Document ID: SEC-2007-1666-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: NASDAQ Stock Market LLC
Posted Date: 2007-12-07T05:00Z

[Federal Register: December 7, 2007 (Volume 72, Number 235)]
[Notices]               
[Page 69263-69269]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07de07-91]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56867; File No. SR-NASDAQ-2007-065]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Conform SRO Rules to Changes to Rule 10a-1 and Regulation SHO

November 29, 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 July 11, 2007, The NASDAQ Stock Market LLC (``Nasdaq'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I and II below, which Items have been 
substantially 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 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 a rule change to eliminate Nasdaq Rule 3350 and IM-
3350 and to make conforming changes to other Nasdaq rules, as required 
by recent Commission rulemaking.
    The text of the proposed rule change is below. Proposed new 
language is underlined; proposed deletions are in brackets.
* * * * *
3350. Reserved. [Short Sale Rule]
    [(a) With respect to trades executed on Nasdaq, no member shall 
effect a short sale for the account of a customer or for its own 
account in a Nasdaq Global Market security at or below the current best 
(inside) bid displayed in the National Market System when the current 
best (inside) bid is below the preceding best (inside) bid in the 
security. For purposes of this rule, the term ``customer'' includes a 
non-member broker-dealer.
    (b) In determining the price at which a short sale may be effected 
after a security goes ex-dividend, ex-right, or ex-any other 
distribution, all quotation prices prior to the ``ex'' date may be

[[Page 69264]]

