Document ID: SEC-2008-1161-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2008-08-21T04:00Z

[Federal Register: August 21, 2008 (Volume 73, Number 163)]
[Notices]               
[Page 49512-49513]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21au08-98]                         

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58357; File No. SR-NASDAQ-2008-068]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
as Modified by Amendment No. 1 To Modify Rule 4770 To Enhance Trading 
in the NASDAQ Crossing Network

August 13, 2008.
    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 August 11, 2008, 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 this proposal as non-
controversial and provided the Commission with the notice required by 
Exchange Act Rule 19b-4(f)(6)(iii). This rule proposal, which is 
effective upon filing with the Commission, shall become operative on 
September 1, 2008. On August 13, 2008, the Exchange submitted Amendment 
No. 1 to the proposed rule change.\3\ 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\ The Commission considers the 60-day abrogation period to 
have commenced on August 13, 2008, the date the Exchange filed 
Amendment No. 1.
---------------------------------------------------------------------------

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

    Nasdaq is filing a rule proposal to modify Rule 4770 to enhance 
trading in the NASDAQ Crossing Network. Nasdaq proposes to implement 
the proposed rule change on September 1, 2008.
    The text of the proposed rule change is below. Proposed new 
language is italicized; proposed deletions are in brackets.\4\
---------------------------------------------------------------------------

    \4\ Changes are marked to the rule text that appears in the 
electronic Nasdaq Manual found at http://
nasdaqomx.cchwallstreet.com.
---------------------------------------------------------------------------

* * * * *
4770. Nasdaq Crossing Network
    (a) Definitions. For the purposes of this rule the term:
    (1) ``Nasdaq Reference Price Cross'' shall mean the process for 
executing orders at a predetermined reference price at a randomly 
selected point in time during a five-second [one minute] trading window 
beginning at 10:45 a.m., 12:45 p.m. and 2:45 p.m. Eastern Time during 
the regular hours session and at 4:30 p.m. during the after hours 
session.
    (2) No Change.
    (3) 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
    Nasdaq is filing a rule proposal to modify Rule 4770 to enhance 
trading in the NASDAQ Crossing Network. The Commission approved the 
Nasdaq Crossing Network on July 5, 2006.\5\ The Nasdaq Crossing Network 
provides an execution option to market participants trading in Nasdaq 
and other exchange-listed securities that facilitates the execution of 
trades quickly and anonymously.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 54248 (July 31, 
2006) (SR-NASDAQ-2006-019). Prior to the effective date of Nasdaq's 
operation as an exchange for Nasdaq-listed securities, the rule 
governing the Nasdaq Crossing Network had been approved as an NASD 
rule (NASD Rule 4716). Securities Exchange Act Release No. 54101 
(July 5, 2006), 71 FR 39382 (July 12, 2006) (SR-NASD-2005-140).
---------------------------------------------------------------------------

    In order to minimize the opportunity for manipulation, Nasdaq 
executes the cross through an automated and random matching mechanism 
at a randomly selected time during the predetermined one-minute cross-
trading window. Nasdaq introduced the randomization period in order to 
prevent market participants from entering or cancelling orders in the 
Nasdaq Crossing Network in an attempt to improperly influence the 
execution price of a cross. The randomization period was thought to 
protect both market participants and public investors from potential 
manipulation.
    In response to input from our members and other market 
participants, Nasdaq proposes to modify the 60-second ``randomization 
period'' of [sic] that precedes the execution of all crosses within the 
Nasdaq Crossing Network. Based upon changing market conditions, Nasdaq 
has now determined that the full benefits of the randomization period 
can be realized through a shorter randomization period of five seconds 
rather than 60 seconds.
    The speed of order routing and execution in the marketplace has 
increased substantially since the launch of the Nasdaq Crossing 
Network. As a result, a random period of five seconds is sufficient to 
create significant risk of a delayed execution outside the control of a 
market participant. In other words, there is little incremental benefit 
of a random period longer than five seconds.

[[Page 49513]]

2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Securities Exchange Act of 1934,\6\ 
in general and with Section 6(b)(5) of the Act,\7\ in particular, in 
that it is designed 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; and is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers, or to regulate by virtue of any authority 
conferred by this title matters not related to the purposes of this 
title or the administration of the exchange. The proposal satisfies 
this requirement in that it is designed to increase order interaction 
and the likelihood of execution in the Nasdaq Crossing Network while 
maintaining investor protection associated with a random delay to 
decrease the potential for manipulation.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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. To the contrary, the proposal 
is designed to enhance competition by making Nasdaq's trading mechanism 
more effective and competitive.

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) of the Act \8\ and Rule 19b-
4(f)(6) thereunder.\9\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    Nasdaq has asked the Commission to waive the operative delay to 
permit the proposed rule change to become operative on September 1, 
2008. The Commission has determined that allowing the filing to become 
operative on September 1, 2008, is consistent with the protection of 
investors and the public interest.\10\ Nasdaq has represented that it 
intends to re-launch the Nasdaq Crossing Network on September 1, 2008. 
As part of the re-launch, Nasdaq has stated that it will educate 
members regarding the liquidity, transparency and execution quality 
available through the Nasdaq Crossing Network. Nasdaq intends to also 
reduce prices to encourage participants to participate in the Crossing 
Network and thereby create a deeper source of liquidity.\11\ The 
Commission believes that allowing Nasdaq to introduce the reduced 
randomization period as part of its September 1, 2008 re-launch will 
assist market participants that utilize the Nasdaq Crossing Network in 
understanding how the system operates with the reduced randomization 
period in place.
---------------------------------------------------------------------------

    \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\ The Commission notes that any proposed change in fees must 
be filed with the Commission pursuant to Rule 19b-4. See 17 CFR 
240.19b-4.
---------------------------------------------------------------------------

    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-2008-068 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2008-068. 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 Section, 100 F Street, 
NE., Washington, DC 20549-1090 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 offices 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-2008-068 and should be submitted on or before September 11, 
2008. 
---------------------------------------------------------------------------

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

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-19351 Filed 8-20-08; 8:45 am]

BILLING CODE 8010-01-P