Document ID: SEC-2007-1484-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: NASDAQ Stock Market LLC
Posted Date: 2007-10-26T04:00Z

[Federal Register: October 26, 2007 (Volume 72, Number 207)]
[Notices]               
[Page 60922-60924]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26oc07-122]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56683; File No. SR-NASDAQ-2007-081]

 
Self-Regulatory Organizations; the NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
and Amendment No. 1 to Establish a New Service Called Nasdaq Regulation 
Reconnaissance Service (``Reg Recon'') To Assist Nasdaq Members in 
Their Efforts To Comply With Applicable Regulatory Requirements

October 22, 2007.
    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 September 26, 2007, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``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 substantially by Nasdaq. On 
October 15, 2007 Nasdaq filed Amendment No. 1 to the proposed rule 
change. Nasdaq filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ which 
renders it 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.
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    \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).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to establish fees for a new real-time surveillance 
alert and report module to assist Nasdaq member firms with their 
Regulation NMS (``Reg NMS'') compliance. The text of the proposed rule 
change is available at http://www.nasdaq.complinet.com, the Exchange, 

and 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
    Nasdaq proposes to establish a new service called Nasdaq Regulation 
Reconnaissance Service (``Reg Recon'') to assist Nasdaq members in 
their efforts to comply with applicable regulatory requirements. 
Specifically, Reg Recon will provide Nasdaq members with individualized 
real-time surveillance alerts of possible violations of Reg NMS under 
the Act. Members will also have access to download those surveillance 
alerts for use as part of their policies and procedures to ensure 
compliance with Reg NMS obligations. Reg Recon is intended as only one 
source of assistance for Nasdaq member firms with their Reg NMS 
compliance and does not purport in any way to ensure or guarantee Reg 
NMS compliance. Specifically, Reg Recon will be available as an add-on 
to the Nasdaq Workstation and Weblink ACT 2.0.
    Section 12(f) of the Act \5\ permits exchanges to extend ``unlisted 
trading privileges'' (``UTP'') to Nasdaq listed securities. Through 
UTP, other U.S. exchanges are able to quote and trade issues listed on 
Nasdaq. In addition, registered broker-dealers are permitted to execute 
transactions in the over-the-counter market and to report those trades 
to the Alternative Display Facility operated by the Financial Industry 
Regulatory Authority (``FINRA'') or to any of several Trade Reporting 
Facilities (``TRFs'') operated jointly by FINRA and one of several 
national securities exchanges. Under the UTP Plan, all U.S. exchanges 
that quote and trade Nasdaq listed securities must provide their data 
to a centralized securities information processor (``SIP'') for data 
consolidation and dissemination. Nasdaq, in its current role as the SIP 
for the UTP Plan, supports the UTP Quotation Data Feed (``UQDF''). \6\
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    \5\ 15 U.S.C. 78l(f).
    \6\ UQDF provides best bid and offer quotes from the UTP 
participants, as well as the consolidated national best bid and 
offer quotes (``NBBOs'') for securities listed on Nasdaq.
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    Reg Recon will assist Nasdaq members in two ways. First, it will 
assist members with compliance with Rule 611 of Reg NMS by providing 
real-time alerts that are trade reported by the member to the FINRA/
Nasdaq TRF and represent potential trade-throughs. Nasdaq will generate 
these alerts by reading the UQDF data feed and comparing it to the 
prices of trades reported to the TRF. When that comparison reveals that 
a potential trade-through has occurred, the Reg Recon functionality 
will send the member a real-time surveillance alert. Nasdaq expects 
that firms will use these alerts as part of their compliance procedures 
to verify that the TRF trade was properly executed and trade reported.
    Second, Reg Recon will provide subscribers with Nasdaq Self Help 
Declarations/Revocations messages (``Notices''). These Notices will 
alert participants that Nasdaq is experiencing communications issues 
with a particular market center. It is intended to cause members to 
perform an independent review of their communications with that market 
center and assess their trading obligations with respect to that 
market. Nasdaq has stated that these Notices are not intended to 
relieve firms of their obligations to conduct independent self-help 
analysis and to adopt policies and procedures designed to achieve 
compliance with those obligations.
    Both real-time surveillance alerts and the Notices will be 
available to download each day to allow firms to review their TRF trade 
reporting activities. The product also provides reports that give users 
the ability to generate and download reports to view all of their 
potential TRF trade-throughs and sort by exempt versus non-exempt, 
intermarket sweep order (``ISO'') versus non-ISO, and Nasdaq Self Help 
Declarations/Revocations. Additionally,

[[Page 60923]]

the product gives firms an ability to view their TRF ISO and potential 
trade-through violations relative to the rest of the industry.
    The fee for this product will be a $1,000/market maker participant 
identifier/month subscription fee, which Nasdaq believes fairly 
reflects the value of this product. Use of the Reg Recon Service is 
voluntary and available only to Nasdaq member firms and the 
subscription fees will be imposed on all purchasers equally. The 
proposed fees will cover the costs associated with establishing the 
service, responding to customer requests, configuring Nasdaq's systems, 
programming to user specifications, and administering the service, 
among other things. Large firms' order management systems are offering 
this product at a much higher price, but they have the ability to 
charge a significant amount more than Nasdaq since firms potentially 
will need to route to other market centers to comply with the rule and 
the order management system will have all order information for every 
market center, not just the TRF data.
    The Service is responsive to the requests of market participants 
seeking to augment their order management systems' solutions, as well 
as provide a back-up to those solutions, and for smaller firms with 
less sophisticated trading systems/environments. Nasdaq believes that 
the product is reasonably priced in light of the amount of quote data 
that must be processed coupled with the support required to assist 
firms in understanding the product and, in turn, Reg NMS.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\7\ in general, and with Section 
6(b)(5) of the Act,\8\ in particular, in that it is designed 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. Use of the Reg Recon Service 
is voluntary and is responsive to the requests of market participants 
seeking to augment their order management systems' solutions, as well 
as provide a back-up to those solutions, and for smaller firms with 
less sophisticated trading systems/environments.
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    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(5).
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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, 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

    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, if 
consistent with the protection of investors and public interest, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \9\ and 
Rule 19b-4(f)(6) thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
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    Normally, a proposed rule change filed under Rule 19b-4(f)(6) may 
not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) \11\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange has requested that the 
Commission waive the 30-day operative delay set forth in Rule 19b-
4(f)(6)(iii) under the Act.\12\ The Commission believes that the 
earlier operative date is consistent with the protection of investors 
and the public interest because the proposed rule change permits the 
Exchange to provide without further delay a voluntary service that 
responds to the requests of market participants seeking to augment 
their order management systems' solutions. For these reasons, the 
Commission designates the proposal to be operative upon filing with the 
Commission.\13\
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    \11\ 17 CFR 240.19b-4(f)(6). 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 date of filing of 
the proposed rule change, or such shorter time as designated by the 
Commission. The Commission notes that Nasdaq has satisfied the five-
day pre-filing notice requirement.
    \12\ 17 CFR 240.19b-4(f)(6)(iii).
    \13\ For purposes only of waiving the 30-day operative delay of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 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 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.\14\
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    \14\ For 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 October 15, 2007, the date on which Nasdaq filed 
Amendment No. 1. See 15 U.S.C. 78s(b)(3)(C).
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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-2007-081 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2007-081. 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

[[Page 60924]]

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 such 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-2007-081 and should 
be submitted on or before November 16, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-21180 Filed 10-25-07; 8:45 am]

BILLING CODE 8011-01-P