Document ID: SEC-2015-1150-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2015-07-13T04:00Z

[Federal Register Volume 80, Number 133 (Monday, July 13, 2015)]
[Notices]
[Pages 40098-40100]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-16976]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75375; File No. SR-NASDAQ-2015-066]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to 
Amend the Definition of Designated Retail Order in Nasdaq Rule 7018

July 7, 2015.
    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 24, 2015, The NASDAQ Stock Market LLC (``Nasdaq'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in in Items I 
and II 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 amend the definition of ``Designated Retail 
Order'' in Nasdaq Rule 7018.
    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, 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
    The Exchange proposes to amend the definition of ``Designated 
Retail Order'' (``DRO'') in Nasdaq Rule 7018 in order to clarify it and 
make it more consistent with the definition of ``Retail Order'' as 
previously set forth in Nasdaq Rule 4780(a)(2) (eliminated by the 
recently approved SR-NASDAQ-2015-024), BATS Y-Exchange, Inc. (``BATS'') 
Rule 11.24(a)(2) \3\ and NYSE Arca, Inc. (``NYSE Arca'') Rule 
7.44(a)(3) \4\, as well as how it is defined in within the BATS Retail 
Member Organization Application Form (``BATS Form'').\5\ The Exchange 
will also update its Designated Retail Order Attestation form \6\ 
(``Attestation Form'') to be consistent with the proposed rule change. 
Pursuant to previous approvals, any and all members are required to 
submit a retail order attestation form to the specific exchange before 
submitting a retail order to that exchange.\7\
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    \3\ See BATS Rule 11.24(a)(2).
    \4\ See NYSE Arca Rule 7.44(a)(3).
    \5\ See http://cdn.batstrading.com/resources/membership/BYX_Retail_Member_Organization_Application.pdf.
    \6\ See http://www.nasdaqtrader.com/content/AdministrationSupport/AgreementsTrading/dro_eligibility_form.pdf.
    \7\ See e.g., Securities Exchange Act Release No. 69719 (June 7, 
2013), 78 FR 35656 (June 13, 2014) (SR-NASDAQ-2013-031); Securities 
Exchange Act Release No. 69643 (May 28, 2013), 78 FR 33136 (June 3, 
2014) (SR-BYX-2013-008); and Securities Exchange Act Release No. 
69513 (May 3, 2013), 78 FR 27261 (May 9, 2014) (SR-NYSE-2013-08).
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    As mentioned above, the proposed changes to the DRO definition in 
Nasdaq Rule 7018, as well as the corresponding changes to Nasdaq's 
Attestation Form, will be consistent with the recently eliminated 
Nasdaq Rule 4780 and in line with the revisions made by BATS to the 
BATS Form. Specifically, BATS updated its BATS Form to include three 
key elements: \8\ (1) To ensure that the order is a riskless principal 
order that meets the criteria of

[[Page 40099]]

