Document ID: SEC-2011-0982-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2011-07-12T04:00Z

[Federal Register Volume 76, Number 133 (Tuesday, July 12, 2011)]
[Notices]
[Pages 40971-40973]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-17394]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64821; File No. SR-NASDAQ-2011-088)

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

 July 6, 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 June 27, 2011, The NASDAQ Stock Market LLC (the ``Exchange'' 
or ``NASDAQ'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASDAQ is filing with the Securities and Exchange Commission 
(``Commission'') a proposal for the NASDAQ Options Market (``NOM'') to 
amend Chapter VI, Trading Systems, Section 11, Order Routing, to 
address the priority of routed orders, as described further below.
    This change is scheduled to be implemented on NOM on or about 
August 15, 2011; the Exchange will announce the implementation schedule 
by Options Trader Alert, once the rollout schedule is finalized.
    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, the Exchange included statements

[[Page 40972]]

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

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

1. Purpose
    The purpose of the proposed rule change is to allow routed orders 
to retain priority in the rare instances where the routed portion 
returns without being fully executed, when a portion of the original 
order submitted by the customer remains on the book, as described in 
detail below. Currently, Chapter VI, Section 11 governs the routing of 
orders on NOM and describes when orders are routed. Section 11(a) 
describes order routing generally and defines the specific routing 
options. Section 11(b) covers non-System securities, which are options 
other than options that are currently trading on NOM pursuant to 
Chapter IV.\3\ Section 11(d) governs the obligation to honor trades 
executed on destination exchanges resulting from routing. Section 11(e) 
describes the broker-dealer that operates NOM's Routing Facility and 
how it functions.
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    \3\ NOM Rules, Chapter VI, Section 1(b).
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    Section 11(c) governs the priority of routed orders. Specifically, 
pursuant to Section 11(c), orders sent by the System to other markets 
do not retain time priority with respect to other orders in the System 
and the System continues to execute other orders while routed orders 
are away at another market center.\4\ Once routed by the System, an 
order becomes subject to the rules and procedures of the destination 
market including, but not limited to, order cancellation. If a routed 
order is subsequently returned, in whole or in part, that routed order, 
or its remainder, receives a new time stamp reflecting the time of its 
return to the System. Accordingly, under current NOM rules and 
functionality, a routed order that returns to NOM, in effect, loses its 
place in line on NOM.
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    \4\ Because the System routes the lesser of the disseminated 
size of the away markets or the order size, it is possible for a 
portion of an order to be routed rather than the entire order. 
Respecting the part of an order that is routed, that order can 
either be executed in full, in part or not at all on the destination 
exchange.
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    The Exchange proposes to change that result by, instead, having the 
routed order that returns to NOM retain its original timestamp if any 
portion of that order remains on NOM. Thus, under this proposal, if a 
routed order is subsequently returned, in whole or in part, that routed 
order, or its remainder, receives a new time stamp reflecting the time 
of its return to the System, unless any portion of the original order 
remains on the System, in which case the routed order shall re-join the 
portion that remains on the book, retaining its timestamp and its 
priority. The Exchange proposes to amend Section 11(c) to reflect this.
    Under this proposal, there will now be a situation where a returned 
routed order will retain its original timestamp and priority, as though 
the unsuccessful routing had never occurred. The Exchange does not 
believe that this result is problematic or raises regulatory issues. In 
fact, in situations where a portion of an order remains on the Exchange 
and a portion is routed, the Exchange routes such order so as to 
execute it and comply with the regulatory requirements to avoid trade-
throughs and locked and crossed markets. Various market conditions 
determine the destination(s) to which an order is routed, the portion 
of the order that should be routed, and whether or not the routed order 
results in an execution. Accordingly, the Exchange believes that its 
processes to route and timestamp routed orders, which are spelled out 
in its rules, are intended to make clear to market participants the 
various outcomes that result, depending on various market conditions.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \5\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \6\ in particular, in that it 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 facilitating transactions in securities, and to 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest. The Exchange believes that retaining 
the original timestamp on a partially routed order is designed to 
promote just and equitable principles of trade and protect investors 
and the public interest, because maintaining the original order as a 
single order is the simplest method of handling the order, which should 
help entering firms manage their order flow. Respecting routable 
orders, market conditions, not the entering firm, determine whether the 
order is routed, and ultimately whether it is executed on the 
destination market, such that the Exchange believes that it is simpler 
and more logical to treat the unexecuted portion of a routed order 
together with the original order. In addition, retaining the original 
timestamp on a partially routed order does not disadvantage other 
orders on the book, because the partially routed order had time 
priority and is merely returning, in effect, to its original place in 
time priority on the book. The portion of the order that was not routed 
and remained on the book is available for execution; if it is executed 
in full before the routed portion returns to the Exchange, the 
returned, routed portion receives a new timestamp book.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.

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

    No written comments were either solicited or received.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to 19(b)(3)(A) of the Act \7\ and Rule 19b-4(f)(6) \8\ 
thereunder.
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the

[[Page 40973]]

public interest, for the protection of investors, or otherwise in 
furtherance of the purposes of the Act. If the Commission takes such 
action, the Commission shall institute proceedings to determine whether 
the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. 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 rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2011-088 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-2011-088. 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, 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 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-2011-088 and should be submitted on or before August 2, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-17394 Filed 7-11-11; 8:45 am]
BILLING CODE 8011-01-P