Document ID: SEC-2007-1711-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: NASDAQ Stock Market LLC
Posted Date: 2007-12-14T05:00Z

[Federal Register: December 14, 2007 (Volume 72, Number 240)]
[Notices]               
[Page 71176-71178]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14de07-79]                         

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56929; File No. SR-NASDAQ-2007-086]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Regarding Step-Outs and Transfers of Sales Fees

December 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 October 31, 2007, 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 primarily by Nasdaq. Nasdaq has filed the 
proposal pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6) thereunder,\4\ so that the proposal was effective upon filing 
with the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \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)(6).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    Nasdaq proposes to: (i) Offer, for a fee, a match/compare service 
for Nasdaq members to process step-outs between themselves and (ii) 
allow the transfer of Rule 7002 Sales Fees and similar fees of other 
self-regulatory organizations (``SROs'') without an agreement between 
the transferring Nasdaq members when such transfers are accompanied by 
a transfer of the underlying shares.

[[Page 71177]]

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

    Nasdaq Rule 7038 enables Nasdaq members to utilize Nasdaq's 
Automated Confirmation Transaction Service (``ACT'') to transfer all or 
a portion of the member's obligation to pay a NASD Rule 7002 sale fee 
or similar fee of another SRO (``sales fees'').\5\ In addition, Nasdaq 
members may also use ACT to process step-outs.\6\
---------------------------------------------------------------------------

    \5\ Nasdaq Rule 7038(a). Rule 7002 fees are designed to defray 
the costs that Nasdaq pays to the Commission under Section 31(b) of 
the Act. 15 U.S.C. 78ee(b).
    \6\ Nasdaq Rule 7038(b). A ``step-out'' is a mechanism for 
transferring a broker's position in a security in a manner that does 
not constitute a trade. In one form of a step-out, a party to a 
previously executed trade transfers its position in the trade to one 
or more other parties. For example, a broker that buys a large block 
of stock on behalf of several broker-dealer customers may ``step-
out'' of the trade in order to transfer and allocate its position to 
its broker-dealer customers. Thus, under this form of a step-out, 
there is a single trade on a securities market coupled with an 
arrangement between one of the trade counterparties and one or more 
additional parties to shift the settlement obligations for the trade 
to the additional parties. In another form of step-out, a broker 
uses a clearing-only report to transfer its position from at one 
clearing broker's account to another clearing broker's account.
---------------------------------------------------------------------------

    Under the rule change, Nasdaq will modify Nasdaq Rule 7038(c) to 
specify that when members use ACT to transfer sales fees but do not 
also transfer the underlying shares, the clearing firms for the trades 
in question must be party to an agreement authorizing such transfers 
between themselves or the firms on whose behalf they clear trades.\7\
---------------------------------------------------------------------------

    \7\ Examples of such an agreement include a Nasdaq ``Attachment 
2'' or the Financial Industry Regulatory Authority's (``FINRA'') new 
Uniform Trade Reporting Facility Service Bureau/Executing Broker 
Agreement.
---------------------------------------------------------------------------

    Nasdaq is also adding new paragraph (f) to Nasdaq Rule 7038 that 
will enable Nasdaq members to use ACT's ``match/compare'' functionality 
to process step-outs without an agreement between the transferring 
Nasdaq members when such transfers are accompanied by a transfer of the 
underlying shares. Nasdaq will assess a fee for this service whereby 
each party to a matched/compared transfer will be assessed $0.0144 per 
100 shares with a minimum of 400 shares up to maximum of 7,500 shares 
except in cases where the same participant is on both sides of a 
transfer in which case the applicable per side fee will be assessed 
once rather than twice.
    Nasdaq states that it believes that the proposed rule change is 
consistent with the provisions of Section 6 of the Act \8\ and 
specifically with Sections 6(b)(4) and (5) of the Act \9\ because the 
proposal 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 and 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. Nasdaq 
believes that offering match/compare functionality in connection with 
step-outs and reducing paperwork requirements for Sales Fee transfers 
benefits its members by enhancing the efficiency of their post-trade 
operations and that its proposed fees are reasonable and comparable to 
similar Financial Industry Regulatory Authority (``FINRA'') fees for 
comparison services.\10\
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(4) and (5).
    \10\ See NASD Rule 7002B.
---------------------------------------------------------------------------

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

    Nasdaq did not solicit or receive written comments on the proposed 
rule change.

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) of the Act \11\ and Rule 19b-4(f)(6) thereunder\12\ because 
it does not: (1) Significantly affect the protection of investors or 
the public interest; (2) impose any significant burden on competition; 
and (3) become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 C.F.R. 240.19b-4(f)(6).
---------------------------------------------------------------------------

    Nasdaq has requested that the Commission waive the 30-day operative 
delay pursuant to the Commission's authority under Rule 19b-
4(f)(6)(iii) \13\ to designate a shorter time when such action is 
consistent with the protection of investors and the public interest. 
The Commission hereby grants the request.\14\ The Commission believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest in light of a FINRA 
rule, which became effective two business days after Nasdaq filed its 
proposed rule change that requires all shares that underlie a step-out 
transaction have been previously trade-reported to FINRA-only 
facilities.\15\ In order to ensure that firms can use the same method 
to conduct step-out trades, it is appropriate for Nasdaq to be able to 
implement its match/compare functionality on an accelerated basis so 
that it can be in place for firms that wish to do step-outs through the 
match and compare functionality for shares that were not exclusively 
reported over-the-counter before the FINRA restriction became 
effective. Moreover, the Commission notes that the match/compare 
functionality has long existed at Nasdaq and that the modifications 
made by this rule change do not raise any novel legal or policy 
concerns. Accordingly, the Commission designates the proposed rule 
change to be operative upon filing with the Commission.
---------------------------------------------------------------------------

    \13\ 17 C.F.R. 240.19b-4(f)(6)(iii).
    \14\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
    \15\ Securities Exchange Act Release No. 55962 (Jun. 26, 2007), 
72 FR 36536 (Jul. 3, 2007) [SR-NASD-2007-040]. See also FINRA 
Regulatory Notice 07-38 (Aug. 2007), available online at  http://www.finra.org/web/groups/rules_regs/documents/notice_to_members/p036643.pdf
.

---------------------------------------------------------------------------

    Rule 19b-4(f)(6)(iii) requires Nasdaq to notify the Commission 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. Nasdaq has 
requested that the Commission designate a shorter

[[Page 71178]]

notification time. The Commission hereby waives the five-day notice 
period. As explained above, it was necessary for Nasdaq to file its 
proposed rule change expeditiously so as to avoid any disruption in 
service to its members.
    At any time within 60 days of the filing of such 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 No. SR-NASDAQ-2007-086 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 No. NASDAQ-2007-086. 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, 450 Fifth Street, NW., 
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 Nasdaq's principal office and on Nasdaq's Web 
site at http://nasdaq.complinet.com/nasdaq/display/display.html?rbid=1705&element_id=4.
 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 submission 
should refer to File No. SR-NASDAQ-2007-086 and should be submitted on 
or before January 4, 2008.

    For the Commission by the Division of Trading and Markets 
pursuant to delegated authority.\16\
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-24201 Filed 12-12-07; 8:45 am]

BILLING CODE 8011-01-P