Document ID: SEC-2009-0941-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to NASDAQ Options Market Options Participant Membership Requirements, Order Entry Times and Confirmation Statements
Posted Date: 2009-07-10T04:00Z

[Federal Register: July 10, 2009 (Volume 74, Number 131)]
[Notices]               
[Page 33290-33293]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10jy09-85]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60220; File No. SR-NASDAQ-2009-064]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to NASDAQ Options Market Options Participant Membership 
Requirements, Order Entry Times and Confirmation Statements

July 1, 2009.
    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 June 26, 2009, The NASDAQ Stock Market LLC (``NASDAQ'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I, II, and III below, which Items 
have been prepared by NASDAQ. NASDAQ has designated the proposed rule 
change as constituting a non-controversial rule change under Rule 19b-
4(f)(6) under the Act,\3\ which renders the proposal effective upon 
filing with the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

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

    NASDAQ proposes to make three noncontroversial amendments to the 
NASDAQ Options Market (``NOM'' or ``Exchange'') rule. First, Chapter 
II, Section 2 would be amended to modify a requirement that NOM Options 
Participants at all times maintain membership in another options 
exchange. Second, Chapter VI, Sections 1, 2, 7 and 9 would be amended 
to change the time of day at which NOM begins accepting orders. Third, 
Chapter XI, Section 11, would be amended to make clear that the rule 
does not require confirmation statements to contain the name of the 
option exchange or exchanges on which an option contract is executed.
    The text of the proposed rule change is below. Proposed new 
language is underlined and proposed deletions are in brackets.
* * * * *
Chapter II, Participation
* * * * *
Section 2, Requirements for Options Participation
    (a)-(e) No Change.
    (f) Every Options Participant shall at all times maintain 
membership in another registered options exchange that is not 
registered solely under Section 6(g) of the Securities Exchange Act of 
1934, or in FINRA. Options Participants that transact business with 
customers shall at all times be members of the FINRA.
    (g)-(h) No Change.
    Commentary .01 No Change.
Chapter VI, Trading Systems
Section 1, Definitions
    The following definitions apply to Chapter VI for the trading of 
options listed on NOM.
    (a)-(f) No Change.
    (g) The term ``Time in Force'' shall mean the period of time that 
the System will hold an order for potential execution, and shall 
include:
    (1) ``Expire Time'' or ``EXPR'' shall mean, for orders so 
designated, that if after entry into the System, the order is not fully 
executed, the order (or the unexecuted portion thereof) shall remain 
available for potential display and/or execution for the amount of time 
specified by the entering Participant unless canceled by the entering 
party. EXPR Orders shall be available for entry from [9 a.m.] the time 
prior to market open specified by the Exchange on its website until 
market close Eastern Time and for execution from 9:30 a.m. until market 
close.
    (2) ``Immediate or Cancel'' or ``IOC'' shall mean for orders so 
designated, that if after entry into the System a marketable limit 
order (or unexecuted portion thereof) becomes non-marketable, the order 
(or unexecuted portion thereof) shall be canceled and returned to the 
entering participant. IOC Orders shall be available for entry from [9 
a.m.] the time prior to market open specified by the Exchange on its 
Web site until market close and for potential execution from 9:30 a.m. 
until market close. IOC Orders entered between [9 a.m.] the time 
specified by the Exchange on its Web site and 9:30 a.m. Eastern Time 
will be held within the System until 9:30 a.m. at which time the System 
shall determine whether such orders are marketable.
    (3) ``DAY'' shall mean for orders so designated, that if after 
entry into the System, the order is not fully executed, the order (or 
unexecuted portion thereof) shall remain available for potential 
display and/or execution until market close, unless canceled by the 
entering party, after which it shall be returned to the entering party. 
DAY Orders shall be available for entry from [9 a.m.] the time prior to 
market open specified by the Exchange on its Web site until market 
close and for potential execution from 9:30 a.m. until market close.
    (4) ``Good Til Cancelled'' or ``GTC'' shall mean for orders so 
designated, that if after entry into System, the order is not fully 
executed, the order (or unexecuted portion thereof) shall remain 
available for potential display and/or execution unless cancelled by 
the entering party, or until the option expires, whichever comes first. 
GTC Orders shall be available for entry from [9 a.m.] the time prior to 
market open specified by the Exchange on its Web site until market 
close and for potential execution from 9:30 a.m. until market close.
    (5) No Change.
    (h) No Change.
Chapter VI, Trading Systems
* * * * *
Section 2, Days and Hours of Business
    (a) The System operates and shall be available to accept bids and 
offers and orders from [9 a.m.] the time prior to market open specified 
by the Exchange on its Web site to market close on each business day, 
unless modified by NOM. Orders and bids and offers shall be open and 
available for execution as of 9:30 a.m. Eastern Time and shall close as 
of 4 p.m. Eastern Time except for option contracts on fund shares or 
broad-based indexes which will close as of 4:15 p.m. Eastern Time.
    (b)-(c) No Change.
Chapter VI, Trading Systems
* * * * *
Section 7, Entry and Display Orders
    (a) Entry of Orders--Participants can enter orders into the System, 
subject to the following requirements and conditions:
    (1)-(2) No Change.
    (3) Orders can be entered into the System (or previously entered 
orders cancelled) from [9 a.m.] the time prior to market open specified 
by the

