Document ID: SEC-2018-0690-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq Stock Market, LLC
Posted Date: 2018-05-02T04:00Z

[Federal Register Volume 83, Number 85 (Wednesday, May 2, 2018)]
[Notices]
[Pages 19384-19386]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-09260]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83115; File No. SR-NASDAQ-2018-030]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Certain Rules of the Rule 7000A Series To Make Conforming and 
Technical Changes

DATES: April 26, 2018.
    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, 2018, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') 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 by the Exchange. 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.
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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 certain rules of the Rule 7000A 
Series concerning the Order Audit Trail System to make conforming and 
technical changes.
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaq.cchwallstreet.com, at the principal office of 
the Exchange, 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is proposing to make the following three changes to 
the Rule 7000A Order Audit Trail Series: (1) Amend Rule 7410A(o)(1)(A) 
to harmonize the rule with FINRA Rule 7410(o)(1)(A); (2) correct rule 
citations in Rules 7430A and 7450A; and (3) delete the rule text under 
Rule 7470A, which lapsed in 2015.
    The Exchange's Rule 7000A Series imposes an obligation on Exchange 
members to record in electronic form and report to FINRA on a daily 
basis certain information with respect to orders originated, received, 
transmitted, modified, canceled, or executed by members in Nasdaq-
listed stocks. FINRA's Order Audit Trail System (``OATS'') captures 
this order information and integrates it with quote and transaction 
information to create a time-sequenced record of orders, quotes, and 
transactions. This information is used by FINRA staff to conduct 
surveillance and investigations of members for potential violation of 
Exchange rules, federal securities laws, and FINRA rules.
    The Exchange adopted the Rule 7000A Series to copy FINRA OATS 
rules, where appropriate. As a general principle, the Exchange 
endeavors to keep its rules corresponding to FINRA rules as closely 
worded and structured as possible to the FINRA rules on which they are 
based. In certain instances, such as FINRA Rule 7410(o)(2), which 
concerns an exception to the definition of a Reporting Member relating 
to members operating on equities floors, the Exchange has not copied 
those inapplicable FINRA rules. Generally, the Exchange seeks to keep 
the Rule 7000 Series consistent with the applicable portions FINRA Rule 
7040 Series. The proposed changes will harmonize Nasdaq rules with 
analogous FINRA rules, which have changed since the Exchange first 
adopted its rules.
First Change
    The Exchange is proposing to amend Rule 7410A(o)(1)(A) to harmonize 
the rule with FINRA Rule 7410(o)(1)(A). Rule 7410A(o) provides the 
definition of ``Reporting Member,'' which means a member that receives 
or originates an order and has an obligation to record and report 
information under Rules 7440A and 7450A. Rule 7410A(o)(1) provides an 
exception to the general definition if the member meets four 
conditions. The first condition the member must meet is that the member 
engages in a non-discretionary order routing process, pursuant to which 
it immediately routes, by electronic or other means, all of its orders 
to a single receiving Reporting Member. On May 12, 2014, FINRA amended 
FINRA Rule 7410(o)(1)(A) to allow a member to route its orders to two 
receiving Reporting Members, if two conditions were met.\3\ First, the 
orders are routed by the member to each receiving Reporting Member on a 
pre-determined schedule approved by FINRA. Second, the FINRA member's 
orders are routed to two receiving Reporting Members pursuant to the 
schedule for a time period not to exceed one year. The rule change 
permits FINRA members to continue to rely on the exception from the 
definition of Reporting Member if, for a limited time, the member 
routes orders to two different Reporting Members, provided the criteria 
are met. FINRA noted in adopting the change that the rule was intended 
to accommodate introducing firms that transition to a different 
clearing firm over time and, during the transition, route their orders 
two different clearing firms, both of which report the introducing 
firm's information to OATS

[[Page 19385]]

