Document ID: SEC-2009-0258-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2009-02-25T05:00Z

[Federal Register: February 25, 2009 (Volume 74, Number 36)]
[Notices]               
[Page 8597-8599]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25fe09-107]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59420; File No. SR-NASDAQ-2009-011]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to 
Establish an Exchange Direct Order for the NASDAQ Options Market

February 19, 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 February 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, II and III below, which 
Items have been prepared by Nasdaq. Nasdaq has filed this proposal 
pursuant to Exchange Act Rule 19b-4(f)(6) \3\ and has provided the 
Commission with the notice required by Rule 19b-4(f)(6)(iii).\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\ 17 CFR 240.19b-4(f)(6).
    \4\ 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to establish a new order type for the NASDAQ 
Options

[[Page 8598]]

Market (``NOM'') that will allow users to direct orders to be delivered 
by the system to another exchange without first checking the NOM book.
    The text of the proposed rule change is below. Proposed new 
language is italicized; proposed deletions are in brackets.\5\
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    \5\ Changes are marked to the rule text that appears in the 
electronic manual of Nasdaq found at http://
nasdaq.cchwallstreet.com.
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Options Rules

Chapter VI Trading System

* * * * *

Sec. 1 Definitions

    (a)-(d) No change.
    (e) The term ``Order Type'' shall mean the unique processing 
prescribed for designated orders that are eligible for entry into the 
System, and shall include:
    (1)-(6) No change.
    (7) ``Exchange Direct Orders'' are orders that are directed to an 
exchange other than NOM as directed by the entering party without 
checking the NOM book. If unexecuted, the order (or unexecuted portion 
thereof) shall be returned to the entering party. This order type may 
only be used for orders with time-in-force parameters of IOC.
    Directed Orders may not be directed to a facility of an exchange 
that is an affiliate of Nasdaq.
* * * * *

Sec. 6 Acceptance of Quotes and Orders

    All bids or offers made and accepted on NOM in accordance with the 
NOM Rules shall constitute binding contracts, subject to applicable 
requirements of the Rules of the Exchange and the Rules of the Clearing 
Corporation.
    (a) General--A System order is an order that is entered into the 
System for display and/or execution as appropriate. Such orders are 
executable against marketable contra-side orders in the System.
    (1) All System Orders shall indicate limit price and whether they 
are a call or put and buy or sell. Systems Orders can be designated as 
Immediate or Cancel (``IOC''), Good-till-Cancelled (``GTC''), Day 
(``DAY''), or Expire Time (``EXPR'').
    (2) A System order may also be designated as a Reserve Order, a 
Limit Order, a Minimum Quantity Order, a Discretionary Order, a Market 
Order, [or] a Price Improving Order, or an Exchange Direct Order.
    (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 proposes to implement a new order type--the Exchange Direct 
Order--that is well-established for equities trading but will now be 
available for use by Options Participants.\6\ Exchange Direct Orders 
will be entered by an Options Participant and sent to an options market 
other than NOM without first checking the NOM book. Upon entry, the 
Options Participant will select the options market to receive the 
order. If unexecuted, the order (or unexecuted portion thereof) shall 
be returned to the entering party. The Exchange Direct Order will be 
available only for orders with time-in-force parameters of Immediate Or 
Cancel (IOC).
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    \6\ Pursuant to Chapter I, Section 1(a)(40) of the NOM Rules, 
the term ``Options Participant'' means a firm, or organization that 
is registered with Nasdaq for purposes of participating in options 
trading on NOM as a ``Nasdaq Options Order Entry Firm'' or ``Nasdaq 
Options Market Maker''.
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    The Exchange Direct Order type is similar to the ``Directed Order'' 
in use by Nasdaq for cash equities trading which permits members of 
Nasdaq to route orders directly to other equity markets without first 
checking the Nasdaq book.\7\ Similar to the processing of Directed 
Orders for equities trading, when NOM's execution system receives an 
Exchange Direct Order, NOM's system will pass that order to NASDAQ 
Options Services, LLC, the Nasdaq facility providing routing for NOM. 
NASDAQ Options Services has connectivity to route to all of the other 
options markets. NASDAQ Option Services will accept orders only from 
NOM, which in turn accepts orders only from Nasdaq members.
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    \7\ See Nasdaq Equities Rule 4751(f)(9).
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    This order will provide additional flexibility and functionality to 
Options Participants and promote market efficiency by providing them 
the ability to better control their access to other options markets. In 
addition, the order may promote the entry of new participants to the 
options markets by facilitating access to multiple markets. Exchange 
Direct Orders will enhance the value of a connection to NOM for Nasdaq 
members who are Options Participants and at times want to access 
liquidity at the National Best Bid and Offer (NBBO) but do not have 
connections to all other options markets. These participants will be 
able to control the liquidity they access, the sequence in which the 
liquidity is accessed and the manner in which they access the 
liquidity.
    Options Participants that enter Exchange Direct Orders on NOM will 
be subject to applicable routing fees. However, at this time Options 
Participants will not be charged a separate fee for using this order 
designation.
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 proposed rule change 
would provide additional functionality to Nasdaq members using NOM and 
promote the entry of new participants to the options markets by 
facilitating access to multiple markets. The Commission has already 
determined that this functionality is consistent with the Act for use 
in equities trading.
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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, as amended.

[[Page 8599]]

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6) \11\ thereunder in 
that it effects a change that: (i) Does not significantly affect the 
protection of investors or the public interest; (ii) does not impose 
any significant burden on competition; and (iii) by its terms, 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.
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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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    In its recent guidance on the proposed rules of Self-Regulatory 
Organizations (``SROs''),\12\ the Commission concluded that filings 
based on the rules of another SRO already approved by the Commission 
are eligible for immediate effectiveness under Rule 19b-4(f)(6). The 
Commission noted that ``a proposed rule change appropriately may be 
filed as an immediately effective rule so long as it is based on and 
similar to another SRO's rule and each policy issue raised by the 
proposed rule (i) has been considered previously by the Commission when 
the Commission approved another exchange's rule (that was subject to 
notice and comment), and (ii) the rule change resolves such policy 
issue in a manner consistent with such prior approval.'' \13\ Nasdaq 
believes that the proposed rule change is ``based on and similar to'' 
existing order types in use for cash equities trading, including 
Equities Rule 4751(f)(9) of Nasdaq (``Directed Order''), Equities Rule 
7.31(x)(iii) of NYSE Arca (``PO+ Order'') and Rule 11.9(c)(11) of BATS 
(``Modified Destination Specific Order''). The proposed Exchange Direct 
Order for NOM is based on the same functionality currently in use and 
is intended to operate in a manner similar to these existing order 
types.
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    \12\ Securities Exchange Act Release No. 58092 (July 3, 2008), 
73 FR 40144 (July 11, 2008).
    \13\ Id. at 40149.
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    This rule proposal, which is effective upon filing with the 
Commission, shall become operative 30 days after the date of the 
filing.
    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, as amended, 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-2009-011 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-2009-011. 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-2009-011 and should 
be submitted on or before March 18, 2009.

    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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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-4037 Filed 2-24-09; 8:45 am]

BILLING CODE 8011-01-P