Document ID: SEC-2011-1093-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2011-07-29T04:00Z

[Federal Register Volume 76, Number 146 (Friday, July 29, 2011)]
[Notices]
[Pages 45629-45631]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-19191]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64958; File No. SR-NASDAQ-2011-095]

 Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to the Proprietary Trader Examination

July 25, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\, and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on July 12, 2011, The NASDAQ Stock Market LLC (the ``Exchange'' or 
``NASDAQ'') 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 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 its Rule 1032, Categories of Representative Registration, to 
adopt a new limited category of representative registration for 
proprietary traders, as described further below. NASDAQ intends to 
implement the proposal upon Commission approval \3\ and availability in 
WebCRD; NASDAQ will communicate the applicable dates to NASDAQ members.
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    \3\ The Commission notes that this filing is effective on 
filing.
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    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 
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 purpose of the proposed rule change is to recognize a new 
category of limited representative registration for proprietary 
traders. Currently, under NASDAQ rules, persons performing proprietary 
trading functions fall within the definition of representative in Rule 
1011, because Rule 1011 includes persons who are engaged in the 
investment banking or securities business of a member. Specifically, a 
``Representative'' means an Associated Person \4\ of a registered 
broker or dealer who is engaged in the investment banking or securities 
business for the member including the functions of supervision, 
solicitation or conduct of business in securities or who is engaged in 
the training of persons associated with a broker or dealer for any of 
these functions are designated as representatives. As provided in Rule 
1031, all Representatives of NASDAQ Members are required to be 
registered with NASDAQ, and Representatives that are so registered are 
referred to as ``Registered Representatives.''
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    \4\ Pursuant to Rule 1011(b), the term ``Associated Person'' 
means any partner, officer, director, or branch manager of a NASDAQ 
member or Applicant (or person occupying a similar status or 
performing similar functions), any person directly or indirectly 
controlling, controlled by, or under common control with such NASDAQ 
member or Applicant, or any employee of such NASDAQ member or 
Applicant, except that any person associated with a NASDAQ member or 
Applicant whose functions are solely clerical or ministerial shall 
not be included in the meaning of such term for purposes of the 
NASDAQ Rules.
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    NASDAQ has been working with FINRA and certain other exchanges, 
many of which have recently enhanced their registration requirements to

[[Page 45630]]

