Document ID: SEC-2007-0373-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: NASDAQ Stock Market LLC
Posted Date: 2007-03-13T04:00Z

[Federal Register: March 13, 2007 (Volume 72, Number 48)]
[Notices]               
[Page 11413-11414]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13mr07-92]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55413; File No. SR-NASDAQ-2007-013]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change as 
Modified by Amendment No. 1 to Assess a Fee for Unsuccessful Appeals 
Under Rule 11890

March 7, 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 February 27, 2007, The NASDAQ Stock Market LLC (``Nasdaq'' or the 
``Exchange'') 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 substantially prepared by Nasdaq. 
Nasdaq submitted the proposed rule change under Section 19(b)(3)(A) of 
the Act \3\ and Rule 19b-4(f)(2) thereunder,\4\ which renders the 
proposal effective upon filing with the Commission. On March 1, 2007, 
the Exchange filed Amendment No. 1 to the proposed rule change. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to assess a fee for unsuccessful appeals under Rule 
11890. Nasdaq expects to implement the proposed rule change as of March 
1, 2007.
    The text of the proposed rule change is available on the Nasdaq's 
Web site at http://www.nasdaq.com, at Nasdaq's Office of the Secretary, 

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 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 is amending Rule 11890, which covers the breaking of trades 
determined to be clearly erroneous, to add a new Rule 11890(c)(4) that 
would assess a fee of $500.00 for unsuccessful appeals of clearly 
erroneous adjudications.
    Rule 11890(c) provides that the losing party may appeal decisions 
made by Nasdaq officers on whether or not to break trades. Appeals are 
heard by the Market Operations Review Committee (``MORC''), a committee 
of up to 15 volunteers who are not affiliated with Nasdaq. Each appeal 
is heard by a panel of two or three MORC members who must take time 
from their work or personal activities to prepare for and hear the 
appeal. In addition, appeals take significant staff time to perform a 
number functions including: processing the appeal, contacting the 
counterparties, communicating with MORC members to determine 
availability, preparing briefing materials on the circumstances of the 
trade(s) and communicating the MORC's decision to the parties. Nasdaq 
estimates that on average the appeals process takes from four to five 
person-hours to complete including staff and panel time.

[[Page 11414]]

    Nasdaq is concerned that some members have abused the appeals 
process by appealing all decisions in which they are involved 
regardless of merit or the value of shares at issue. During December 
2006 and January 2007, five firms were responsible for 44% of all 
appeals. Two appeals were for odd lot amounts, including one appeal for 
just 50 shares. Of the appeals during this two-month period, 77% of 
appeals were upheld by the MORC and 23% resulted in trade adjustments. 
These statistics suggest that parties are overusing and abusing the 
appellate system because there is no downside risk. A number of the 
appeals involve trades that do not meet the numerical thresholds and 
other factors used in adjudicating clearly erroneous filings set forth 
in IM-11890-4 and IM-11890-5. As a result, the MORC is often serving as 
a redundant decision maker in cases where the outcome is not 
legitimately in question. This is not the role Nasdaq intended when it 
established the appeals process using the MORC.
    In order to reduce the number of frivolous appeals and to preserve 
Nasdaq's ability to attract qualified persons to serve on the MORC, 
Nasdaq is proposing a modest fee of $500.00 that will be levied only in 
cases where the MORC upholds the Nasdaq officer's decision. Firms would 
not be charged for successful appeals. Nasdaq believes that this fee 
will encourage members to consider whether the facts and economic value 
at stake merit appellate consideration. Nasdaq notes that NYSE Arca 
Equities, Inc. (``NYSE Arca'') recently adopted a similar $500.00 
appellate fee in order to reduce apparent abuses of the appeals process 
on that exchange.\5\
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    \5\ Securities Exchange Act Release No. 54655 (October 26, 
2006), 71 FR 64596 (November 2, 2006) (SR-NYSEArca-2006-48).
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2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\6\ in general, and with Section 
6(b)(4) of the Act,\7\ in particular, in that the proposed rule change 
provides for the equitable allocation of reasonable dues, fees, and 
other charges among members and issuers and other persons using any 
facility or system which Nasdaq operates or controls. Nasdaq believes 
that the modest fee of $500 for an unsuccessful appeal under Rule 11890 
will be equitably assessed against members that impose burdens on the 
time of Nasdaq staff and MORC members by filing appeals that lack 
merit.
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    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(4).
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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.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act \8\ and paragraph (f)(2) of Rule 19b-4\9\ 
thereunder. 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.\10\
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    \8\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \9\ 17 CFR 240.19b-4(f)(2).
    \10\ For the purposes of calculating the 60-day abrogation 
period, the Commission considers the proposed rule change to have 
been filed on March 1, 2007, when Amendment No. 1 was filed.
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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-2007-013 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-NASDAQ-2007-013. 
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. Copies of such 
filing also will be available for inspection and copying at the 
principal office of the 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-2007-013 and should be submitted on or before 
April 3, 2007.

    For the Commission, by the Division of Market Regulation, 
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. E7-4506 Filed 3-12-07; 8:45 am]

BILLING CODE 8010-01-P