reduced by the value of such distribution.
    (c) The provisions of paragraph (a) shall not apply to:
    (1) Sales by a registered market maker registered in the security 
on Nasdaq in connection with bona fide market making activity. For 
purposes of this paragraph, transactions unrelated to normal market 
making activity, such as index arbitrage and risk arbitrage that are 
independent from a member's market making functions, will not be 
considered bona fide market-making activity.
    (2) Any sale by any person, for an account in which he has an 
interest, if such person owns the security sold and intends to deliver 
such security as soon as possible without undue inconvenience or 
expense.
    (3) Sales by a member, for an account in which the member has no 
interest, pursuant to an order to sell which is marked ``long''.
    (4) Sales by a member to offset odd-lot orders of customers.
    (5) Sales by a member to liquidate a long position which is less 
than a round lot, provided that such sale does not change the position 
of the member by more than one unit of trading.
    (6) Sales by a person of a security for a special arbitrage account 
if the person then owns another security by virtue of which the person 
is, or presently will be, entitled to acquire an equivalent number of 
securities of the same class of securities sold; provided such sale, or 
the purchase which such sale offsets, is effected for the bona fide 
purpose of profiting from a current difference between the price of the 
security sold and the security owned and that such right of acquisition 
was originally attached to or represented by another security or was 
issued to all the holders of any such class of securities of the 
issuer.
    (7) Sales by a person of a security effected for a special 
international arbitrage account for the bona fide purpose of profiting 
from a current difference between the price of such security on a 
securities market not within or subject to the jurisdiction of the 
United States and on such a securities market subject to the 
jurisdiction of the United States; provided the person at the time of 
such sale knows or, by virtue of information currently received, has 
reasonable grounds to believe that an offer enabling the person to 
cover such sale is then available to the person in such foreign 
securities market and intends to accept such offer immediately.
    (8) Sales by an underwriter, or any member of a syndicate or group 
participating in the distribution of a security, in connection with an 
over-allotment of securities, or any layoff sale by such a person in 
connection with a distribution of securities through rights or a 
standby underwriting commitment.
    (9) Sales of securities as to which all short sale price tests have 
been suspended by operation of a Pilot Order issued by the Commission 
pursuant to SEC Rule 202T.
    (10) Sales of securities included in the Nasdaq 100 Index.
    (11) Short sales of securities in the Nasdaq Crossing Network 
pursuant to NASDAQ Rule 4770 provided that:
    (a) Such short sales involve securities that comprise the S&P 500 
Index;
    (b) Such short sales involve securities that qualify as ``actively-
traded securities'' under Regulation M; or
    (c) Such short sales are part of a basket transaction of 20 or more 
securities in which the subject security does not comprise more than 
five percent of the value of the basket traded.
    (d) No member shall effect a short sale for the account of a 
customer or for its own account indirectly or through the offices of a 
third party to avoid the application of this Rule.
    (e) No member shall knowingly, or with reason to know, effect sales 
for the account of a customer or for its own account to avoid the 
application of this Rule.
    (f) A member that is not currently registered as a Nasdaq market 
maker in a security and that has acquired a security while acting in 
the capacity of a block positioner shall be deemed to own such security 
for the purposes of this Rule notwithstanding that such member may not 
have a net long position in such security if and to the extent that the 
member's short position in the security is the subject of offsetting 
positions created in the course of bona fide arbitrage, risk arbitrage, 
or bona fide hedge activities.
    (g) For purposes of this Rule, a depositary receipt of a security 
shall be deemed to be the same security as the security represented by 
such receipt.
    (h)(1) A member shall be permitted, consistent with its quotation 
obligations, to execute a short sale for the account of an options 
market maker that would otherwise be in contravention of this Rule, if:
    (A) The options market maker is registered with a qualified options 
exchange as a qualified options market maker in a stock options class 
on a Nasdaq Global Market security or an options class on a qualified 
stock index; and
    (B) The short sale is an exempt hedge transaction.
    (2) For purposes of this paragraph:
    (A)(i) An ``exempt hedge transaction,'' in the context of qualified 
options market makers in stock options classes, shall mean a short sale 
in a Nasdaq Global Market security that was effected to hedge, and in 
fact serves to hedge, an existing offsetting options position or an 
offsetting options position that was created in a transaction(s) 
contemporaneous with the short sale,1 provided that when 
establishing the short position the options market maker is eligible to 
receive(s) good faith margin pursuant to section 220.12 of Regulation T 
under the Act for that transaction.
    (ii) An ``exempt hedge transaction,'' in the context of qualified 
options market makers in stock index options classes, shall mean a 
short sale in a Nasdaq Global Market security that was effected to 
hedge, and in fact serves to hedge, an existing offsetting stock index 
options position or an offsetting stock index options position that was 
created in a transaction(s) contemporaneous with the short sale, 
provided that:
    a. The security sold short is a component security of the index 
underlying such offsetting index options position;
    b. The index underlying such offsetting index options position is a 
``qualified stock index;'' and
    c. The dollar value of all exempt short sales effected to hedge the 
offsetting stock index options position does not exceed the aggregate 
current index value of the offsetting options position.
    (iii) Notwithstanding any other provision of this paragraph (h), 
any transaction unrelated to normal options market making activity, 
such as index arbitrage or risk arbitrage that in either case is 
independent of an options market maker's market making functions, will 
not be considered an ``exempt hedge transaction.''
    (B) A ``qualified options market maker'' shall mean an options 
market maker who has received an appointment as a ``qualified options 
market maker'' for certain classes of stock options on Nasdaq Global 
Market securities and/or index options on qualified stock indexes 
pursuant to the rules of a qualified options exchange.
    (C) A ``qualified options exchange'' shall mean a national 
securities exchange that has approved rules and procedures providing 
for:
    (i) Designating market makers as qualified options market makers, 
which standards shall be designed to identify options market makers who 
regularly engage in market making activities in the particular options 
class(es);
    (ii) The surveillance of its market maker's utilization of the 
exemption set

[[Page 69265]]

