Document ID: SEC-2012-1258-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The NASDAQ Stock Market LLC
Posted Date: 2012-08-03T04:00Z

[Federal Register Volume 77, Number 150 (Friday, August 3, 2012)]
[Notices]
[Pages 46541-46543]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-19000]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67536; File No. SR-NASDAQ-2012-091]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Extend the Pilot Period of Amendments to the Clearly Erroneous Rule

July 30, 2012.
    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 July 24, 2012, The NASDAQ Stock Market LLC (``Exchange'') 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 self-regulatory organization. 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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[[Page 46542]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to extend the pilot period of recent 
amendments to Rule 11890, concerning clearly erroneous transactions, so 
that the pilot will now expire on February 4, 2013.
    The text of the proposed rule change is below. Proposed new 
language is in italics; proposed deletions are in brackets.
* * * * *

11890. Clearly Erroneous Transactions

    The provisions of paragraphs (C), (c)(1), (b)(i), and (b)(ii) of 
this Rule, as amended on September 10, 2010, shall be in effect during 
a pilot period set to end on February 4, 2013[July 31, 2012]. If the 
pilot is not either extended or approved permanent by February 4, 
2013[July 31, 2012], the prior versions of paragraphs (C), (c)(1), and 
(b) shall be in effect.
    (a)-(f) No change.
* * * * *

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

    In its filing with the Commission, the 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 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
    On September 10, 2010, the Commission approved, for a pilot period 
to end December 10, 2010, a proposed rule change submitted by the 
Exchange, together with related rule changes of the BATS Exchange, 
Inc., NASDAQ OMX BX, Inc., Chicago Board Options Exchange, 
Incorporated, Chicago Stock Exchange, Inc., EDGA Exchange, Inc., EDGX 
Exchange, Inc., International Securities Exchange LLC, New York Stock 
Exchange LLC, NYSE MKT LLC (formerly, NYSE Amex LLC), NYSE Arca, Inc., 
and National Stock Exchange, Inc., to amend certain of their respective 
rules to set forth clearer standards and curtail discretion with 
respect to breaking erroneous trades.\3\ The changes were adopted to 
address concerns that the lack of clear guidelines for dealing with 
clearly erroneous transactions may have added to the confusion and 
uncertainty faced by investors on May 6, 2010. On December 7, 2010, the 
Exchange filed an immediately effective filing to extend the existing 
pilot program for four months, so that the pilot would expire on April 
11, 2011.\4\ On March 31, 2011, the Exchange filed an immediately 
effective filing to extend the existing pilot program for four months, 
so that the pilot would expire on the earlier of August 11, 2011 or the 
date on which a limit up/limit down mechanism to address extraordinary 
market volatility, if adopted, applies.\5\ On August 5, 2011, the 
Exchange filed an immediately effective filing removed language from 
the rule that tied the expiration of the pilot to the adoption of a 
limit up/limit down mechanism to address extraordinary market 
volatility, and further extended the pilot period, so that the pilot 
would expire on January 31, 2012.\6\ On August 8, 2011, the Exchange 
filed an immediately effective filing to amend Rule 11890 so that it 
would continue to operate in the same manner after changes to the 
single stock trading pause process became effective.\7\ On January 12, 
2012, the Exchange filed an immediately effective filing that extended 
the pilot to July 31, 2012.\8\
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    \3\ Securities Exchange Act Release No. 62886 (September 10, 
2010), 75 FR 56613 (September 16, 2010).
    \4\ Securities Exchange Act Release No. 63489 (December 9, 
2010), 75 FR 78281 (December 15, 2010) (SR-NASDAQ-2010-160).
    \5\ Securities Exchange Act Release No. 64238 (April 7, 2011), 
76 FR 20780 (April 13, 2011) (SR-NASDAQ-2011-043).
    \6\ Securities Exchange Act Release No. 65068 (August 9, 2011), 
76 FR 50508 (August 15, 2011) (SR-NASDAQ-2011-114).
    \7\ Securities Exchange Act Release No. 65104 (August 11, 2011), 
76 FR 51076 (August 17, 2011) (SR-NASDAQ-2011-116).
    \8\ Securities Exchange Act Release No. 66225 (January 24, 
2012), 77 FR 4602 (January 30, 2012) (SR-NASDAQ-2012-011).
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    On May 31, 2012, the Commission approved, on a pilot basis, the 
National Market System Plan to Address Extraordinary Market 
Volatility.\9\ This plan creates a market-wide limit up-limit down 
mechanism that is intended to address extraordinary market volatility 
in NMS Stocks, which will be implemented on February 4, 2013. Once 
implemented, the plan will prevent execution of trades outside of 
certain trading bands, thus eliminating clearly erroneous transactions. 
The Exchange believes that the pilot program has been successful in 
providing greater transparency and certainty to the process of breaking 
erroneous trades. The Exchange also believes that an additional 
extension of the pilot is warranted so that it may continue to monitor 
the effects of the pilot on the markets and investors, and consider 
appropriate adjustments, as necessary. Extending the pilot to February 
4, 2013, the implementation date of the market-wide limit up-limit down 
mechanism will permit the Exchange to continue to provide clear 
standards and curtail discretion with respect to breaking erroneous 
trades until the limit up/limit down mechanism, which is designed to 
prevent clearly erroneous transactions from occurring, is implemented.
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    \9\ Securities Exchange Act Release No. 67091 (May 31, 2012), 77 
FR 33498 (June 6, 2012).
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    Accordingly, the Exchange is filing to further extend the pilot 
program until February 4, 2012.
2. Statutory Basis
    The statutory basis for the proposed rule change is Section 6(b)(5) 
of the Securities Exchange Act of 1934 (the ``Act''),\10\ which 
requires the rules of an exchange 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 rule change 
also is designed to support the principles of Section 11A(a)(1) \11\ of 
the Act in that it seeks to assure fair competition among brokers and 
dealers and among exchange markets. The Exchange believes that the 
proposed rule meets these requirements in that it promotes transparency 
and uniformity across markets concerning decisions to break erroneous 
trades. In addition, the Exchange believes extending the pilot to 
February 4, 2013 is consistent with the requirement to protect 
investors because it will permit the pilot to continue to provide 
clearer standards and curtail discretion with respect to breaking 
erroneous trades until the limit up/limit down mechanism is 
implemented, thus eliminating need for the pilot.
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    \10\ 15 U.S.C. 78f(b)(5).
    \11\ 15 U.S.C. 78k-1(a)(1).
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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 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended.

[[Page 46543]]

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 Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \12\ and Rule 19b-4(f)(6) thereunder.\13\ 
Because the 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 prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \14\ and Rule 19b-
4(f)(6)(iii) thereunder.\15\
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    \12\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \13\ 17 CFR 240.19b-4(f)(6).
    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's 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 of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \16\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii) \17\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing.
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    \16\ 17 CFR 240.19b-4(f)(6).
    \17\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest, as 
it will allow the pilot program to continue uninterrupted, thereby 
avoiding the investor confusion that could result from a temporary 
interruption in the pilot program. For this reason, the Commission 
designates the proposed rule change to be operative upon filing.\18\
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    \18\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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 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 Email to rule-comments@sec.gov. Please include 
File No. SR-NASDAQ-2012-091 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-2012-091. This 
file number should be included on the subject line if email 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 Commissions 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. Copies of such 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-2012-091 and should be submitted by August 24, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-19000 Filed 8-2-12; 8:45 am]
BILLING CODE 8011-01-P