[[Page 33291]]

Exchange on its Web site until market close.
    (b) No Change.
Chapter VI, Trading Systems
* * * * *
Section 9, Nasdaq Closing Cross
    (a) Definitions. For the purposes of this rule the term:
    (1)-(2) No Change.
    (3) ``Imbalance Only Order'' or ``IO'' shall mean an order to buy 
or sell at a specified price or better that may be executed only during 
the Nasdaq Closing Cross and only against MOC or LOC orders. IO orders 
can be entered between [9 a.m.] the time prior to market open specified 
by the Exchange on its Web site and the beginning of the Closing Cross 
but they cannot be modified after 10 minutes prior to the Closing Cross 
except to increase the number of contracts. IO orders can be cancelled 
between 10 and 5 minutes prior to the Closing Cross only by requesting 
Nasdaq to correct a legitimate error (e.g., side, size, symbol, price 
or duplication of an order). IO orders cannot be cancelled after 5 
minutes prior to the Closing Cross for any reason. IO sell (buy) orders 
will only execute at or above (below) the System offer (bid) at the 
time of the Closing Cross.
    (4) ``Limit On Close Order'' or ``LOC'' shall mean an order to buy 
or sell at a specified price or better that is to be executed only 
during the Nasdaq Closing Cross. LOC orders can be entered, cancelled, 
and corrected without restriction between [9 a.m.] the time prior to 
market open specified by the Exchange on its Web site and 10 minutes 
prior to the Closing Cross LOC orders can be cancelled between 10 and 5 
minutes prior to the Closing Cross only by requesting Nasdaq to correct 
a legitimate error (e.g., side, size, symbol, price or duplication of 
an order). LOC orders cannot be cancelled after 5 minutes prior to the 
Closing Cross for any reason. LOC Orders will execute only at the price 
determined by the Nasdaq Closing Cross.
    (5) ``Market on Close Order or MOC'' shall mean an order to buy or 
sell at the market that is to be executed only during the Nasdaq 
Closing Cross. MOC orders can be entered, cancelled, and corrected 
between [9 a.m.] the time prior to market open specified by the 
Exchange on its Web site and 10 minutes prior to the Closing Cross MOC 
orders can be cancelled between 10 and 5 minutes prior to the Closing 
Cross only by requesting Nasdaq to correct a legitimate error (e.g., 
side, size, symbol, price or duplication of an order). MOC orders 
cannot be cancelled after 5 minutes prior to the Closing Cross for any 
reason. MOC orders will execute only at the price determined by the 
Nasdaq Closing Cross.
    (6)-(7) No Change.
    (b) No Change.
Chapter XI, Doing Business with the Public
* * * * *
Section 11, Confirmation to Public Customers
    (a) No Change.
    (b) The confirmation shall, by appropriate symbols, distinguish 
between [NOM Transactions and other transactions in options contracts] 
Exchange options transactions and other transactions in option 
contracts though such confirmation does not need to specify the 
exchange or exchanges on which such option contracts were executed.
* * * * *

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 the proposed rule change is to make certain 
clarifying and noncontroversial changes to NOM rules, as follows.
Chapter II, Section 2
    Chapter II, Section 2 currently provides that a Participant must be 
a member of another registered options exchange that is not registered 
solely under Section 6(g) of the Act.\4\ When it adopted Chapter II, 
Section 2, Nasdaq made clear its intent not to serve as a Designated 
Options Examining Authority (``DOEA''), and stated that it would work 
with the Commission and the other registered options exchanges to 
ensure that each Options Participant would have as its DOEA a 
registered options exchange other than Nasdaq.\5\ The proposed 
amendments would provide an alternative to the options exchange 
membership requirement, such that a NOM Participant that was a member 
of Financial Industry Regulatory Authority, Inc. (``FINRA'')--itself a 
DOEA--would not also be required to maintain membership in another 
registered options exchange.\6\
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78f(g).
    \5\ See Securities Exchange Act Release No. 55667 (April 25, 
2007), 72 FR 23869 (May 1, 2007).
    \6\ See Securities Exchange Act Release No. 55532 (March 26, 
2007), 72 FR 15729 (April 2, 2007).
---------------------------------------------------------------------------

Chapter VI, Sections 1, 2, 7 and 9
    Chapter VI currently contains a number of provisions which permit 
orders to be submitted to the Exchange no earlier than 9 a.m.\7\ The 
amendments would eliminate this restriction, and would instead provide 
for orders to be submitted no earlier than the time specified by NOM on 
its Web site. The proposed amendments are intended to provide 
flexibility to permit NOM to change this beginning time for order 
submission as circumstances may dictate from time to time, without 
filing a proposed rule change with the Commission. The actual hours of 
trading on NOM would not be affected by this proposal. The Exchange 
will make information regarding new order entry times available to all 
market participants at the same time.
---------------------------------------------------------------------------

