Document ID: SEC-2009-0582-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Order Routing
Posted Date: 2009-04-28T04:00Z

[Federal Register Volume 74, Number 80 (Tuesday, April 28, 2009)]
[Notices]
[Pages 19251-19253]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-9561]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59807; File No. SR-NASDAQ-2009-036]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Order Routing

April 21, 2009.
    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 April 17, 2009, The NASDAQ Stock Market LLC (``NASDAQ'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I and II below, which Items have been 
prepared by NASDAQ. NASDAQ has designated the proposed rule change as 
constituting a non-controversial rule change under Rule 19b-4(f)(6) 
under the Act,\3\ which renders the proposal effective upon filing with 
the Commission. 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.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASDAQ proposes to modify Rule 4758, Order Routing, to provide 
market participants with the option of entering orders that do not 
check the Nasdaq Market Center book prior to routing. NASDAQ proposes 
to implement the change with respect to Rule 4758(a)(1)(A)(i) on or 
about May 1, 2009, and will announce the exact date of implementation 
in a NASDAQ Equity Trader Alert. NASDAQ proposes to implement the 
change with respect to Rules 4758(a)(1)(A)(ii) and (iii) on a date in 
May or June 2009, to be announced in a NASDAQ Equity Trader Alert.
    The text of the proposed rule change is below. Proposed new 
language is italicized and proposed deletions are in brackets.
4758. Order Routing
    (a) Order Routing Process.
    (1) The Order Routing Process shall be available to Participants 
from 7:00 a.m. until 8:00 p.m. Eastern Time, and shall route orders as 
described below: All routing of orders shall comply with Rule 611 of 
Regulation NMS under the Exchange Act.
    (A) The System provides three routing options. Of these three, DOT 
is only available for orders ultimately sought to be directed to either 
the New York Stock Exchange (``NYSE'') or [the American Stock Exchange 
(``AMEX'')] NYSE Amex. The System will consider the quotations only of 
accessible markets. The three System routing options are:
    (i) DOT (``DOT'')--under this option, after checking the System for 
available shares if so instructed by the entering firm, orders are sent 
to other available market centers for potential execution, per entering 
firm's instructions, before being sent to the destination exchange, so 
long as the price at such market centers would not violate the Order 
Protection Rule. Any un-executed portion will thereafter be sent to the 
NYSE or [AMEX] NYSE Amex, as appropriate, at the order's original limit 
order price. This option may only be used for orders with time-in-force 
parameters of either SDAY, SIOC, MDAY, MIOC, GTMC or market-on-open/
close. Notwithstanding the foregoing, orders designated for 
participation in the NYSE or [AMEX] NYSE Amex opening or closing 
processes will not check the System for available shares prior to 
routing.
    (ii) Reactive Electronic Only (``STGY'')--under this option, after 
checking the System for available shares if so instructed by the 
entering firm, orders are sent to other available market centers for 
potential execution, per entering firm's instructions. When checking 
the book, the System will seek to execute at the price it would send 
the order to a destination market center. If shares remain un-executed 
after routing, they are posted on the book. Once on the book, should 
the order subsequently be locked or crossed by another accessible 
market center, the System shall route the order to the locking or 
crossing market center. With the exception of the Minimum Quantity 
order type, all time-in-force parameters and order types may be used in 
conjunction with this routing option.
    (iii) Electronic Only Scan (``SCAN'')--under this option, after 
checking the System for available shares if so instructed by the 
entering firm, orders are sent to other available market centers for 
potential execution, per entering firm's instructions, in compliance 
with Rule 611 under Regulation NMS. When checking the book, the System 
will seek to execute at the price it would send the order to a 
destination market center. If shares remain un-executed after routing, 
they are posted on the book. Once on the book, should the order 
subsequently be locked or crossed by another market center, the System 
will not route the order to the locking or crossing market center. With 
the exception of the Minimum Quantity order type, all time-in-force 
parameters and order types may be used in conjunction with this routing 
option.
    Orders that do not check the System for available shares prior to 
routing may not be sent to a facility of an exchange that is an 
affiliate of Nasdaq, except for orders that are sent to the NASDAQ OMX 
BX Equities Market.
    (B) No change.
    (b) 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
    In SR-NASDAQ-2008-079,\4\ NASDAQ amended Rule 4758 to provide that 
if an order is routed to the New York Stock Exchange (``NYSE'') or NYSE 
Amex and is designated as eligible for posting to the NYSE or NYSE Amex 
book, the order must check the NASDAQ book prior to routing. Routing of 
orders eligible to post at NYSE or NYSE Amex is conducted pursuant to 
NASDAQ's DOT routing strategy, as described in Rule

