Document ID: SEC-2009-0208-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2009-02-13T05:00Z

[Federal Register: February 13, 2009 (Volume 74, Number 29)]
[Notices]               
[Page 7278-7279]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13fe09-90]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59369; File No. SR-NASDAQ-2008-097]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order 
Granting Approval of Proposed Rule Change To Adopt a Limited Exemption 
from OATS Order Data Recordation Requirements for Registered Options 
Market Makers

February 6, 2009.
    On December 12, 2008, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder, \2\ a 
proposed rule change to adopt a limited exemption from OATS order data 
recordation requirements for registered options market makers. The 
proposed rule change was published in the Federal Register on January 
2, 2009.\3\ The Commission received one comment letter expressing 
support for the proposal.\4\ This order approves the proposed rule 
change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 59163 (December 24, 
2008), 74 FR 160.
    \4\ See letter from Greg O'Connor, Compliance Manager, Wolverine 
Execution Services, LLC to Florence E. Harmon, Acting Secretary, 
Commission, dated January 23, 2009.
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    The Exchange proposes to amend the definition of ``Order'' 
contained in Nasdaq Rule 6951 to create a limited exemption from OATS 
order recordation requirements for bona fide hedging transactions in 
Nasdaq-listed equity securities originated by a trading desk in the 
ordinary course of the member's market making activity in options. The 
proposal applies to an options transaction on any options market in any 
standardized option made available for clearing through the Options 
Clearing Corporation.
    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange, in 
particular, with Section 6 of the Act \5\ and the rules and regulations 
thereunder. Specifically, the Commission finds that the proposal is 
consistent with Section 6(b)(5) of the Act,\6\ which requires, among 
other things, that the Exchange's proposal be 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 regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest.\7\
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    \5\ 15 U.S.C. 78f.
    \6\ 15 U.S.C. 78f(b)(5).
    \7\ In approving the proposed rule change the Commission has 
considered the propose rule's impact on efficiency, competition and 
capital formation. See 15 U.S.C. 78c(f).
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    OATS is an integrated audit trail of order, quote, and trade 
information for Nasdaq-listed equity securities used to recreate events 
in the life cycle of orders and more completely monitor the trading 
practices of member firms. OATS was designed to provide an accurate, 
time-sequenced record of orders and transactions, beginning with the 
receipt of an equity order at the first point of contact between the 
broker-dealer and the customer or counterparty and further documenting 
the life of the equity order through the process of execution. Thus, 
OATS captures information that can be used to surveil for trading 
abuses that would undermine the integrity of the market and harm 
investors.\8\ There is an exemption from the OATS requirements for 
instructions to effect proprietary transactions originated by a trading 
desk in the ordinary course of a member's market making activities.\9\ 
Further, the Nasdaq rules provide an exemption from OATS transmission 
requirements for orders entered by proprietary trading firms.\10\
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    \8\ See Securities Exchange Act Release No. 39729 (March 6, 
1998), 63 FR 12559 (March 13, 1998).
    \9\ See Nasdaq Rule 6951(i).
    \10\ See Nasdaq Rule 6955(b).
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    The Commission notes that Nasdaq believes that because bona fide 
hedging transactions in equity securities are undertaken by an options 
market maker to hedge against the firm risk that it creates through its 
conduct as a registered options market maker, submitting bona fide 
hedging transactions to OATS recording requirements provides no 
customer protection or equivalent regulatory benefit. Additionally, the 
Commission notes that Nasdaq believes that it is very expensive for 
firms that are not currently FINRA members or that do not currently 
trade NASDAQ equities to develop and maintain the compliance systems 
and compliance staff required to continuously monitor the daily 
transmission of OATS data.
    Similarly to the aforementioned OATS exemptions, the Commission

[[Page 7279]]

does not believe that the limited exemption proposed in this filing by 
Nasdaq would negatively impact the objectives of OATS. The Commission 
therefore believes that it is consistent with the Act to adopt a 
limited exemption from the OATS order recordation requirement for bona 
fide hedging transactions in Nasdaq-listed equity securities that are 
part of a Nasdaq's member's market making activity in options.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-NASDAQ-2008-097) be, and it 
hereby is, approved.
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    \11\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-3096 Filed 2-12-09; 8:45 am]

BILLING CODE 8011-01-P