Document ID: SEC-2011-0614-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2011-05-04T04:00Z

[Federal Register Volume 76, Number 86 (Wednesday, May 4, 2011)]
[Notices]
[Pages 25384-25385]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-10859]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64365; File No. SR-NASDAQ-2011-058]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Regarding Limitation of Liability

April 28, 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 April 28, 2011, 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 below, which Items 
have been substantially 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 
(``SEC'' or ``Commission'') a proposal for The NASDAQ Stock Market LLC 
(``NASDAQ'' or ``Exchange'') to amend Rule 4626 (Limitation of 
Liability) regarding expansion of the Exchange's limitation of 
liability under specified circumstances.
    The Exchange requests that the Commission waive the 30-day 
operative delay period contained in Exchange Act Rule 19b-
4(f)(6)(iii).\3\
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    \3\ 17 CFR 240.19b-4(f)(6)(iii).
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    The text of the proposed rule change is available from NASDAQ's Web 
site at http://nasdaq.cchwallstreet.com/Filings/, 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
    The purpose of this proposed rule change is to amend Rule 4626 
regarding expansion of the Exchange's limitation of liability rule 
under specified circumstances.
    Rule 4626 currently states that except as provided for in 
subsection (b) of the rule, Nasdaq and its affiliates shall not be 
liable for any losses, damages, or other claims arising out of the 
Nasdaq Market Center or its use. Subsection (b)(1) states that for the 
aggregate of all claims made by all market participants related to the 
use of the Nasdaq Market Center during a single calendar month, 
Nasdaq's payments under Rule 4676 [sic] shall not exceed the larger of 
$500,000, or the amount of the recovery obtained by Nasdaq under any 
applicable insurance policy.\4\
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    \4\ Rule 4676 [sic] was amended in 2009 to the current version. 
See Securities Exchange Act Release No. 60794 (October 6, 2009), 74 
FR 52522 (October 13, 2009) (SR-NASDAQ-2009-084) (notice of filing 
and immediate effectiveness). The Commission notes that the 
references to ``Rule 4676'' herein are typographical errors and the 
correct rule number is 4626.
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    The Exchange now proposes to add a new section to expand the 
maximum amount of payments that the Exchange may make during a calendar 
month pursuant to Rule 4626 in enumerated circumstances added in new 
subsection (b)(2).
    First, the (b)(2) claims have to be related to a systems 
malfunction or error of the Nasdaq Market Center concerning one the 
following functions that are system enforced by the Nasdaq trading 
system on behalf of the claimant: locked/crossed markets, trade through 
protection, market maker quoting, order protection, or firm quote 
compliance.\5\ And second, Nasdaq has to determine in its sole 
discretion that such systems malfunction or error was caused 
exclusively by Nasdaq's trading system and that no outside factors 
contributed to the malfunction or error. That is, the trading system 
issue would have to be caused exclusively by the Exchange to trigger 
subsection (b)(2).\6\
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    \5\ Rule 610 and 611 of Regulation NMS and Exchange Rule 4613. 
Notwithstanding this provision, the Exchange notes that market 
participants are not absolved of their compliance obligations under 
the Exchange rules or the Act.
    \6\ Claims under subsection (b)(2) would remain subject to the 
other limitations for recovery contained in Rule 4672 [sic], 
including the limitations on covered losses contained in the 
introductory language of subsection (b).
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    For example, if the needed market data provided to the Exchange to 
properly perform a locked/crossed markets analysis was incorrect and 
therefore caused the Exchange's relevant trading system functionality 
to quote or execute improperly, the requirements of subsection (b)(2) 
would not be met because any resulting issue was not caused exclusively 
by the Exchange. A similar result would occur should any other third 
party or non-Exchange specific input to the Exchange's trading systems 
likewise cause incorrect processing by the Exchange.
    Nasdaq's payments under subsection (b)(2) for all claims made by 
all market participants during a single calendar month, shall not 
exceed the larger of $3,000,000, or the amount of the recovery obtained 
by Nasdaq under any applicable insurance policy, subject to the overall 
cap on payments under Rule 4626 discussed below.
    Finally, the Exchange proposes to add new subsection (b)(3) stating 
that Nasdaq's total payment during a single calendar month pursuant to 
Rule 4626 (including both subsections (b)(1) and (b)(2)) shall not 
exceed $3,000,000.\7\
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    \7\ The Exchange proposes to add the word ``payment'' in 
subsection (b)(1) for consistency with proposed new subsections 
(b)(2) and (b)(3).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \8\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \9\ in particular, in that it is designed to promote 
just and equitable principles of trade, to remove impediments to and

[[Page 25385]]

perfect the mechanism of a free and open market and a national market 
system, and, in general to protect investors and the public interest.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that its proposal to expand Rule 4626 
(Limitation of Liability) under specified circumstances will promote 
fairness in the market place in situations where the firm's claim 
results from a problem in a compliance function performed by the 
Exchange's trading system that is solely the fault of the Exchange.\10\
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    \10\ This would include events like the one on Monday, April 25, 
2011 involving a quoting problem with the Exchange's automated 
quotation refresh system (AQR). Because the claim for redress for 
trades impacted by this AQR problem does not arise until settlement, 
claims timely filed from this event will be eligible for review 
pursuant to proposed Rule 4626(b)(2).
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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.

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

    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 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) of the Act \11\ and Rule 19b-
4(f)(6)(iii) thereunder.\12\ The Exchange has asked the Commission to 
waive the 30-day operative delay so that the proposal may become 
operative immediately upon filing. The Commission believes that waiving 
the 30-day operative delay is consistent with the protection of 
investors and the public interest because such waiver will allow the 
Exchange to immediately expand Rule 4626 to help promote fairness in 
the marketplace in specified circumstances where claims result from 
systems malfunctions or errors that are solely the fault of the 
Exchange.\13\ Accordingly, the Commission waives the 30-day operative 
delay requirement and designates the proposed rule change as operative 
upon filing with the Commission.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires that a self-regulatory organization submit to 
the Commission 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 filing of the 
proposed rule change, or such shorter time as designated by the 
Commission. The Exchange has requested that the Commission waive the 
five business day notice requirement. The Commission waives the five 
day notice requirement.
    \13\ For purposes only of waiving the 30-day operative delay, 
the Commission has 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2011-058 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-2011-058. 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 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 
publicly available. All submissions should refer to File Number SR-
NASDAQ-2011-058 and should be submitted on or before May 25, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-10859 Filed 5-3-11; 8:45 am]
BILLING CODE 8011-01-P