[[Page 19252]]

4758(a)(1)(A)(i). NASDAQ is now proposing to eliminate the requirement, 
as established by SR-NASDAQ-2008-079, that such orders check the NASDAQ 
book. The change is a response to requests from market participants for 
greater flexibility in the instructions that they may provide with 
respect to routing. Under amended Rule 4758(a)(1)(A)(i), a market 
participant may opt either to access the NASDAQ book prior to routing 
or bypass it. Similarly, the market participant may specify that the 
order should access liquidity available on one or more of the trading 
venues to which NASDAQ routes, or it may opt to have the order go 
directly to its destination exchange. In all cases, the order will 
access liquidity available on NASDAQ or other trading venues only if 
the price is consistent with the Order Protection Rule of Regulation 
NMS. NASDAQ plans to implement the change to Rule 4758(a)(1)(A)(i) on 
or about May 1, 2009, and will announce the exact date of 
implementation in a NASDAQ Equity Trader Alert.
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    \4\ Securities Exchange Act Release No. 58721 (October 2, 2008), 
73 FR 59696 (October 9, 2008) (SR-NASDAQ-2008-079).
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    The DOT routing strategy is the only strategy under which orders 
are eligible for posting to the books of away markets. NASDAQ's STGY 
and SCAN routing strategies, as described in Rule 4758(a)(1)(A)(ii) and 
(iii), currently contemplate that orders will check the NASDAQ book, 
route to away markets on an immediate-or-cancel basis, and return to 
the NASDAQ book in accordance with the time-in-force instructions of 
the order. Under STGY, the order will again route if the order's price 
is subsequently locked or crossed by another market center; under SCAN, 
the order remains on the NASDAQ book regardless of the price 
subsequently available at away markets. Orders are routed to away 
markets only if an execution at the price available at such markets 
would not violate the Order Protection Rule of Regulation NMS. At a 
later date in May or June 2009, to be announced in a NASDAQ Equity 
Trader Alert, NASDAQ will modify these routing strategies to provide 
market participants with the option of having their orders not check 
the NASDAQ book before initial routing to away markets. In all other 
respects, the routing strategies will remain unchanged.
    NASDAQ is also amending Rule 4758 to provide that if an order does 
not check the NASDAQ book for available shares prior to routing, it may 
not be sent to a facility of an exchange that is an affiliate of 
NASDAQ, with the exception of orders that are sent to the NASDAQ OMX BX 
Equities Market. In SR-NASDAQ-2008-061,\5\ which was filed in 
anticipation of the acquisition of the Boston Stock Exchange (now 
NASDAQ OMX BX) and the Philadelphia Stock Exchange (now NASDAQ OMX 
PHLX), NASDAQ stipulated that it would not route orders to affiliated 
exchanges unless the orders checked the NASDAQ book prior to routing. 
Subsequently, in SR-NASDAQ-2008-098,\6\ NASDAQ amended this restriction 
to provide that orders that do not check the NASDAQ book may be routed 
to the NASDAQ OMX BX Equities Market on a twelve-month pilot basis. As 
detailed in that filing and in a related filing by NASDAQ OMX BX,\7\ 
the lifting of the restriction was premised upon (i) NASDAQ 
establishing and maintaining procedures and internal controls 
reasonably designed to adequately restrict the flow of confidential and 
proprietary information between NASDAQ and its facilities (including 
its routing broker) and any other entity, and (ii) NASDAQ OMX BX\\ 
adopting rules and undertakings to manage the flow of confidential and 
proprietary information between NASDAQ's routing broker and NASDAQ OMX 
BX and to minimize potential conflicts of interest.
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    \5\ Securities Exchange Act Release No. 58135 (July 10, 2008), 
73 FR 40898 (July 16, 2008) (SR-NASDAQ-2008-061).
    \6\ Securities Exchange Act Release No. 59153 (December 23, 
2008), 73 FR 80485 (December 31, 2008) (SR-NASDAQ-2008-098).
    \7\ Securities Exchange Act Release No. 59154 (December 23, 
2008), 73 FR 80468 (December 31, 2008) (SR-BSE-2008-48).
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    NASDAQ's other affiliated exchange, NASDAQ OMX PHLX, ceased 
operation of its system for trading cash equities during the fourth 
quarter of 2008. As a result, NASDAQ does not currently route any cash 
equities orders to NASDAQ OMX PHLX. If, however, NASDAQ OMX PHLX were 
to resume trading of cash equities, the proposed rule language would 
restrict routing of orders to NASDAQ OMX PHLX that did not check the 
NASDAQ book prior to routing until such time as NASDAQ and NASDAQ OMX 
PHLX adopted rules and procedures comparable to those adopted by NASDAQ 
and NASDAQ OMX BX.
2. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\8\ in general, and with Section 
6(b)(5) of the Act,\9\ 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. The change will provide 
functionality that allows members to route to away markets without 
first checking the NASDAQ book, in response to members' request for 
this added flexibility. This functionality was previously in effect for 
NASDAQ's DOT routing strategy. The change places appropriate 
restrictions on routing of orders to NASDAQ's affiliated exchanges.
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    \8\ 15 U.S.C. 78f.
    \9\ 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.