forth in paragraph (h)(1) to assure that short sales effected by 
qualified options market makers are exempt hedge transactions and that 
other non-qualified market makers are not utilizing the exemption; and
    (iii) Authorization of Nasdaq to withdraw, suspend or modify the 
designation of a qualified options market maker but only if a qualified 
options exchange has determined that the qualified options market maker 
has failed to comply with the terms of the exemption, and that such a 
withdrawal, suspension or modification of the market maker's exemption 
is warranted in light of the substantial, willful, or continuing nature 
of the violation.
    (D) A ``qualified stock index'' shall mean any stock index that 
includes one or more Nasdaq Global Market securities, provided that 
more than 10% of the weight of the index is accounted for by Nasdaq 
Global Market securities and provided further that the qualification of 
an index as a qualified stock index shall be reviewed as of the end of 
each calendar quarter, and the index shall cease to qualify if the 
value of the index represented by one or more Nasdaq Global Market 
securities is less than 8% at the end of any subsequent calendar 
quarter.
    (E) ``Aggregate current index value'' shall mean the current index 
value times the index multiplier.
    (F) A member will not be in violation of paragraph (a) above if the 
member executes a short sale for the account of an options market maker 
that is in contravention of this paragraph (h), provided that the 
member did not know or have reason to know that the options market 
maker's short sale was in contravention of this paragraph (h).
    (i)(1) A member shall be permitted, consistent with its quotation 
obligations, to execute a short sale for the account of a warrant 
market maker that would otherwise be in contravention of this Rule, if:
    (A) The warrant market maker is a registered Nasdaq market maker 
for the warrant; and
    (B) The short sale is an exempt hedge transaction that results in a 
fully hedged position.
    (2) For purposes of this paragraph, an ``exempt hedge transaction'' 
shall mean a short sale in a Nasdaq Global Market security that was 
effected to hedge, and in fact serves to hedge, an existing offsetting 
warrant position or an offsetting warrant position that was created in 
a transaction(s) contemporaneous with the short sale.\2\ 
Notwithstanding any other provision of this paragraph, any transaction 
unrelated to normal warrant market making activity, such as index 
arbitrage or risk arbitrage that in either case is independent of a 
warrant market maker's market making functions, will not be considered 
an ``exempt hedge transaction.''
    (3) Nasdaq may withdraw, suspend or modify the exemption for a 
warrant market maker upon determination that the market maker has 
failed to comply with the terms of the exemption, and that such a 
withdrawal, suspension or modification of the market maker's exemption 
is warranted in light of the substantial, willful, or continuing nature 
of the violation.
    (4) A member will not be in violation of paragraph (a) above if the 
member executes a short sale for the account of a warrant market maker 
that is in contravention of this paragraph (i), provided that the 
member did not know or have reason to know that the warrant market 
maker's short sale was in contravention of paragraph (i).
    (j) Pursuant to the Rule 9600 Series or on Nasdaq's own motion, 
Nasdaq may exempt either unconditionally, or on specified terms and 
conditions, any transaction or class of transactions from the 
provisions of this Rule.
    (k) Definitions:
    (1) The term ``short sale'' shall have the same meaning as 
contained in SEC Rule 200, adopted pursuant to the Act.
    (2) The term ``block positioner'' shall have the same meaning as 
contained in SEC Rule 3b-8(c) for ``Qualified Block Positioner'' 
adopted pursuant to the Act.
    (l) This section shall be in effect until December 15, 2006.]
    [\1\ The phrase contemporaneously established includes transactions 
occurring simultaneously as well as transactions occurring within the 
same brief period of time.]
    [\2\ The phrase contemporaneously established includes transactions 
occurring simultaneously as well as transactions occurring within the 
same brief period of time.]
[IM-3350. Short Sale Rule]
    [(a)(1) In developing a Short Sale Rule for Nasdaq Global Market 
securities, Nasdaq has adopted an exemption to the Rule for certain 
market making activity. This exemption is an essential component of the 
Rule because bona fide market making activity is necessary and 
appropriate to maintain continuous, liquid markets in Nasdaq Global 
Market securities. Rule 3350(c)(1) states that short selling 
prohibitions shall not apply to sales by registered Nasdaq market 
makers in connection with bona fide market making activity and 
specifies that transactions unrelated to normal market making activity, 
such as index arbitrage and risk arbitrage that are independent from a 
member's market making functions, will not be considered as bona fide 
market making. Thus two standards are to be applied: One must be a 
registered Nasdaq market maker and one must engage in ``bona fide'' 
market making activity to take advantage of this exemption. With this 
interpretation, Nasdaq wishes to clarify for members some of the 
factors that will be taken into consideration when reviewing market 
making activity that may not be deemed to be bona fide market making 
activity and therefore would not be exempted from the Rule's 
application.
    (2) First, as the Rule indicates, bona fide market making activity 
does not include activity that is unrelated to market making functions, 
such as index arbitrage and risk arbitrage that is independent from a 
member's market making functions. While these types of arbitrage 
activity appear to be suitable for the firm's overall hedging or risk 
management concerns, they do not warrant an exemption from the Rule. 
However, short sales of a security of a company involved in a merger or 
acquisition will be deemed bona fide market-making activity if made to 
hedge the purchase or prospective purchase (based on communicated 
indications of interest) of another security of a company involved in 
the merger or acquisition, which purchase was made, or is to be made, 
in the course of bona fide market making activity. The purchase of a 
security of a company involved in a merger or acquisition made to hedge 
a short sale of another security involved in the merger or acquisition, 
which sale was made in the course of bona fide market making activity, 
will not cause the sale to be deemed unrelated to normal market-making 
activity. Short sales made to hedge any such purchases or prospective 
purchases must be reasonably consistent with the exchange ratio (or 
exchange ratio formula) specified by the terms of the merger or 
acquisition.
    (3) Similarly, bona fide market making would exclude activity that 
is related to speculative selling strategies of the member or 
investment decisions of the firm and is disproportionate to the usual 
market making patterns or practices of the member in that security. 
Nasdaq does not anticipate that a firm could properly take advantage of 
its market maker exemption to effectuate such speculative or investment 
short selling decisions. Disproportionate short selling in a market 
making account to effectuate such strategies will be viewed by Nasdaq 
as inappropriate activity that

