Document ID: SEC-2009-0721-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; the NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Order Routing
Posted Date: 2009-05-29T04:00Z

[Federal Register Volume 74, Number 102 (Friday, May 29, 2009)]
[Notices]
[Pages 25784-25786]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-12449]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59948; File No. SR-NASDAQ-2009-047]

Self-Regulatory Organizations; the NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Order Routing

May 20, 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 May 15, 2009, The NASDAQ Stock Market LLC (the ``NASDAQ Exchange'') 
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 the NASDAQ Exchange. The NASDAQ Exchange 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

    The NASDAQ Exchange is proposing to modify the terms and conditions 
under which it is affiliated with NASDAQ Options Services, LLC 
(``NOS''). The NASDAQ Exchange proposes to implement the proposed rule 
change when NASDAQ OMX PHLX, Inc. (``PHLX'') implements its XL II 
trading system.\4\ There is no proposed rule language.
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    \4\ Securities Exchange Act Release No. 59721 (April 7, 2009), 
74 FR 17245 (April 14, 2009) (SR-Phlx-2009-32); Securities Exchange 
Act Release No. 59779 (April 16, 2009), 74 FR 18600 (April 23, 2009) 
(SR-Phlx-2009-32, Amendment No. 1).
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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 NASDAQ 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 NASDAQ 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
    Nasdaq Options Services, LLC (``NOS''), which is a subsidiary of 
the NASDAQ Exchange, is a registered broker-dealer and a member of the 
NASDAQ Exchange and PHLX. In SR-NASDAQ-2006-006,\5\ the Commission 
approved the adoption of NASDAQ Exchange Rule 2140, which provides 
that, subject to certain exceptions, the NASDAQ Exchange may not become 
an affiliate of one of its members unless the terms and conditions of 
such affiliation are the subject of an effective filing with the 
Commission. Previously, the Commission had approved the acquisition of 
the entity that is now NOS by The Nasdaq Stock Market, Inc., which is 
now The NASDAQ OMX Group, Inc. (``NASDAQ OMX''), the holding company 
parent corporation of the NASDAQ Exchange and PHLX.\6\ Moreover, in SR-
NASDAQ-2007-004 and -080,\7\ the Commission approved rules to govern 
the operation of The NASDAQ Options Market (``NOM'') as an options 
market of the NASDAQ Exchange, including rules establishing NOS as the 
approved outbound routing facility of the NASDAQ Exchange for NOM. The 
rules governing NOS's routing of orders for NOM stipulate,

[[Page 25785]]