require the registration of associated persons,\5\ to develop the 
content outline and qualification examination that would be applicable 
to proprietary traders. This new qualification examination, the Series 
56, was recently filed with the Commission; \6\ NASDAQ expects to file 
the content outline with the Commission as well and make it available 
upon availability in WebCRD. Accordingly, NASDAQ is amending its rules 
to recognize the new registration category ``Proprietary Trader'' and 
the new examination, the Series 56.
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    \5\ See Securities Exchange Act Release Nos. 63843 (February 4, 
2011), 76 FR 7884 (February 11, 2011) (SR-ISE-2010-115); and 63314 
(November 12, 2010), 75 FR 70957 (November 19, 2010) (SR-CBOE-2010-
084).
    \6\ One exchange has thus far filed a proposed rule change 
respecting the Series 56, which has become effective. See Securities 
Exchange Act Release No. 64699 (June 17, 2011) (SR-CBOE-2011-056).
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    Specifically, NASDAQ proposes to adopt new subparagraph (c) to Rule 
1032 to recognize the ``Proprietary Trader'' category of registration. 
Like other categories of limited representative registration currently 
available, the new Proprietary Trader category would be limited to 
persons performing the functions specified in new Rule 1032(c), which 
is proprietary trading. The proposed rule expressly provides that such 
person's activities in the investment banking or securities business 
are limited solely to proprietary trading, that he passes the Series 56 
and that he is an associated person of a proprietary trading firm as 
defined in Rule 1011(o).\7\
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    \7\ Rule 1011(o) defines a proprietary trading firm as an 
Applicant with the following characteristics: (1) The Applicant is 
not required by Section 15(b)(8) of the Act to become a FINRA member 
but is a member of another registered securities exchange not 
registered solely under Section 6(g) of the Act; (2) all funds used 
or proposed to be used by the Applicant for trading are the 
Applicant's own capital, traded through the Applicant's own 
accounts; (3) the Applicant does not, and will not have 
``customers,'' as that term is defined in Nasdaq Rule 0120(g); and 
(4) all Principals and Representatives of the Applicant acting or to 
be acting in the capacity of a trader must be owners of, employees 
of, or contractors to the Applicant. ``Applicant'' is defined in 
Rule 1011(a).
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    Persons who deal with the public do not fit in this registration 
category and must continue to register as General Securities 
Representatives. NASDAQ believes that the new limited registration 
category and qualification examination are appropriate, because they 
are tailored to proprietary trading functions. Today, these persons are 
required to register as a General Securities Representative and pass 
the Series 7 examination, which the Exchange believes covers a great 
deal of material that is not relevant to proprietary trading functions. 
Instead, the Series 56 covers both equities and options trading rules, 
but not all of the rules that are applicable to firms and persons 
conducting a public business. As stated above, NASDAQ will describe the 
Series 56 in greater detail in a separate proposed rule change.
    Of course, persons registered in the new category would be subject 
to the continuing education requirements of Rule 1120. In addition, the 
process for registering continues to be covered by Rule 1140, which 
provides that WebCRD must be used.
    Today, because NASDAQ rules require it, persons associated with 
NASDAQ members are already registered as General Securities 
Representatives and have passed the Series 7 examination. This proposal 
does not require proprietary traders who have already registered as 
General Securities Representatives and have passed the Series 7 
examination to register under the new category as Proprietary Traders 
or to pass the Series 56, because NASDAQ believes this would be 
redundant. Persons who are registered as General Securities 
Representatives and have passed the Series 7 may, of course, perform 
the functions of a Proprietary Trader, because the new Proprietary 
Trader registration category is a limited registration category. This 
proposal does not preclude associated persons from registering as 
General Securities Representatives and passing the Series 7 examination 
and then functioning as a Proprietary Trader.
    NASDAQ expects that new members might consider the new category 
when applying for NASDAQ membership, once the new category and 
examination become available to NASDAQ members in WebCRD. Accordingly, 
NASDAQ believes that the new category should be helpful to attracting 
new members to NASDAQ, while at the same time preserving the important 
goals of appropriate registration and qualification for persons in the 
securities business. Additionally, members who hire new associated 
persons might choose to register in the new category.
    Unlike the associated persons of proprietary trading firms covered 
by this proposal, associated persons of firms that are NOT proprietary 
trading firms continue to be subject to registration as General 
Securities Representatives and have to pass the Series 7 
examination.\8\ They are not eligible for the new registration category 
and examination.
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    \8\ Such persons may also be subject to registration as an 
Equity Trader pursuant to Rule 1032(f), which requires successful 
completion of the Series 55 exam (for which the prerequisite is the 
Series 7 examination).
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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: (1) 
Section 6(c)(3)(B) of the Act,\10\ pursuant to which a national 
securities exchange prescribes standards of training, experience and 
competence for members and their associated persons; and (2) Section 
6(b)(5) of the Act,\11\ in that it is designed, among other things, to 
prevent fraudulent and manipulative acts and practices, 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, by 
offering a new, limited registration category to NASDAQ members. The 
Exchange believes that these new requirements should help ensure that 
all associated persons engaged in a securities business are, and will 
continue to be, properly trained and qualified to perform their 
functions, because the new category and examination are limited and 
tailored to persons performing proprietary trading functions.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78(c)(3)(B).
    \11\ 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)

[[Page 45631]]

of the Act \12\ and Rule 19b-4(f)(6) \13\ thereunder.
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 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 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-2011-095 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-2011-095. 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 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 publicly 
available. All submissions should refer to File Number SR-NASDAQ-2011-
095 and should be submitted on or before August 19, 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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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-19191 Filed 7-28-11; 8:45 am]
BILLING CODE 8011-01-P