[[Page 69266]]

does not represent bona fide market making and would therefore be in 
violation of Rule 3350.
    (b) With respect to trades executed on or reported to Nasdaq, Rule 
3350 requires that no member shall effect a short sale for the account 
of a customer or for its own account in a Nasdaq Global Market security 
at or below the current best (inside) bid displayed in the Nasdaq 
Market Center when the current best (inside) bid is below the 
proceeding best (inside) bid in the security. For purposes of this 
rule, the term ``customer'' includes a non-member broker-dealer. Nasdaq 
has determined that in order to effect a ``legal'' short sale when the 
current best bid is lower than the preceding best bid the short sale 
must be executed at a price of at least $0.01 above the current inside 
bid when the current inside spread is $0.01 or greater. The last sale 
report for such a trade would, therefore, be above the inside bid by at 
least $0.01.
    (c)(1) Rule 3350 prohibits a member from effecting a short sale for 
the account of a customer or for its own account directly or through 
the offices of a third party for the purpose of avoiding the 
application of the Short Sale Rule. Further, the Rule prohibits a 
member from knowingly, or with reason to know, effecting sales for the 
account of a customer or for its own account for the purpose of 
avoiding the Rule. With this interpretation, Nasdaq wishes to clarify 
some of the circumstances under which a member would be deemed to be in 
violation of Rule 3350.
    (2) For example, in instances where the current best bid is below 
the preceding best bid, if a market maker alone at the inside best bid 
were to lower its bid and then raise it to create an ``up bid'' for the 
purpose of facilitating a short sale, Nasdaq would consider such 
activity to be a manipulative act and a violation of Nasdaq's Short 
Sale Rule. Nasdaq also would consider it a manipulative act and a 
violation of the Rule if a market maker with a long stock position were 
to raise its bid above the inside bid and then lower it to create a 
``down bid'' for the purpose of precluding market participants from 
selling short. In addition, if a market maker agrees to an arrangement 
proposed by a member or a customer whereby the market maker raises its 
bid in Nasdaq in order to effect a short sale for the other party and 
is protected against any loss on the trade or on any other executions 
effected at its new bid price, the market maker would be deemed to be 
in violation of Rule 3350. Similarly, a market maker would be deemed in 
violation of the Rule if it entered into an arrangement with a member 
or a customer whereby it used its exemption from the rule to sell short 
at the bid at successively lower prices, accumulating a short position, 
and subsequently offsetting those sales through a transaction at a 
prearranged price, for the purpose of avoiding compliance with the 
Rule, and with the understanding that the market maker would be 
guaranteed by the member or customer against losses on the trades.
    (3) Nasdaq believes that members' activities to circumvent the Rule 
through indirect actions such as executions with other members or 
through facilitation of customer orders while being protected from loss 
are antithetical to the purposes of the Rule. Accordingly, Nasdaq will 
consider any such activity as a violation of Rule 3350.
    (d) Nasdaq calculates changes to the inside bid displayed in the 
Nasdaq Market Center and disseminates a ``bid arrow'' via Nasdaq data 
feeds for market participants to use to comply with Rule 3350 when 
utilizing the execution functionality of the Nasdaq Market Center. The 
initial bid arrow each day shall be calculated at market open as 
follows.
    (1) For stocks subject to Rule 4709(c), the initial bid arrow after 
