Document ID: SEC-2013-0117-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2013-01-22T05:00Z

[Federal Register Volume 78, Number 14 (Tuesday, January 22, 2013)]
[Notices]
[Pages 4536-4537]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-01076]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68654; File No. SR-NASDAQ-2013-007]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Extend the Operative Date of Recent Changes Made to Rules 4613(a)(2)(F) 
and (G), and Rule 4751(f)(15)

January 15, 2013.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on January 14, 2013, The NASDAQ Stock Market LLC (the 
``NASDAQ'' or the ``Exchange'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I and II below, which Items have been prepared by the self-
regulatory organization. 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\ 15 U.S.C. 78a.
    \3\ 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 extend the operative date of recent 
changes made to Rules 4613(a)(2)(F) and (G), and Rule 4751(f)(15) to 
February 25, 2013, thereby extending the retirement of the automated 
quotation refresh functionality from January 15, 2013 to February 25, 
2013.

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
    On December 17, 2012, the Exchange filed an immediately effective 
rule change to retire the automated quotation refresh functionality 
(``AQR'') provided to Exchange market makers under Rules 4613(a)(2)(F) 
and (G), and to make conforming changes to Rule 4751(f)(15).\4\ The 
proposed changes are operative on January 15, 2013. The Exchange 
received one comment letter to the rule change, seeking an extension of 
the AQR retirement date to February 25, 2013.\5\ The commenter, an 
industry association which represents a substantial number of NASDAQ 
members, noted it was concerned that the January 15, 2013 retirement 
date does not allow sufficient time for implementation of all 
functionality associated with the AQR system. The commenter explained 
that new functionality to automate quote movement after quote execution 
must be developed and incorporated into order management and trading 
systems. In support of its argument for an extension, the commenter 
noted that some firms require architectural reprogramming to mission 
critical systems that control trading operations, and that thorough 
testing of such changes must be done. The commenter further noted that 
year-end code freezes, which typically extend into the first week of 
January, will make it difficult for firms to adequately implement and 
test these significant changes to their systems by January 15, 2013. 
The Exchange has received similar telephonic comments from some of its 
member firms that are Exchange market makers.
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    \4\ Securities Exchange Act Release No. 68528 (December 21, 
2012), 77 FR 77165 (December 31, 2012) (SR-NASDAQ-2012-140).
    \5\ See Letter from Manisha Kimmel, Executive Director, 
Financial Information Forum, to Elizabeth M. Murphy, Secretary, 
Commission, dated December 21, 2012.
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    In light of member firm and industry feedback received on the 
current retirement date, the Exchange believes that a brief extension 
is warranted to allow member firms adequate time to program and test 
their systems to use the Market Maker Peg Order \6\ or develop 
alternative means of complying with their market maker obligations. 
Given that member firms may not be prepared to comply with their market 
making obligations on January 15, 2013 in the absence of AQR and the 
potential market disruption that may be caused by eliminating AQR on 
that date, the Exchange has determined to extend the retirement date of 
AQR to February 25, 2013, and likewise extend the related changes to 
Rules 4613(a)(2)(F) and (G), and Rule 4751(f)(15) filed with the 
Commission on December 21, 2012 \7\ to February 25, 2013.
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    \6\ On August 2, 2012, the Commission approved the Exchange's 
new Market Maker Peg Order, which is designed to replace AQR. See 
Securities Exchange Act Release No. 67584 (August 2, 2012), 77 FR 
47472 (August 8, 2012) (SR-NASDAQ-2012-066).
    \7\ Supra note 3.
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    The Exchange reminds member firms that AQR presents difficulties to 
market makers in meeting their obligations under Rule 15c3-5 under the 
Act (the ``Market Access Rule'') \8\ and Regulation SHO under the 
Act.\9\ The Exchange emphasizes that market makers using AQR remain 
obligated to monitor their quotes and are responsible for complying 
with all Exchange rules, the Market Access Rule, as well as Rule 610, 
Rule 611 of Regulation NMS and Rule 200(g) of Regulation SHO, even in 
the event that AQR is not functioning properly. Market makers must have 
policies and procedures to address such contingencies and systems in 
place to ensure that they can continuously meet their two-sided 
obligation.
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    \8\ 17 CFR 240.15c3-5.
    \9\ 17 CFR 242.200 through 204.
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2. Statutory Basis
    The statutory basis for the proposed rule change is Section 6(b)(5) 
of the Act,\10\ which requires the rules of an exchange 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

[[Page 4537]]

general, to protect investors and the public interest. The Exchange 
believes that the proposed rule meets these requirements in that it 
provides a brief extension to the retirement date of AQR to allow 
member firms that are market makers to adequately test and implement 
changes to their systems. AQR is a duplicative function and has been 
replaced with a new order type that allows member firms to better meet 
their minimum market maker quotation requirements and also comply with 
regulatory requirements, such as the Market Access Rule and Regulation 
SHO. Given the feedback received from both member firms and others in 
the industry concerning the AQR retirement date, NASDAQ believes 
granting a short extension will minimize the potential that an 
inadequately-tested or -implemented member firm market making system 
will disrupt or otherwise harmfully impact the market.
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    \10\ 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 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The proposed 
change is designed to promote market making on the Exchange that 
complies with other regulatory obligations, such as the Market Access 
Rule and Regulation SHO. By extending the retirement date of AQR, 
member firms will be afforded additional time to test and implement new 
coding to their systems, thus avoiding the potential market disruption 
that may be caused by one or more market makers that are unable to meet 
their market maker obligations due to a system error.

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 after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-4(f)(6) 
\12\ thereunder.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 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 Commission has waived this requirement in this case.
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    The Exchange has requested that the Commission waive the 30-day 
operative delay.\13\ The Commission believes that waiver of the 
operative delay is consistent with the protection of investors and the 
public interest. Such waiver provides a brief extension of the AQR 
retirement date in response to concerns by market participants that the 
currently scheduled retirement date does not allow sufficient time for 
testing and implementation of changes to member firms' market making 
systems. Accordingly, the Commission designates the proposal operative 
upon filing.\14\
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    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule change's impact on 
efficiency, competition, and capital formation. 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 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-2013-007 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-2013-007. 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 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; 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-2013-007 and should 
be submitted on or before February 12, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-01076 Filed 1-18-13; 8:45 am]
BILLING CODE 8011-01-P