during the transition time.\4\ The Exchange believes that this 
additional limited exception is appropriate for its members, which 
likewise may encounter a transition to a clearing firm whereby it [sic] 
would no longer be eligible for the exception to the definition of 
Reporting Member. Accordingly, the Exchange is proposing to adopt the 
FINRA rule text under Rule 7410A(o)(1)(A)(ii).
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    \3\ See Securities Exchange Act Release No. 72191 (May 20, 
2014), 79 FR 30219 (May 27, 2014) (SR-FINRA-2014-024).
    \4\ Id. at 30220.
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Second Change
    The Exchange is also proposing to correct rule citations in Rules 
7430A and 7450A. Rule 7430A ``Synchronization of Member Business 
Clocks'' provides the requirements for synchronizing member business 
clocks, and states that Nasdaq members shall comply with FINRA Rule 
7430 as if such Rule were part of Nasdaq's rules. There is no FINRA 
Rule 7430, but rather the appropriate FINRA rule to cite to is FINRA 
Rule 4590 ``Synchronization of Member Business Clocks.'' Accordingly, 
the Exchange is correcting the erroneous citation in Rule 7430A.
    Rule 7450A ``Order Data Transmission Requirements'' provides the 
requirements for order data transmission, and states that, except as 
provided in paragraph (b), Nasdaq members and persons associated with a 
member shall comply with FINRA Rule 7450A as if such Rule were part of 
Nasdaq's rules. There is no FINRA Rule 7450A and FINRA Rule 7450 
``Order Data Transmission Requirements'' is the appropriate FINRA rule 
to cite. Accordingly, the Exchange is deleting the erroneous ``A'' from 
the citation.
Third Change
    The Exchange is proposing to delete the rule text under Rule 7470A 
in its entirety, which lapsed in 2015, and to hold the rule [sic] in 
reserve. Rule 7470A provided an exemption from the order recording and 
data transmission requirements of Rules 7440A and 7450A OATS rules 
applicable to manual orders. To qualify for the exemption, a member 
must have met the following criteria: (1) The member and current 
control affiliates and associated persons of the member have not been 
subject within the last five years to any final disciplinary action, 
and within the last ten years to any disciplinary action involving 
fraud; (2) the member has annual revenues of less than $2 million; (3) 
the member does not conduct any market making activities in Nasdaq 
Stock Market equity securities; (4) the member does not execute 
principal transactions with its customers (with limited exception for 
principal transactions executed pursuant to error corrections); and (5) 
the member does not conduct clearing or carrying activities for other 
firms. The exemption was limited to a maximum time of two years 
although a member was able to request an additional exemption prior to 
the expiration of a grant of existing exemptive relief. The exemptive 
authority provided by the rule permitted the Exchange to grant relief 
to members that meet certain criteria in situations where, for example, 
the reporting of order information would be unduly burdensome for the 
member or where temporary relief from the OATS Rules, in the form of 
additional time to achieve compliance, would permit the members to 
avoid unnecessary expense or hardship. The exemption has not been 
requested by any Nasdaq member to date and the Exchange does not 
believe that Nasdaq members are likely to need the exemption, since the 
vast majority of such members to which the rule applies are electronic 
proprietary trading firms that would not qualify for the exemption. 
Thus, the Exchange is proposing to eliminate the rule text under Rule 
7470A from its rule book, and to hold the rule [sic] in reserve.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\5\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\6\ in particular, in that it is designed to promote 
just and equitable principles of trade, 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, 
by harmonizing the Exchange's OATS rules with those of FINRA, on which 
they are based. Consequently, the proposed changes will conform 
Exchange 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 the Exchange. With respect to the proposed amendment to 
Rule 7410A(o)(1)(A), the exemption will provide Exchange members the 
same flexibility to transition to a new clearing firm that FINRA 
members enjoy. The rule is intended to accommodate introducing firms 
that transition to a different clearing firm over time and, during the 
transition, route their orders two different clearing firms, both of 
which report the introducing firm's information to OATS during the 
transition time. With respect to the proposed amendment to Rule 7470A 
to eliminate the expired exemption from the rule book, the Exchange 
believes that it is consistent with the Act because the exemption has 
never been requested by a Nasdaq member. Moreover, the Exchange does 
not believe that the vast majority of its members would qualify for the 
exemption, since such most Nasdaq members that are subject to the rule 
conduct an electronic proprietary trading business and the exemption 
applies to manual orders. Adopting the amended rule text under Rules 
7410A will also align the Exchange rulebook with FINRA's, thereby 
eliminating complexity from FINRA's work under a regulatory services 
agreement with the Exchange. With respect to the technical corrections 
to Rules 7430A and 7450A, the Exchange believes that these changes are 
consistent with the Act because they will prevent investor confusion 
that may be caused by incorrect rule citations in the Rules.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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. The proposed changes align the 
Exchange's rules with those of FINRA, which will assist it in its 
oversight work done pursuant to a regulatory services agreement, and 
makes technical corrections to the rules. Consequently, the Exchange 
does not believe that the proposed changes implicate competition at 
all.

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 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)(iii) of the Act \7\ and

[[Page 19386]]

subparagraph (f)(6) of Rule 19b-4 thereunder.\8\
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    \7\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \8\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give 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 Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

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 [email protected]. Please include 
File Number SR-NASDAQ-2018-030 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-2018-030. 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 website (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 website 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 the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NASDAQ-2018-030, and should be submitted 
on or before May 23, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-09260 Filed 5-1-18; 8:45 am]
 BILLING CODE 8011-01-P