Document ID: SEC-2015-0235-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The NASDAQ Stock Market LLC
Posted Date: 2015-02-09T05:00Z

[Federal Register Volume 80, Number 26 (Monday, February 9, 2015)]
[Notices]
[Pages 7062-7064]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-02511]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74198; File No. SR-NASDAQ-2015-007]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the Rules of The NASDAQ Options Market Regarding Sharing of Risk 
Settings

February 3, 2015.
    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 January 28, 2015, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III, below, which Items have been prepared by the 
Exchange. 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend the rules of The NASDAQ Options 
Market (``NOM''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \3\ and Rule 19b-4 thereunder,\4\ to

[[Page 7063]]

authorize the Exchange to share any Participant-designated risk 
settings in the Exchange's Trading System with the Clearing Participant 
that clears transactions on behalf of the Participant.\5\
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    \3\ 15 U.S.C. 78s(b)(1).
    \4\ 17 CFR 240.19b-4.
    \5\ A ``Participant'' or ``Options Participant'' is a firm or 
organization that is registered with the Exchange pursuant to 
Chapter II of the NOM Rules for purposes of participating in options 
trading on NOM as a ``Nasdaq Options Order Entry Firm'' or ``Nasdaq 
Options Market Maker''. The term ``Nasdaq Options Market Maker'' or 
``Options Market Maker'' means an Options Participant registered 
with the Exchange for the purpose of making markets in options 
contracts traded on the Exchange and that is vested with the rights 
and responsibilities specified in Chapter VII of the NOM Rules. The 
terms ``Nasdaq Options Order Entry Firm'' or ``Order Entry Firm'' or 
``OEF'' mean those Options Participants representing as agent 
Customer Orders on NOM and those non-Market Maker Participants 
conducting proprietary trading. A ``Clearing Participant'' means a 
Participant that is self-clearing or a Participant that clears NOM 
Transactions for other Participants of NOM. The term ``Trading 
System'' means the automated trading system used by NOM for the 
trading of options contracts. See Chapter I, Section 1, Definitions, 
of the NOM Rules.
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    The text of the proposed rule change is below; proposed new 
language is italicized; proposed deletions are in brackets.

NASDAQ Stock Market Rules

Options Rules

* * * * *

Chapter VI, Trading Systems

    Sec. 1-19 No change.

Sec. 20 Exchange Sharing of Participant-Designated Risk Settings

    The Exchange may share any Participant-designated risk settings in 
the Trading System with the Clearing Participant that clears 
transactions on behalf of the Participant.
* * * * *

