: (i) Does not significantly affect the 

protection of investors or the public 

interest; (ii) does not impose any 

significant burden on competition; and 

(iii) by its terms, does not become 

operative for 30 days after the date of 

the filing, or such shorter time as the 

Commission may designate if consistent 

with the protection of investors and the 

public interest. 

In its recent guidance on the proposed 

rules of Self-Regulatory Organizations 

(‘‘SROs’’),15 the Commission concluded 

that filings based on the rules of another 

SRO already approved by the 

Commission are eligible for immediate 

effectiveness under Rule 19b–4(f)(6). 

The Commission noted that ‘‘a proposed 

rule change appropriately may be filed 

as an immediately effective rule so long 

as it is based on and similar to another 

SRO’s rule and each policy issue raised 

by the proposed rule (i) has been 

considered previously by the 

Commission when the Commission 

approved another exchange’s rule (that 

was subject to notice and comment), 

and (ii) the rule change resolves such 

policy issue in a manner consistent with 


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37076 Federal Register / Vol. 74, No. 142 / Monday, July 27, 2009 / Notices 

16 Id. at 40149. 

17See the Affiliation Orders, supra note 8. 

18For purposes of calculating the 60-day period 

within which the Commission may summarily 

abrogate the proposed rule change under Section 

19(b)(3)(C) of the Act, the Commission considers 

the period to commence on July 17, 2009, the date 

on which Nasdaq submitted Amendment No. 2. See 

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

19 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 60083 

(June 10, 2009), 74 FR 28739. 

4The Exchange notes that orders rejected in 

accordance with this rule will be routed in the same 

manner as those rejected under the NMS tradethrough validation rule (Exchange Article 20, Rule 

5, Interpretations and Policies .03), which has 

already been approved by the Commission. 

such prior approval.’’ 16 Nasdaq believes 

the proposed rule change is ‘‘based on 

and similar to’’ the rule changes 

recently approved in the Affiliation 

Orders and furthers efforts to effectively 

address the concerns previously 

identified by the Commission regarding 

the potential for conflicts of interest and 

informational advantages when an 

exchange is affiliated with one of its 

market participants.17

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.18

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–2009–065 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–2009–065. 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, 100 F Street, NE., Washington, 

DC 20549 on official business days 

between the hours of 10 a.m. and 3 p.m. 

Copies of the filing also will be available 

for inspection and copying at the 

principal office of Nasdaq. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–NASDAQ–2009–065 and 

should be submitted on or before 

August 17, 2009. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.19

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–17767 Filed 7–24–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60353; File No. SR–CHX– 

2009–02] 

Self-Regulatory Organizations; 

Chicago Stock Exchange, Inc.; Order 

Granting Approval of Proposed Rule 

Change Relating to the Rejection of 

Undisplayed Odd-Lot Orders From the 

Exchange’s Matching System 

July 21, 2009. 

On June 2, 2009, the Chicago Stock 

Exchange, Inc. (‘‘CHX’’ or the 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’), pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Act’’) 1 and Rule 19b–4 

thereunder,2 a proposed rule change to: 

(1) Allow Exchange customers to specify 

whether odd-lot orders and unexecuted 

odd-lot remainders, that are not able to 

be immediately displayed, should 

remain in, or be rejected from, the 

Exchange’s Matching System, and (2) 

add a generic routing rule to clarify how 

any orders that are rejected from the 

Exchange’s Matching System, and 

routed away according to Participant 

instructions, will be handled. The 

proposed rule change was published for 

comment in the Federal Register on 

June 17, 2009.3 The Commission 

received no comments on the proposed 

rule change. This order approves the 

proposed rule change. 

The Exchange proposes to amend 

CHX Article 20, Rule 8 to allow 

Exchange Participants to specify 

whether odd-lot orders and unexecuted 

odd-lot remainders, that are not able to 

be immediately displayed, should 

remain in, or be rejected from, the 

Exchange’s Matching System. This 

preference could be set by the 

Participant on both a default and order 

by order basis. Orders remaining in the 

Matching System will continue to be 

ranked at the price and time at which 

they were originally received. Orders 

that are rejected from the Matching 

System shall either be sent back to the 

order sender or be routed to another 

destination according to each 

Participant’s instructions 4 or, if 

designated ‘‘do not route,’’ 

automatically cancelled. The Exchange 

also proposes that Participants that elect 

to have orders routed to another 

destination pursuant to this rule, or 

pursuant to Article 20, Rule 5 

(‘‘Prevention of Trade-throughs’’), agree 

to be bound by such transactions. 

In addition, the Exchange proposes to 

add a generic routing rule to clarify how 

any orders that are rejected from the 

Exchange’s Matching System, and 

routed away according to Participant 

instructions, will be handled. The use of 

routing services is optional and is 

available only to exchange Participants. 

In such cases, the Participant will be 

responsible for ensuring that it has a 

relationship with its chosen 

destinations to permit the requested 

access. The Exchange shall not have 

responsibility for the handling of the 

order by the other destination, but will 

report any execution or cancellation of 

the order by the other destination to the 

Participant that submitted the order, 

will notify the other venue of any 

cancellations or changes to the order 

submitted by the order-sending 

Participant and, if requested by the 

Participant and its chosen destination, 

will flip any executions into the 

Participants account, as necessary, and 


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