completing the process described in Rule 4709(c)(1) through (3) shall 
be up and the next and subsequent bid arrows shall be calculated by 
comparing the bid arrow with each quotation update processed by the 
Nasdaq system after the system begins processing pursuant to Rule 
4709(c)(4).
    (2) For stocks described in Rule 4704(d), the initial bid arrow at 
the conclusion of the Nasdaq Opening Cross shall be up and the next and 
subsequent bid arrows shall be calculated by comparing the bid arrow 
with each quotation update processed by the Nasdaq system after the 
Nasdaq Opening Cross concludes.]
3360. Short-Interest Reporting
    (a) To the extent such information is not otherwise reported to the 
NASD in conformance with NASD Rule 3360, each member shall maintain a 
record of total ``short'' positions in all customer and proprietary 
firm accounts in securities listed on Nasdaq and shall regularly report 
such information to Nasdaq in such a manner as may be prescribed by 
Nasdaq. Reports shall be made as of the close of the settlement date 
designated by Nasdaq. Reports shall be received by Nasdaq no later than 
the second business day after the reporting settlement date designated 
by Nasdaq.
    (b) For purposes of this Rule:
    (1) ``short'' positions to be reported are those resulting from 
``short sales'' as that term is defined in SEC Rule 200(a) of 
Regulation SHO, with the exception of positions that meet the following 
requirements: [of Subsections (e)(1), (6), (7), (8), and (10) of SEC 
Rule 10a-1 adopted under the Act; and]
    (A) any sale by any person, for an account in which he has an 
interest, if such person owns the security sold and intends to deliver 
such security as soon as is possible without undue inconvenience or 
expense;
    (B) any sale of a security covered by a short sale rule on a 
national securities exchange (except a sale to a stabilizing bid 
complying with Rule 104 of Regulation M) effected with the approval of 
such exchange which is necessary to equalize the price of such security 
thereon with the current price of such security on another national 
securities exchange which is the principal exchange market for such 
security;
    (C) any sale of a security for a special arbitrage account by a 
person who then owns another security by virtue of which he is, or 
presently will be, entitled to acquire an equivalent number of 
securities of the same class as the securities sold; provided such 
sale, or the purchase which such sale offsets, is effected for the bona 
fide purpose of profiting from a current difference between the price 
of the security sold and the security owned and that such right of 
acquisition was originally attached to or represented by another 
security or was issued to all the holders of any such class of 
securities of the issuer;
    (D) any sale of a security registered on, or admitted to unlisted 
trading privileges on, a national securities exchange effected for a 
special international arbitrage account for the bona fide purpose of 
profiting from a current difference between the price of such security 
on a securities market not within or subject to the jurisdiction of the 
United States and on a securities market subject to the jurisdiction of 
the United States; provided the seller at the time of such sale knows 
or, by virtue of information currently received, has reasonable grounds 
to believe that an offer enabling him to cover such sale is then 
available to him in such foreign securities market and intends to 
accept such offer immediately; and
    (E) any sale by an underwriter, or any member of a syndicate or 
group participating in the distribution of a security, in connection 
with an over-allotment of securities, or any lay-off sale by such a 
person in connection with a distribution of securities through