FINRA Rule 5320.03; \9\ (2) to state that an order from a ``natural 
person'' can include orders on behalf of accounts that are held in a 
corporate legal form, such as an Individual Retirement Account 
(``IRA''), Corporation, or a Limited Liability Company (``LLC'') that 
has been established for the benefit of an individual or group of 
related family members, provided that the order is submitted by an 
individual; and (3) to include the standard that members have 
implemented policies and procedures that are reasonably designed to 
ensure that ``substantially all'' orders (rather than the previous 
standard that ``every order'') that are designated by the member as 
retail orders comply with these requirements. Nasdaq believes that 
inclusion in the DRO definition of an individual making the decision 
even if the account is held in corporate legal form qualifies as a 
``non-controversial'' rule change under Rule 19b-4(f)(6) and is not a 
significant change from existing rules on other exchanges.
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    \8\ Supra note 5.
    \9\ See FINRA Rule 5320.03 (the riskless principal exception to 
the ``Prohibition Against Trading Ahead of Customer Orders'' FINRA 
rule).
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    Consequently, Nasdaq will amend Nasdaq Rule 7018 to reflect the 
changes to the definition of DRO discussed above and amend its 
Attestation Form accordingly.
2. Statutory Basis
    Nasdaq believes that its proposal is consistent with the 
requirements of the Act and the rules and regulations thereunder that 
are applicable to a national securities exchange, and, in particular, 
with the requirements of Section 6(b) of the Act.\10\ In particular, 
the Exchange believes the proposed change furthers the objectives of 
Section 6(b)(5) of the Act,\11\ in that it 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 facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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    The Exchange also believes that the proposed rule change to amend 
and clarify the definition of DRO in Nasdaq Rule 7018 is consistent 
with these principles because it would remove impediments to and 
perfects the mechanism of a free and open market and a national market 
system, as well as increases competition among execution venues and 
encourages additional liquidity. Specifically, the amended DRO 
definition is consistent with Nasdaq Rule 4780(a)(2) (eliminated by the 
recently approved SR-NASDAQ-2015-024), NYSE Arca Rule 7.44(a)(3) and 
BATS Rule 11.24(a)(2), and as defined in the BATS Form.\12\ As BATS has 
done with its BATS Form, the Exchange's proposed rule change amending 
the DRO definition will be more inclusive and benefits the individual 
investor who places his or her money into accounts that are held in a 
corporate legal form (e.g., an IRA, Corporation, or an LLC that has 
been established for the benefit of an individual or group of related 
family members), provided that the order has been submitted by an 
individual. As a result, the price discovery is enhanced as more retail 
investors will have the opportunity to avail themselves of DROs. Under 
the current rule and attestation, only a small segment of the retail 
market is included. The proposed rule change widens the net and affords 
more retail investors and their broker-dealers that route these orders 
greater opportunities.
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    \12\ Supra note 5.
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    Further, although the change from ``every order'' to 
``substantially all orders'' slightly reduces the monitoring risk 
placed on broker-dealers, the Exchange believes that this slightly 
lower burden will encourage and provide reasonable incentives for 
retail-focused broker-dealers to route retail orders to the Exchange 
for the benefit of the price discovery process and for all market 
participants with enhanced retail liquidity and trading opportunities.
    The Exchange believes that the amended DRO definition increases 
competition among execution venues and encourages additional liquidity 
by incentivizing more DROs to be routed to the Exchange, which will 
bring additional liquidity onto the Exchange. Additionally, the 
proposed rule change will improve the markets and create a more 
competitive environment, as well as bring more order flow, which, in 
turn, enhances the price discovery process on the Exchange. The 
Exchange believes that the transparency and competitiveness of the 
proposed rule change will result in better prices for retail investors.
    The Exchange also believes that the proposed rule change is 
consistent with these principles in that it creates a financial 
incentive to bring more than just retail order flow from individual or 
joint ownership accounts to the public market. The proposed rule change 
also encourages retail order flow that is in other forms of account 
registration employed by retail investors (as is the case with an IRA), 
which broadens it beyond just basic retail order flow. It also includes 
order flow from members that use other forms of account registration 
for tax reasons, retirement or pension savings, for families and other 
related retail investors.
    Nasdaq also believes that the proposed rule change to the 
definition of DRO in Nasdaq Rule 7018 qualifies as a ``non-
controversial'' rule change under Rule 19b-4(f)(6) because it is not 
novel and serves to put the Exchange on equal footing with BATS. It 
simply recognizes that an order from a ``natural person'' may include 
orders based on an individual making the decision (rather than an 
algorithm), even if the account is held in an IRA, Corporation, or an 
LLC that has been established for the benefit of an individual or group 
of related family members. Nasdaq further believes that inclusion in 
the DRO definition of an individual making the decision even if the 
account is held in corporate legal form qualifies as a ``non-
controversial'' rule change under Rule 19b-4(f)(6) and is not a 
significant change from existing rules on other exchanges. The Exchange 
believes that this proposed rule change and the proposed rule change to 
modify the standard that members have implemented policies and 
procedures that are reasonably designed to ensure that ``substantially 
all'' rather than ``every'' order are minor enough changes to qualify 
the filing as non-controversial, which is consistent with previous 
approvals.
    For the above reasons, Nasdaq believes the proposed rule change is 
consistent with the requirements of Section 6(b)(5) of the Act.\13\
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    \13\ 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 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The Exchange 
believes that competition improves by incentivizing more DROs to be 
routed to the Exchange, which will bring additional liquidity onto the 
Exchange as well. The definition of DRO, as amended, will improve the 
markets and create a more competitive environment, as well as bring 
more order flow and, therefore, more market makers onto the Exchange to 
provide liquidity and compete with robust competitive markets.

[[Page 40100]]

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

    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)(ii) of the Act \14\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(a)(ii).
    \15\ 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, 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 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: (i) 
necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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. The Exchange has 
provided 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.

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 email to rule-comments@sec.gov. Please include 
File Number
    SR-NASDAQ-2015-066 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, Station Place, 100 F Street NE., Washington, 
DC 20549-1090.
    All submissions should refer to File Number SR-NASDAQ-2015-066. 
This file number should be included on the subject line if email 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 10:00 a.m. and 
3:00 p.m. Copies of the 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 available publicly.
    All submissions should refer to File Number SR-NASDAQ-2015-066 and 
should be submitted on or before August 3, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-16976 Filed 7-10-15; 8:45 am]
 BILLING CODE 8011-01-P