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

    Written comments on the proposed rule change were neither solicited 
nor received.

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

    Because the proposed rule change: (i) Does not significantly affect 
the protection of investors or the public interest; (ii) does not 
impose any significant burden on competition; and (iii) does not become 
operative for 30 days after the date of the filing, or such shorter 
time as the Commission may designate if consistent with the protection 
of investors and the public interest, the proposed rule change has 
become effective pursuant to Section 19(b)(3)(A) of the Act \10\ and 
Rule 19b-4(f)(6) thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under 19b-4(f)(6) normally may not 
become operative prior to 30 days after the date of filing.\12\ 
However, Rule 19b-

[[Page 19253]]

4(f)(6)(iii) \13\ permits the Commission to designate a shorter time if 
such action is consistent with the protection of investors and the 
public interest. NASDAQ has requested that the Commission waive the 30-
day operative delay. The Commission notes that NASDAQ's proposal is 
substantially similar to the rule of another national securities 
exchange and does not raise any new substantive issues.\14\ NASDAQ 
states that waiving the operative delay will allow NASDAQ to compete 
more effectively by putting its new functionality in effect without 
undue delay.\15\ For these reasons, the Commission believes that 
waiving the 30-day operative delay is consistent with the protection of 
investors and the public interest, and designates the proposed rule 
change to be operative upon filing with the Commission.\16\
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    \12\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires that a self-regulatory organization submit to 
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. NASDAQ has satisfied this requirement.
    \13\ Id.
    \14\ See BATS Exchange Rule 11.9(c)(12).
    \15\ See SR-NASDAQ-2009-036, Item 7.
    \16\ For the purposes only of waiving the 30-day operative 
delay, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    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.

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-2009-036 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2009-036. 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 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-2009-036 and should 
be submitted on or before May 19, 2009.
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    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-9561 Filed 4-27-09; 8:45 am]
BILLING CODE 8010-01-P