[[Page 69267]]

rights or a standby underwriting commitment.
    (2) No change.
* * * * *
IM-4390 Impact of Non-Designation of Dually Listed Securities
    To foster competition among markets and further the development of 
the national market system following the repeal of NYSE Rule 500, 
Nasdaq shall permit issuers whose securities are listed on the New York 
Stock Exchange to apply also to list those securities on the Nasdaq 
Global Market (``NGM''). Nasdaq shall make an independent determination 
of whether such issuers satisfy all applicable listing requirements and 
shall require issuers to enter into a dual listing agreement with 
Nasdaq.
    While Nasdaq shall certify such dually listed securities for 
listing on the NGM, Nasdaq shall not exercise its authority under Rule 
4390 separately to designate or register such dually listed securities 
as Nasdaq national market system securities within the meaning of 
Section 11A of the Act or the rules thereunder. As a result, these 
securities, which are already designated as national market system 
securities under the Consolidated Quotation Service (``CQS'') and 
Consolidated Tape Association national market system plans (``CQ and 
CTA Plans''), shall remain subject to those plans and shall not become 
subject to the Nasdaq UTP Plan, the national market system plan 
governing securities designated by Nasdaq. For purposes of the national 
market system, such securities shall continue to trade under their 
current one, two, or three-character ticker symbol. Nasdaq shall 
continue to send all quotations and transaction reports in such 
securities to the processor for the CTA Plan. In addition, dually 
listed issues that are currently eligible for trading via the 
Intermarket Trading System (``ITS'') shall remain so and continue to 
trade on the Nasdaq Intermarket trading platform as they do today.
    Through this interpretation, Nasdaq also resolves any potential 
conflicts that arise under Nasdaq rules as a result of a single 
security being both a security subject to the CQ and CTA Plans (a ``CQS 
security''), which is subject to one set of rules, and a listed NGM 
security, which is subject to a different set of rules. Specifically, 
dually listed securities shall be Nasdaq securities for purposes of 
rules related to listing and delisting, and shall remain as CQS 
securities under all other Nasdaq rules. Treating dually listed 
securities as CQS securities under Nasdaq rules is consistent with 
their continuing status as CQS securities under the CTA, CQ, and ITS 
national market system, as described above. This interpretation also 
preserves the status quo and avoids creating potential confusion for 
investors and market participants that currently trade these securities 
on Nasdaq.
    For example, Nasdaq shall continue to honor the trade halt 
authority of the primary market under the CQ and CT Plans. Nasdaq Rule 
4120(a)(2) and (3) governing CQS securities shall apply to dually 
listed securities, whereas Nasdaq Rule 4120(a)(1), (4), (5), (6), and 
(7) shall not. [SEC Rule 10a-1 governing short sales of CQS securities 
shall continue to apply to dually listed securities, rather than Nasdaq 
Rule 3350 governing short sales of Nasdaq-listed securities.] Market 
makers in dually listed securities shall retain all obligations imposed 
by the Nasdaq Rule 5200 Series regarding CQS securities rather than 
assuming the obligations appurtenant to Nasdaq-listed securities. The 
fees applicable to CQS securities set forth in Nasdaq Rule 7010 shall 
continue to apply to dually listed issues.