among other things, that: (i) NOS is a facility of the NASDAQ Exchange; 
(ii) use of NOS's routing function by NASDAQ Exchange members is 
optional; (iii) NOS does not provide routing of orders in options from 
NOM to an exchange that is an affiliate of NASDAQ unless such orders 
first attempt to access any liquidity on the NOM book; \8\ and (iv) NOS 
is a member of a self-regulatory organization that is unaffiliated with 
the NASDAQ Exchange and that serves as NOS's designated examining 
authority.
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    \5\ Securities Exchange Act Release No. 54170 (July 18, 2006), 
71 FR 42149 (July 25, 2006) (SR-NASDAQ-2006-006).
    \6\ Securities Exchange Act Release No. 52902 (December 7, 
2005), 70 FR 73810 (December 13, 2005) (SR-NASD-2005-128).
    \7\ Securities Exchange Act Release No. 57478 (March 12, 2008), 
73 FR 14521 (March 18, 2008) (SR-NASDAQ-2007-004, -080).
    \8\ Securities Exchange Act Release No. 59420 (February 19, 
2009), 74 FR 8597 (February 25, 2009) (SR-NASDAQ-2009-011).
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    In SR-PHLX-2009-32,\9\ PHLX, another exchange subsidiary of NASDAQ 
OMX, has proposed establishing NOS as PHLX's routing facility (the 
``Routing Facility''). The sole use of the Routing Facility by the 
PHLX's new proposed Phlx XL II system will be to route orders in 
options listed and open for trading on the Phlx XL II system to away 
markets pursuant to PHLX rules on behalf of PHLX. Proposed PHLX Rule 
1080(m)(iii)(B) would provide that the use of NOS to route orders to 
other market centers is optional. Parties that do not desire to use NOS 
must designate orders as not available for routing (i.e., a Do Not 
Route Order, as described in proposed PHLX Rule 1080(m)(iv)(A)).
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    \9\ Securities Exchange Act Release No. 59721 (April 7, 2009), 
74 FR 17245 (April 14, 2009) (SR-Phlx-2009-32); Securities Exchange 
Act Release No. 59779 (April 16, 2009), 74 FR 18600 (April 23, 2009) 
(SR-Phlx-2009-32, Amendment No. 1).
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    Proposed PHLX Rule 1080(m)(iii)(C) would provide that PHLX will 
establish and maintain procedures and internal controls reasonably 
designed to adequately restrict the flow of confidential and 
proprietary information between PHLX and the Routing Facility, and any 
other entity, including any affiliate of the Routing Facility, and, if 
the Routing Facility or any of its affiliates engages in any other 
business activities other than providing routing services to the 
Exchange, between the segment of the Routing Facility or affiliate that 
provides the other business activities and the routing services. In SR-
PHLX-2009-32, PHLX further noted that NOS is a member of a self-
regulatory organization that is unaffiliated with PHLX and that serves 
as NOS's designated examining authority.\10\
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    \10\ The Financial Industry Regulatory Authority (``FINRA'') 
serves as NOS's designated examining authority. FINRA is 
unaffiliated with both PHLX and the NASDAQ Exchange.
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    Finally, proposed PHLX Rule 1080(m)(iii)(D) would state that the 
books, records, premises, officers, directors, agents, and employees of 
the Routing Facility, as a facility of PHLX, will be deemed to be the 
books, records, premises, officers, directors, agents, and employees of 
PHLX for purposes of and subject to oversight pursuant to the Act. The 
books and records of the Routing Facility, as a facility of PHLX, will 
be subject at all times to inspection and copying by PHLX and the 
Commission.
    PHLX has also adopted a rule restricting affiliation between PHLX 
and its members, comparable to the NASDAQ Exchange's Rule 2140. See 
PHLX Rule 985(b). In SR-PHLX-2009-32, PHLX has requested that the 
Commission allow PHLX to use NOS to provide routing services for orders 
routed to all destinations, provided they first attempt to access 
liquidity on PHLX's systems before routing to other exchanges. Thus, 
the terms and conditions of PHLX's order routing would be substantially 
similar to those already approved with respect to routing by NOM 
through NOS.
    Because orders from PHLX may be routed to NOM through NOS, it is 
necessary for the NASDAQ Exchange to submit this filing to establish 
that NOM may receive such routed orders. Accordingly, the NASDAQ 
Exchange proposes that NOS be permitted to route orders from PHLX to 
NOM subject to the following: (i) NOS is approved as and remains a 
facility of PHLX; (ii) use of NOS's Routing Facility function by PHLX 
members continues to be optional; (iii) NOS does not provide routing of 
orders in options from PHLX to the NASDAQ Exchange or any trading 
facilities thereof, unless such orders first attempt to access any 
liquidity on the PHLX book, and (iv) NOS is a member of a self-
regulatory organization that is unaffiliated with PHLX and the NASDAQ 
Exchange and that serves as NOS's designated examining authority. The 
terms and conditions under which NOM would receive orders from PHLX 
through NOS are the same as the terms and conditions under which PHLX 
has been approved to receive orders from NOM through NOS.
2. Statutory Basis
    The NASDAQ Exchange believes that the proposed rule change is 
consistent with the provisions of Section 6 of the Act,\11\ in general, 
and with Section 6(b)(5) of the Act,\12\ 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 permit inbound routing of orders from 
PHLX to NOM through NOS in accordance with the terms and conditions 
governing order routing that have been approved by the Commission with 
respect to receipt of orders by PHLX from NOM through NOS.
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    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The NASDAQ 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.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments on the proposed rule change were neither solicited 
nor received.

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

    Because the proposed rule change: (i) Does not significantly affect 
the protection of investors or the public interest; (ii) does not 
impose any significant burden on competition; and (iii) 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, the proposed rule change has 
become effective pursuant to Section 19(b)(3)(A) of the Act \13\ and 
Rule 19b-4(f)(6) thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under 19b-4(f)(6) normally may not 
become operative prior to 30 days after the date of filing.\15\ 
However, Rule 19b-4(f)(6)(iii) \16\ permits the Commission to

[[Page 25786]]

designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The NASDAQ Exchange 
has requested that the Commission waive the 30-day operative delay. The 
Commission notes that the NASDAQ Exchange's proposal is substantially 
similar to the proposal of another national securities exchange 
previously approved by the Commission and does not raise any new 
substantive issues.\17\ The NASDAQ Exchange proposes to implement the 
proposed rule change when PHLX implements its XLII trading system, and 
states that waiving the operative delay will ensure that the NASDAQ 
Exchange is able to implement the proposed rule change at such 
time.\18\ For these reasons, the Commission believes that waiving the 
30-day operative delay is consistent with the protection of investors 
and the public interest, and designates the proposed rule change to be 
operative upon filing with the Commission.\19\
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    \15\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires that a self-regulatory organization submit to 
the Commission 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 NASDAQ Exchange has satisfied this requirement.
    \16\ Id.
    \17\ See Securities Exchange Act Release No. 58179 (July 17, 
2008), 73 FR 42874 (July 23, 2008) (SR-Phlx-2008-31).
    \18\ See SR-NASDAQ-2009-047, Items 2 and 7.
    \19\ For the 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).
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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-2009-047 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-2009-047. 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 the NASDAQ 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-
047 and should be submitted on or before June 19, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
Florence E. Harmon,
Deputy Secretary.
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    \20\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E9-12449 Filed 5-28-09; 8:45 am]
BILLING CODE 8010-01-P