Document ID: SEC-2009-0005-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2009-01-02T05:00Z

[Federal Register: January 2, 2009 (Volume 74, Number 1)]
[Notices]               
[Page 160-161]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02ja09-65]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59163; File No. SR-NASDAQ-2008-097]

 
Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by The NASDAQ Stock Market LLC Adopting a Limited Exemption From 
OATS Order Data Recordation Requirements for Registered Options Market 
Makers

December 24, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on December 12, 2008, 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. 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 proposes to adopt a limited exemption from OATS order data 
recordation requirements for Bona Fide Hedging Transactions in Nasdaq-
listed equities that are transacted by Nasdaq members that are 
registered market makers in standardized options.
    The text of the proposed rule change is below. Proposed new 
language is in italics; proposed deletions are in [brackets].\3\
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    \3\ Changes are marked to the rule text that appears in the 
electronic manual of Nasdaq found at http://nasdaq.complinet.com.
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* * * * *

6951. Definitions

    For purposes of the Rule 6950 Series:
    (a)-(h) No change.
    (i) ``Order'' shall mean any oral, written, or electronic 
instruction to effect a transaction in an equity security listed on 
The Nasdaq Stock Market that is received by a member from another 
person for handling or execution, or that is originated by a 
department of a member for execution by the same or another member, 
other than any such instruction to effect (1) a proprietary 
transaction originated by a trading desk in the ordinary course of a 
member's market making activities in a Nasdaq-listed equity security 
or (2) effect a Bona Fide Hedge Transaction involving a Nasdaq-
listed equity security originated by a trading desk in the ordinary 
course of the member's options market making activities.
    (j)-(n) 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 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
    Nasdaq proposes to modify its OATS rules to adopt a limited 
exemption from OATS order recordation requirements for bona fide 
hedging transactions in Nasdaq-listed equity securities that are part 
of a Nasdaq member's market

[[Page 161]]

making activity in options. The proposal applies to options transaction 
on any options market in any standardized option made available for 
clearing through the Options Clearing Corporation.
    OATS is an integrated audit trail of order, quote, and trade 
information for Nasdaq equity securities used to recreate events in the 
life cycle of orders and more completely monitor the trading practices 
of member firms. The basis for OATS is customer protection through the 
transparency of the executions of customer orders in equity securities. 
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.
    Consistent with that basis, there is currently no OATS requirement 
with respect to options listed on the NASDAQ Options Market. 
Additionally, there are currently exemptions from OATS requirements for 
orders entered by market makers in Nasdaq securities and by proprietary 
trading firms because such orders are not submitted on behalf of 
customers and therefore do not necessitate the customer protection 
provided by OATS.
    The proposed rule change does not impact the customer protection 
orientation of OATS since, by definition, bona fide hedging 
transactions in equity securities that are undertaken by options market 
makers do not involve customer orders in those equity securities. 
Rather, 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. Accordingly, submitting bona fide hedging transactions to OATS 
recording requirements provides no customer protection or equivalent 
regulatory benefit. It is also 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.
    Additionally, information regarding bona fide hedging transactions 
retained by a registered NOM market maker is otherwise available to 
FINRA and Nasdaq Regulation through Nasdaq's electronic delivery 
systems, upon request. This information includes trade reporting data, 
including order time and sales data captured by the Nasdaq system.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\4\ in general, and with Section 
6(b)(5) of the Act,\5\ in particular, in that the proposal 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 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.
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    \4\ 15 U.S.C. 78f.
    \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 result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self regulatory organization consents, the Commission will:
    (A) By order approve the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be 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-2008-097 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-2008-097. 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 the filing also will be available for 
inspection and copying at the principal office 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-2008-097 and should 
be submitted on or before January 23, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-31203 Filed 12-31-08; 8:45 am]

BILLING CODE 8011-01-P