* * * * *
4755. Order Entry Parameters
(a) System Orders
    (1) General--A System order is an order that is entered into the 
System for display and/or execution as appropriate. Such orders are 
executable against marketable contra-side orders in the System.
    (A) All System Orders shall indicate limit price and whether they 
are a buy, short sale, [short-sale exempt,] or long sale. Systems 
Orders can be designated as Market Hours Immediate or Cancel 
(``MIOC''), Market Hours Good-till-Cancelled (``MGTC''), Market Hours 
Day (``MDAY''), System Hours Expire Time (``SHEX''), System Hours Day 
(``SDAY''), System Hours Immediate or Cancel (``SIOC''), System Hours 
Good-till-Cancelled (``SGTC''), or Good-til-Market Close ``GTMC'').
    (B)-(C) No change.
    (2) Reserved [Short Sale Compliance--System orders to sell short 
shall not be executed if the execution of such an order would violate 
any applicable short sale regulation of the SEC or Nasdaq. For Nasdaq 
securities, the System shall validate for short sale compliance using a 
bid tick based upon changes to the national best bid and offer 
disseminated pursuant to an effective transaction reporting plan. For 
NYSE and Amex securities, the System shall validate for short sale 
compliance based upon changes to the consolidated last sale 
disseminated pursuant to an effective transaction reporting plan.]
    (3)-(4) No change.
* * * * *
4758. Order Routing
(a) Order Routing Process
    (1) No change. The Order Routing Process shall be available to 
Participants from 7 a.m. until 8 p.m. Eastern Time, and shall route 
orders as described below: Beginning March 5, 2007, in connection with 
the trading of securities governed by Regulation NMS, all routing of 
orders shall comply with Rule 611 of Regulation NMS under the Exchange 
Act.
    (A)-(B) No change.
    (C) Priority of Routed Orders. Regardless of the routing option 
selected, orders sent by the System to other markets do not retain time 
priority with respect to other orders in the System and the System 
shall continue to execute other orders while routed orders are away at 
another market center. Once routed by the System, an order becomes 
subject to the rules and procedures of the destination market 
including, but not limited to, [short-sale regulation and] order 
cancellation. If a routed order is subsequently returned, in whole or 
in part, that order, or its remainder, shall receive a new time stamp 
reflecting the time of its return to the System.
4759. ITS Commitments
    Until such time as Nasdaq withdraws from the ITS Plan, Quotes and 
Orders that are eligible for ITS will be processed by the System and 
routed to the appropriate Non-Nasdaq Participant Market as an ITS 
Commitment in accordance with the requirements of the ITS Plan and all 
applicable Nasdaq rules. Nasdaq shall participate in the ITS Plan as 
set forth below.
    (a) No change.
    (b) Inbound ITS Commitments
    (1) No change.
    (2) [If the ITS Commitment, if executed, would result in a 
violation of SEC Rule 10a-1, the Nasdaq Market Center will decline it.] 
Reserved
    (3) No change.
    (c) Outbound Commitments: Any ``commitment to trade,'' which is 
transmitted by Nasdaq to another Non-Nasdaq ITS Participant Market 
through ITS, shall be firm and irrevocable for the period of thirty 
seconds following transmission by the sender. All such commitments to 
trade shall, at a minimum:
    (1)-(5) No change.
    [(6) designate the commitment ``short'' or ``short exempt'' 
whenever it is a commitment to sell which, if it

