Document ID: SEC-2009-1557-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Modify Its Optional Anti-Internalization Functionality
Posted Date: 2009-11-04T05:00Z

[Federal Register: November 4, 2009 (Volume 74, Number 212)]
[Notices]               
[Page 57214-57215]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04no09-114]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60893; File No. SR-NASDAQ-2009-089]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Modify Its Optional Anti-Internalization Functionality

October 28, 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 October 14, 2009, The NASDAQ Stock Market LLC (the ``Exchange'' or 
``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 its optional anti-internalization 
functionality.
    The text of the proposed rule change is below. Proposed new 
language is italicized and proposed deletions are in brackets.\4\
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    \4\ Changes are marked to the rules of The NASDAQ Stock Market 
LLC found at http://nasdaqomx.cchwallstreet.com.
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* * * * *
4757. Book Processing
    (a) System orders shall be executed through the Nasdaq Book Process 
set forth below:
    (1)-(3) No Change.
    (4) Exception: Anti-Internalization--Market participants may direct 
that quotes/orders entered into the System not execute against quotes/
orders entered under the same MPID. In such a case, a market 
participant may elect from the following options;
    (i) if the interacting quotes/orders from the same MPID are 
equivalent in size, both quotes/orders will be cancelled back to their 
entering parties. If the interacting quotes/orders from the same MPID 
are not equivalent in size, share amounts equal to the size of the 
smaller of the two quotes/orders will be cancelled back to their 
originating parties with the remainder of the larger quote/order being 
retained by the System for potential execution[.]; or
    (ii) regardless of the size of the interacting quotes/orders, 
cancelling the oldest of them in full.
* * * * *

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 proposing to provide an additional alternative to its 
voluntary anti-internalization functionality. Under the proposal, 
market participants will be given an additional option when entering 
quotes and orders using the same market participant identifier 
(``MPID'') that they do not wish to have automatically interact with 
each other in the System. This option will direct the System to not 
execute any part of the interacting quotes/orders from the same MPID 
and, instead, cancel the oldest of the interacting quotes/orders back 
to the entering party.
    Anti-internalization processing is available only on an individual 
MPID-wide basis with only a single option being allowed per MPID. 
Market participants direct that a particular version of anti-
internalization processing be applied to a particular MPID, which is 
then applied by the system to all quotes/orders entered using that 
MPID.
    Anti-internalization functionality is designed to assist market 
participants in complying with certain rules and regulations of the 
Employee Retirement Income Security Act (``ERISA'') that preclude and/
or limit managing broker-dealers of such accounts from trading as 
principal with orders generated for those accounts. It can also assist 
market participants in reducing execution fees potentially resulting 
from the interaction of executable buy and sell trading interest from 
the same firm. Nasdaq notes that use of the functionality does not 
relieve or otherwise modify the duty of best execution owed to orders 
received from public customers. As such, market participants using 
anti-internalization functionality will need to take appropriate steps 
to ensure that public customer orders that do not execute because of 
the use of anti-internalization functionality ultimately receive the 
same execution price (or better) they would have originally obtained if 
execution of the order was not inhibited by the functionality.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\5\ in general, and with 
Sections [sic] 6(b)(5) of the Act,\6\ in particular, in that the

[[Page 57215]]

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. 
Nasdaq notes that similar functionality has previously [sic] approved 
for other markets.\7\
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    \5\ 15 U.S.C. 78f.
    \6\ 15 U.S.C. 78f(b)(5).
    \7\ See BATS Exchange Rule 11.9(f)(2) and NYSE Arca Equities 
Rule 7.31(qq)(2).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq does not believe that the proposed rule change will impose 
any burden on competition 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

    No written comments were either solicited or received.

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

    Because the foregoing proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms does not become operative for 30 days after the 
date of this 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 \8\ and Rule 19b-4(f)(6) thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to provide the Commission 
with 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 fulfilled this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. The Exchange requests that the Commission waive 
the 30-day operative delay so that the benefits of this functionality 
to Nasdaq market participants expected from the rule change can be 
implemented on or about November 2, 2009, when the Exchange expects to 
have the technological changes in place to support the proposed rule 
change. The Commission believes that waiving the 30-day operative delay 
\10\ to make this functionality available on November 2, 2009 is 
consistent with the protection of investors and the public interest. 
The Commission notes that the proposal is similar to rules of other 
exchanges.\11\ Therefore, the Commission designates the proposal 
operative on November 2, 2009.
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    \10\ 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. See 15 U.S.C. 
78c(f).
    \11\ See BATS Exchange Rule 11.9(f) and NYSE Arca Equities Rule 
7.31(qq).
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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-2009-089 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-2009-089. 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 such 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-2009-089 and should 
be submitted on or before November 25, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-26511 Filed 11-3-09; 8:45 am]

BILLING CODE 8011-01-P