Document ID: SEC-2012-2060-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2012-12-14T05:00Z

[Federal Register Volume 77, Number 241 (Friday, December 14, 2012)]
[Notices]
[Pages 74538-74540]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-30164]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68389; File No. SR-NASDAQ-2012-122]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend and Adopt Several NASDAQ Rules To Reflect Changes to Rules of the 
Financial Industry Regulatory Authority (``FINRA'')

December 10, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on November 26, 2012, The NASDAQ Stock Market LLC (the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II

[[Page 74539]]

below, which Items have been prepared by the Exchange. The Exchange 
filed the proposal as a ``non-controversial'' proposed rule change 
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ 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\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 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

    The Exchange proposes to amend and adopt several NASDAQ rules to 
reflect changes to rules of the Financial Industry Regulatory Authority 
(``FINRA''). NASDAQ will implement the proposed rule change thirty days 
after the date of the filing. The text of the proposed rule change is 
available at http://nasdaq.cchwallstreet.com, at NASDAQ's principal 
office, 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, the Exchange 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. The Exchange 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Many of NASDAQ's rules governing member conduct are based on rules 
of FINRA (formerly the National Association of Securities Dealers 
(``NASD'')). During 2008, FINRA embarked on an extended process of 
moving rules formerly designated as ``NASD Rules'' into a consolidated 
FINRA rulebook. In most cases, FINRA has renumbered these rules, and in 
some cases has substantively amended them. Accordingly, NASDAQ has also 
been undertaking a process of modifying its rulebook to ensure that 
NASDAQ rules corresponding to FINRA/NASD rules continue to mirror them 
as closely as practicable. To the extent possible, NASDAQ will 
designate a NASDAQ rule that is intended to parallel a FINRA rule with 
the suffix ``A''. For example, the NASDAQ rule paralleling FINRA Rule 
2090 will be designated as Rule 2090A. This filing makes the following 
changes:
    (1) NASDAQ is adopting Rule 5310A, which incorporates FINRA Rule 
5310 (Best Execution and Interpositioning) by reference. The new rule 
takes the place of Rule 2320 (Best Execution and Interpositioning) and 
IM-2320 (Interpretive Guidance with Respect to Best Execution 
Requirements).\5\ References in FINRA Rule 5310 to NASD Rule 2440 and 
IM-2440 will not be reflected in NASDAQ's rule, since NASDAQ has not 
adopted corresponding rules regulating the activities of NASDAQ Members 
with respect to commissions and mark-ups.
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    \5\ See Securities Exchange Act Release No. 65895 (December 5, 
2011), 76 FR 77042 (December 9, 2011) (SR-FINRA-2011-052). NASDAQ 
Rule 2320 and IM-2320 had not previously incorporated NASD or FINRA 
rules by reference, but had closely tracked the language of the 
analogous NASD rules in effect at the time of their adoption. By 
incorporating FINRA Rule 5310 by reference, NASDAQ will be 
incorporating changes made by FINRA in the interim. Specifically, 
FINRA has moved portions of former NASD Rule 2320 and IM-2320 into a 
new section of Supplementary Material reflecting guidance with 
respect to (i) The definition of ``market'' for purposes of the 
rule, (ii) best execution and executing brokers, and (iii) use of a 
broker's broker, and has adopted new Supplementary Material 
providing guidance with respect to (i) Execution of marketable 
customer orders, (ii) best execution and debt securities, (iii) 
orders involving securities with limited quotations or pricing 
information, (iv) orders involving foreign securities, (v) customer 
instructions regarding order handling, and (vi) regular and rigorous 
review of execution quality. In addition, FINRA modified its rule to 
make it clear that an interpositioning arrangement must be 
consistent with the overall rule governing best execution, rather 
than focusing exclusively on the cost of such an arrangement. FINRA 
also deleted language focused on the channeling of customers' orders 
through a broker's broker, again because such arrangements would be 
subject to the overall rule governing best execution. Specifically, 
the rule requires a broker to use reasonable diligence to ascertain 
the best market, based on a consideration of a range of factors 
enumerated in the rule. Through this rule filing, NASDAQ will be 
making all of the foregoing changes applicable to NASDAQ members in 
their capacities as NASDAQ members. NASDAQ notes that NASDAQ members 
with public customers are required to be members of FINRA by virtue 
of Section 15(b)(8) of the Act, 15 U.S.C. 78o(b)(8), and SEC Rule 
15b9-1, 17 CFR 240.15b9-1. The change is designed to ensure that 
NASDAQ may enforce the rule against its members under the same 
parameters as FINRA enforces the rule against its members.
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    (2) NASDAQ is redesignating Rule 3060 (Influencing or Rewarding 
Employees of Others) as Rule 3220A and changing the incorporated rule 
from NASD Rule 3060 to FINRA Rule 3220.\6\
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    \6\ See Securities Exchange Act Release No. 58660 (September 26, 
2008), 73 FR 57393 (October 2, 2008) (SR-FINRA-2008-027).
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    (3) NASDAQ is redesignating Rule 3090 (Transactions Involving 
Nasdaq Employees) as Rule 2070A.\7\
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    \7\ Id.
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    (4) NASDAQ is replacing Rule 2310 (Recommendations to Customers 
(Suitability)), IM-2310-1 (Reserved), IM-2310-2 (Fair Dealing with 
Customers), and IM-2310-3 (Suitability Obligations to Institutional 
Customers) with Rule 2111A (Suitability), which incorporates FINRA Rule 
2111, and Rule 2090A (Know Your Customer), which incorporates FINRA 
Rule 2090.\8\ However, references in FINRA Rule 2111 to NASD IM-2210-6 
will not be reflected in NASDAQ's rule, since NASDAQ has not adopted a 
corresponding rule regulating the activities of NASDAQ Members in 
connection with investment analysis tools.
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    \8\ See Securities Exchange Act Release No. 63325 (November 17, 
2010), 75 FR 71479 (November 23, 2010) (SR-FINRA-2010-039).
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    NASDAQ notes that in some instances, the amended rules reference 
rules that are being adopted or renumbered by contemporaneous NASDAQ 
rule filings that have been filed on an immediately effective basis.\9\
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    \9\ See Securities Exchange Act Release Nos. 68123 (October 31, 
2012), 77 FR 66658 (November 6, 2012) (SR-NASDAQ-2012-123); 68153 
(November 5, 2012), 77 FR 67409 (November 9, 2012) (SR-NASDAQ-2012-
124).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\10\ in general, and with 
Section 6(b)(5) of the Act,\11\ 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 proposed 
changes will conform various NASDAQ Rules to changes made to 
corresponding FINRA rules, thus promoting application of consistent 
regulatory standards with respect to rules that FINRA enforces pursuant 
to its regulatory services agreement with NASDAQ.
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    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(5).

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[[Page 74540]]

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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, as amended.

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 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 if consistent with the protection of 
investors and the public interest, provided that the self-regulatory 
organization has given the Commission written notice of its intent to 
file 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 proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-
4(f)(6) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend 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 email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2012-122 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-2012-122. This 
file number should be included on the subject line if email 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 Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 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-2012-122 and should 
be submitted on or before January 4, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-30164 Filed 12-13-12; 8:45 am]
BILLING CODE 8011-01-P