[[Page 69268]]

should result in an execution in the receiving market, would result in 
a short sale to which the provisions of SEC Rule 10a-1(a) under the Act 
would apply.]
    (d)-(e) No change.
* * * * *

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. The 
text of these statements may be examined at the places specified in 
Item IV below, and is set forth in sections A, B, and C below.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On June 13, 2007, the SEC voted to adopt certain amendments to SEC 
Rule 10a-1 and Regulation SHO under the Act. The amendments, among 
other things: (1) Eliminate the short sale price test contained in SEC 
Rule 10a-1; (2) add Rule 201(a) of Regulation SHO to provide that no 
price test, including any price test of any self-regulatory 
organization (``SRO''), shall apply to short sales in any security; (3) 
add Rule 201(b) of Regulation SHO to prohibit any SRO from having a 
price test; and (4) amend Rule 200(g) of Regulation SHO to remove the 
requirement that a broker-dealer mark a sell order of an equity 
security as ``short exempt'' if the seller is relying on an exception 
from the price test of Rule 10a-1, or any price test of any exchange or 
national securities association. The amendments to SEC Rule 10a-1 and 
Regulation SHO became effective on July 3, 2007, and had a July 6, 2007 
compliance date.
    The purpose of this proposed rule change is to make conforming 
changes to Nasdaq rules to reflect the elimination of SEC Rule 10a-1 
and other amendments to Regulation SHO by: (1) Eliminating references 
to SEC Rule 10a-1 in Nasdaq rules; and (2) repealing Nasdaq's short 
sale rule contained in Rule 3350 and IM-3350, as well as amending 
Nasdaq rules that reference Rule 3350 or IM-3350.
    Eliminating References to SEC Rule 10a-1 in Nasdaq Rules. 
Currently, Rule 3360 (Short-Interest Reporting) requires members to 
record and report short interest information to Nasdaq. Reportable 
short positions are those resulting from ``short sales'' as the term is 
defined in SEC Rule 200 of Regulation SHO, with the exception of 
positions that meet the requirements of subsections (e)(1), (6), (7), 
(8), and (10) of Rule 10a-1 of the Act.\4\ As a result of the repeal of 
SEC Rule 10a-1, these subsections will no longer exist. Therefore, 
Nasdaq is proposing a technical change to Rule 3360 to replace the 
references to these exceptions to SEC Rule 10a-1 with the underlying 
rule text of each provision. Nasdaq also is proposing to make 
conforming amendments to IM-4390 and Rules 4744, 4758, and 4759 to 
remove references to SEC Rule 10a-1.
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    \4\ See Nasdaq Rule 3360(b)(1).
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    Repeal of Nasdaq's Short Sale Rule. As noted above, the SEC has 
removed the restrictions on the execution prices of short sales and 
prohibited SROs from having price tests. Rule 3350 and IM-3350 
generally prohibit a member from effecting short sales in Nasdaq Global 
Market securities otherwise than on an exchange for a customer account, 
or the member's own account, at or below the current national best 
(inside) bid, when the current national best (inside) bid is below the 
preceding national best (inside) bid. As an SRO, Nasdaq now is 
prohibited from having such a short sale price test under newly adopted 
SEC Rule 201 of Regulation SHO. Accordingly, Nasdaq proposes to repeal 
its short sale rule contained in Rule 3350 and the related interpretive 
material in IM-3350 and is proposing conforming changes to IM-4390 and 
Rules 4755, 4758, and 4759 to delete references to Rule 3350 in such 
rules.
    Technical Changes. Nasdaq also proposes to make a technical change 
to the text of Rule 3360. Specifically, Rule 3360(b) provides that, 
subject to certain limited exceptions, short positions required to be 
reported under the rule are those resulting from short sales as the 
term is defined in Rule 200 of Regulation SHO. The term ``short sale'' 
is actually defined in Rule 200(a) of Regulation SHO. Therefore, Nasdaq 
is proposing to amend the text of Rule 3360 to reference Regulation SHO 
Rule 200(a), instead of Rule 200, to eliminate any confusion.
    Implementation. As noted above, Nasdaq has filed the proposed rule 
change for immediate effectiveness. Nasdaq proposes to make the 
proposed rule change operative on July 6, 2007, to coincide with the 
operative date of the amendments to SEC Rule 10a-1 and Regulation SHO.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of section 6(b)(5) of the Act,\5\ which requires, among 
other things, that Nasdaq rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest. Nasdaq believes that the proposed rule change is 
necessary and appropriate to comply with the amendments to SEC Rule 
10a-1 and Regulation SHO.
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    \5\ 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 impose 
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 on the proposed rule change 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 \6\ and Rule 19b-
4(f)(6) thereunder.\7\ Nasdaq has requested that the Commission waive 
the 5-day pre-filing notice and 30-day pre-operative period 
requirements for ``non-controversial'' proposals, based upon a 
representation that such waivers will allow Nasdaq to implement the 
rule changes to conform to currently effective changes in Regulation 
SHO and Rule 10a-1. In light of the foregoing, the Commission believes 
that waiver of the 5-day notice and 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Accordingly, the Commission has determined to waive the notice 
requirement and the operative delay,\8\ and the proposed rule change 
has become effective pursuant to section

[[Page 69269]]

19(b)(3)(A) of the Act,\9\ and Rule 19b-4(f)(6) thereunder,\10\ with no 
operative delay.
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    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 17 CFR 240.19b-4(f)(6).
    \8\ For purposes only of waiving the 30 day pre-operative 
period, the Commission has considered the impact of the proposed 
rule change on efficiency, competition and capital formation. 15 
U.S.C. 78c(f).
    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
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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.

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-2007-065 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2007-065. 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 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-2006-065 and should 
be submitted on or before December 28, 2007.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-23769 Filed 12-6-07; 8:45 am]

BILLING CODE 8011-01-P