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 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is proposing to adopt new Section 20, Exchange Sharing 
of Participant-Designated Risk Settings, in Chapter VI, Trading 
Systems, of the NOM Rules in order to authorize the Exchange to share 
any Participant-designated risk settings in Exchange's Trading System 
with the Clearing Participant that clears transactions on behalf of the 
Participant. Pursuant to Chapter II, Participation, Section 2, 
Requirements for Options Participation, of the NOM Rules, Options 
Participants must be Options Clearing Participants or establish a 
clearing arrangement with a Clearing Participant. Every Clearing 
Participant is responsible for the clearance of transactions involving 
an options contract that is effected on or through NOM or its 
facilities or systems (``NOM Transactions'') of each Options 
Participant that gives up such Clearing Participant's name pursuant to 
a letter of authorization, letter of guarantee or other authorization 
(``Letter of Guarantee'') given by such Clearing Participant to such 
Options Participant, which authorization must be submitted to 
Nasdaq.\6\ Further, no Options Participant may make any transactions on 
NOM unless a Letter of Guarantee providing that the issuing Clearing 
Participant accepts financial responsibilities for all NOM Transactions 
made by the guaranteed Participant has been issued for such Participant 
by a Clearing Participant and filed with Nasdaq Regulation.\7\
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    \6\ See Chapter VI, Trading Systems, Section 15, Submission for 
Clearance, Subsection (a).
    \7\ See Chapter VII, Section 8, Letters of Guarantee.
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    Thus, while not all Participants are Clearing Participants, all 
Participants require a Clearing Participant's consent to clear 
transactions on their behalf in order to conduct business on the 
Exchange. Each Participant that transacts through a Clearing 
Participant on the Exchange executes a Letter of Guarantee which 
codifies the relationship between the Participant and the Clearing 
Participant and provides the Exchange with notice of which Clearing 
Participants have relationships with which Participants. The Clearing 
Member that guarantees the Participant's transactions on the Exchange 
has a financial interest in understanding the risk tolerance of the 
Participant. The proposal would provide the Exchange with authority to 
directly provide Clearing Participants with information that may 
otherwise be available to such Clearing Participants by virtue of their 
relationship with the respective Participants.
    At this time, the risk settings covered by this proposal are set 
forth in Chapter VI, Trading Systems, Section 19, Risk Monitor 
Mechanism.\8\ The Exchange may adopt additional rules providing for 
Participant-designated risk settings other than those provided in 
Chapter VI, Section 19 that could be shared with a Participant's 
Clearing Participant under the proposal, and the Exchange would 
announce these additional risk settings by issuing an Options Trader 
Alert.
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    \8\ See Securities Exchange Act Release No. 64948 (July 22, 
2011), 76 FR 45308 (July 28, 2011) (SR-NASDAQ-2011-077). The 
Mechanism provides protection to participants from the risk of 
multiple executions across multiple series of an option. Quoting 
across many series in an option creates the possibility of ``rapid 
fire'' executions that can create large, unintended principal 
positions that expose market makers, who are required to 
continuously quote in assigned options, to potentially significant 
market risk. Participants may establish a specified time period, not 
to exceed 15 seconds, within which a counting program will count the 
number of contracts traded in an option by such Participant. When 
the Participant has traded a certain number of contracts during the 
specified time period, the Risk Monitor Mechanism will automatically 
remove such Participant's quotations from the Exchange's 
disseminated quotation in all series of the particular option.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \9\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \10\ 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, 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.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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    The proposed rule change will allow the Exchange to directly 
provide a Participant's designated risk settings to the Clearing 
Participant that clears trades on behalf of the Participant. Because a 
Clearing Participant that executes a clearing Letter of Guarantee on 
behalf of a Participant guarantees all transactions of that 
Participant, and therefore bears the risk associated with those 
transactions, it is appropriate for the Clearing Participant to have 
knowledge of what risk settings the Participant may utilize within the 
Exchange's trading system. The proposal will permit Clearing

[[Page 7064]]

Participants who have a financial interest in the risk settings of 
Participants with whom the Clearing Participant has entered into a 
clearing Letter of Guarantee to better monitor and manage the potential 
risks assumed by Clearing Participants, thereby providing Clearing 
Participants with greater control and flexibility over setting their 
own risk tolerance and exposure and aiding Clearing Participants in 
complying with the Act. To the extent a Clearing Participant might 
reasonably require a Participant to provide access to its risk setting 
as a prerequisite to continuing to clear trades on the Participant's 
behalf, the Exchange's proposal to share those risk settings directly 
reduces the administrative burden on Participants and ensures that 
Clearing Participants are receiving information that is up to date and 
conforms to the settings active in the Exchange's trading system.

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 that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed rule change is 
not designed to address any competitive issues and does not pose an 
undue burden on non-Clearing Participants because, unlike Clearing 
Participants, non-Clearing Participants do not guarantee the execution 
of a Participant's transactions on the Exchange. The proposal is 
structured to offer the same enhancement to all Clearing Participants, 
regardless of size, and would not impose a competitive burden on any 
Participant. Any Participant that does not wish to share its designated 
risk settings with its Clearing Participant could avoid sharing such 
settings by becoming a Clearing Participant.

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 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)(ii) [sic] of the Act \11\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(a)(ii).
    \12\ 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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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 email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2015-007 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2015-007. 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 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 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal offices 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-2015-
007, and should be submitted on or before March 2, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-02511 Filed 2-6-15; 8:45 am]
BILLING CODE 8011-01-P