Document ID: SEC-2007-0366-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: NASDAQ Stock Market LLC
Posted Date: 2007-03-12T04:00Z

[Federal Register: March 12, 2007 (Volume 72, Number 47)]
[Notices]               
[Page 11069-11071]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12mr07-143]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55405; File No. SR-NASDAQ-2007-020]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to 
Establish a Directed Order Type

March 6, 2007.
    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 March 2, 2007, 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 and 
II below, which Items have been substantially prepared by the Exchange. 
Nasdaq has designated this proposal as non-controversial under Section 
19(b)(3)(A) of the Act \4\ and Rule 19b-4(f)(6) thereunder.\5\ 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
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 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

    Nasdaq proposes to amend Nasdaq Rule 4611 to update and codify the 
requirements applicable to Nasdaq members that provide sponsored access 
to other firms and customers to the Nasdaq execution system.
    The text of the proposed rule change is below. Proposed new 
language is

[[Page 11070]]

italicized; proposed deletions are in brackets.\6\
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    \6\ Changes are marked to the rule text that appears in the 
electronic Nasdaq Manual found at nasdaq.complinet.com/nasdaq/
display/index.html.
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* * * * *
4750. NASDAQ MARKET CENTER--EXECUTION SERVICES
4751. Definitions
    The following definitions apply to the Rule 4600 and 4750 Series 
for the trading of securities listed on a national securities exchange 
other than Nasdaq.
    (a)-(e) No change.
    (f) 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)-(8) No change.
    (9) ``Directed Orders'' are orders that are directed to an exchange 
other than Nasdaq as directed by the entering party without checking 
the Nasdaq book. If unexecuted, the order (or unexecuted portion 
thereof) shall be returned to the entering party. This option may only 
be used for orders with time-in-force parameters of IOC.
    Directed Orders may be designated as intermarket sweep orders by 
the entering party to execute against the full displayed size of any 
protected bid or offer (as defined in Rule 600(b) of Regulation NMS 
under the Act). A broker-dealer that designates an order as an 
intermarket sweep order has the responsibility of complying with Rules 
610 and 611 of Regulation NMS.
    (g)-(i) No change.
* * * * *
4755. Order Entry Parameters
(a) System Orders
    (1)
    (A) No Change.
    (B) A System order may also be designated as Reserve Order, a 
Pegged Order, a Non-Displayed Order, a Minimum Quantity Order, an 
Intermarket Sweep Order, a Price to Comply order, a Price to Comply 
Post order, [or] a Discretionary Order, or a Directed Order.
    (C) No Change.
    (2)-(4) 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, the Exchange included statements 
concerning the purpose of and basis for the proposed rule changes and 
discussed any comments it received regarding the proposal. 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
    Nasdaq proposes to create a new order type--the Directed Order--for 
use by its members in compliance with their obligations under 
Regulation NMS.\7\ Directed Orders will be entered by a Nasdaq member 
and sent to a market center other than Nasdaq without checking the 
Nasdaq book. The entering member will select the market center to 
receive the order This functionality existed in Nasdaq's former Brut 
and INET facilities in the form of a ``Thru'' order that members used 
to route trading interest directly to the New York Stock Exchange or 
American Stock Exchange to avoid trading through those markets.\8\ If 
unexecuted, the order (or unexecuted portion thereof) shall be returned 
to the entering party. This option may only be used for orders with 
time-in-force parameters of IOC.
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    \7\ See 17 CFR 242.600 et seq.
    \8\ See former NASD Rules 4903(b) and 4956(a).
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    This order will provide additional flexibility and functionality to 
Nasdaq's system and to members that wish to use the system to comply 
with their obligation to avoid trading through any Protected Quotation 
within the meaning of Rule 600(b)(58) of Regulation NMS.\9\ Directed 
Orders may be designated as intermarket sweep orders (as defined in 
Rule 600(b)(30) of Regulation NMS \10\) and therefore will provide 
Nasdaq member's the ability to execute against the full displayed size) 
of any Protected Bid or Protected Offer (as defined in Rule 600(b)(57) 
of Regulation NMS \11\) in the case of a limit order to sell or buy 
with a price that is superior to the limit price of the limit order 
identified in the intermarket sweep order.
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    \9\ 17 CFR 242.600(b)(58).
    \10\ 17 CFR 242.600(b)(30).
    \11\ 17 CFR 242.600(b)(57).
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    Nasdaq members will be required to comply with the requirements of 
Rules 610 and 611 of Regulation NMS \12\ when designating Directed 
Orders as intermarket sweep orders. A broker-dealer that designates an 
order as an intermarket sweep order has the responsibility of complying 
with Rules 610 and 611 of Regulation NMS. When Nasdaq's execution 
system receives a Directed Order that is designated as an intermarket 
sweep order, Nasdaq's system will pass that order to NASDAQ Execution 
Services, LLC, Nasdaq's broker-dealer subsidiary. Nasdaq Execution 
Services has connectivity to route to all automated trading centers 
displaying protected quotations.\13\ Nasdaq Execution Services will 
accept orders only from Nasdaq, which in turn accepts orders only from 
Nasdaq members. Because Nasdaq Execution Services will be routing 
orders strictly on behalf of Nasdaq members, and Nasdaq members that 
designate Directed Orders as intermarket sweep orders are obligated to 
comply with Rules 610 and 611 of Regulation NMS, Nasdaq Execution 
Services will not perform additional validations to ensure that orders 
are properly designated as intermarket sweep orders.
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    \12\ 17 CFR 242.610; 17 CFR 242.611.
    \13\ See Responses to Frequently Asked Questions, posted on the 
nasdaqtrader.com Web site at http://www.nasdaqtrader.com/trader/tradingservices/regnms_faqs.pdf
.

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2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\14\ in general, and with 
Section 6(b)(5) of the Act,\15\ 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.
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    \14\ 15 U.S.C. 78f.
    \15\ 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 that is not necessary or appropriate 
in furtherance of the purpose 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.

[[Page 11071]]

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

    Because the proposed rule change does not: (1) Significantly affect 
the protection of investors or the public interest; (2) impose any 
significant burden on competition; and (3) 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 \16\ and Rule 19b-4(f)(6) 
thereunder.\17\
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6). When filing a proposed rule change 
pursuant to Rule 19b-4(f)(6) under the Act, an exchange is required 
to give 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 Exchange has requested that the 
Commission waive the 5-day pre-filing notice requirement. The 
Commission has determined to grant this request.
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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.
    A proposed rule change filed under Rule 19b-4(f)(6) normally may 
not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) \18\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange has requested that the 
Commission waive the 30-day operative delay. The Commission believes 
that waiver of the 30-day operative delay is consistent with the 
protection of investors and the public interest.\19\ The Commission 
believes that the proposed rule change will facilitate the ability of 
Nasdaq members to utilize Nasdaq's automated system to comply with 
their respective obligations under Regulation NMS.
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    \18\ 17 CFR 19b-4(f)(6)(iii).
    \19\ For purposes only of waiving the operative delay for this 
proposal, 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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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 e-mail to rule-comments@sec.gov. Please include File 

Number SR-NASDAQ-2007-020 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to file Number SR-NASDAQ-2007-020. 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. Copies of such 
filings will also 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-2007-020 and should be submitted on or before 
April 2, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-4328 Filed 3-9-07; 8:45 am]

BILLING CODE 8010-01-P