    \7\ See Chapter VI, Sections 1(g)(1), 1(g)(2), 1(g)(3), and 
1(g)(4), Section 2(a), Section 7(a)(3), and Sections 9(a)(3), 
9(a)(4) and 9(a)(5).
---------------------------------------------------------------------------

Chapter XI, Section 11
    Chapter XI, Section 11, currently provides that a confirmation 
shall, by appropriate symbols, distinguish between NOM Transactions and 
other transactions in options contracts. The proposed amendments would 
clarify that while confirmations are required to distinguish between 
Exchange option transactions and other transactions in option 
contracts, they do not need to specify the exchange or exchanges on 
which such option contracts were executed.\8\ This proposal is similar 
to

[[Page 33292]]

rule change proposals that have been filed by the American Stock 
Exchange LLC, the Financial Industry Regulatory Authority, Inc., the 
Chicago Board Options Exchange, Inc. the NASDAQ OMX PHLX, Inc., the 
Boston Stock Exchange, Inc., the International Securities Exchange, LLC 
and NYSE Arca, Inc.\9\ The Exchange believes that with the expansion of 
multi-listing of options and the introduction of new options exchanges, 
it has become operationally inefficient to require the disclosure of 
the market center on which an order was executed on the confirmation. 
As an example, a customer may have a single option order containing 
numerous option contracts executed on multiple exchanges. As such, it 
would be inefficient for the executing firm to be required to identify 
the exchange symbol for each contract executed on that customer's 
order. This proposal would clarify that written confirmations furnished 
to a customer will not need to specify the exchange or exchanges on 
which such option contracts were executed.
---------------------------------------------------------------------------

    \8\ The proposed filing is being done pursuant to an industry-
wide initiative under the auspices of the Options Self-Regulatory 
Council (``OSRC''), which is a committee comprised of 
representatives from each of the options exchanges functioning 
pursuant to the OSRC Plan (the ``Plan''). See Securities Exchange 
Act Release No. 20158 (September 8, 1983), 48 FR 41256 (September 
14, 1983). The Plan is not a National Market System (``NMS'') plan 
under Section 1 1A of the Act, but rather is a plan to allocate 
regulatory responsibilities under Rule 17d-2 under the Act. 17 CFR 
240.17d-2. As a result of the introduction of multiply listed 
options and the introduction of the Plan for the Purpose of Creating 
and Operating an Intermarket Options Market Linkage (``Options 
Linkage Plan''), the contracts in a customer options order could be 
executed on more than one options exchange, and the significance of 
the options exchange, or exchanges, that execute a particular 
options transaction has diminished significantly. See Securities 
Exchange Act Release No. 43086 (July 28, 2000), 65 FR 48023 (August 
4, 2000). Furthermore, the OSRC believes that in light of best 
execution and disclosure requirements, the usefulness of including 
on an options confirmation the name of the options exchange, or 
exchanges, on which the options transaction was effected does not 
outweigh the operational difficulties of capturing the information 
given the multiple trading of options and the application of the 
Options Linkage Plan industry wide.
    \9\ See Securities Exchange Act Release Nos. 58814 (October 20, 
2008), 73 FR 63527 (October 24, 2008); 58932 (November 12, 2008), 73 
FR 69696 (November 19, 2008); 58980 (November 19, 2008), 73 FR 72091 
(November 26, 2008); 59166 (December 29, 2008), 74 FR 328 (January 
5, 2009); 59434 (February 23, 2009), 74 FR 9012 (February 27, 2009); 
59806 (April 21, 2009), 74 FR 19254 (April 28, 2009); and 59978 (May 
27, 2009), 74 FR 26451 (June 2, 2009).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \10\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \11\ in particular, in that it is designed 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 Exchange believes that the proposed rules rationalize and 
clarify existing rules, in a manner that will benefit all market 
participants. In particular, the proposed amendments to Chapter XI, 
Section 11 clarify the Exchange's options confirmation rule to better 
reflect the realities of the modern options market.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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: (1) 
Significantly affect the protection of investors or the public 
interest; (2) impose any significant burden on competition; and (3) 
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 the public interest, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-
4(f)(6) thereunder.\13\
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). When filing a proposed rule change 
pursuant to Rule 19b-4(f)(6) under the Act, an Exchange is required 
to give 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 Exchange met this requirement.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) normally may 
not become operative prior to 30 days after the date of filing.\14\ 
However, Rule 19b-4(f)(6) \15\ permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. Nasdaq has requested that the 
Commission waive the 30-day operative delay. The Exchange believes that 
waiving the 30-day operative delay is consistent with the protection of 
investors and the public interest because it would provide market 
participants with clarified and rationalized rules on an expedited 
basis. For this reason, the Commission designates the proposal to be 
operative upon filing with the Commission.\16\
---------------------------------------------------------------------------

    \14\ 17 CFR 240.19b-4(f)(6)(iii).
    \15\ Id.
    \16\ For the purposes only of waiving the operative date of this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such 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 the 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-2009-064 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-2009-064. 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 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

[[Page 33293]]

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-2009-064 and should be submitted on or before 
July 31, 2009.
---------------------------------------------------------------------------

    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-16315 Filed 7-9-09; 8:45 am]

BILLING CODE 8010-01-P