Document ID: SEC-2011-0202-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX BX LLC
Posted Date: 2011-02-14T05:00Z

[Federal Register Volume 76, Number 30 (Monday, February 14, 2011)]
[Notices]
[Pages 8391-8393]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-3186]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 63859; File No. SR-BX-2011-007]

Self-Regulatory Organizations; NASDAQ OMX BX LLC; Notice of 
Filing of Proposed Rule Change Relating to Permanent Approval of the BX 
and NES Inbound Routing Relationship

February 7, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on January 28, 2011, NASDAQ OMX BX LLC (``BX'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I and 
II, 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, pursuant to Section 19(b)(1) of the Act \3\ and Rule 
19b-4 thereunder,\4\ proposes request permanent approval of the 
Exchange's pilot program to permit the Exchange to accept inbound 
orders that Nasdaq Execution Services, LLC (``NES'') routes in its 
capacity as a facility of NASDAQ (with the attendant obligations and 
conditions).
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    \3\ 15 U.S.C. 78s(b)(1).
    \4\ 17 CFR 240.19b-4.
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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 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 
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 purpose of the proposed rule change is to request permanent 
approval of the Exchange's pilot program to permit the Exchange to 
accept inbound orders that NES routes in its capacity as a facility of 
NASDAQ (with the attendant obligations and conditions). Currently, NES 
is the approved outbound routing facility of the NASDAQ Stock Market 
LLC (``NASDAQ'') for cash equities, providing outbound routing from 
NASDAQ to other market centers.\5\ BX also has been previously approved 
to receive inbound routes of equities orders by NES in its capacity as 
an order routing facility of NASDAQ on a pilot basis.\6\ On January 19, 
2011, the Exchange filed a proposal to extend the current pilot program 
until June 15, 2011, with further understanding that the Exchange would 
file a separate proposal with the Commission seeking permanent approval 
of the BX and NES routing relationship.\7\ The Exchange hereby seeks 
permanent approval to permit the Exchange to accept inbound orders that 
NES routes in its capacity as a facility of NASDAQ (with the attendant 
obligations and conditions).
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    \5\ See Securities Exchange Act Release Nos. 50311 (September 3, 
2004), 69 FR 54818 (September 10, 2004) (Order Granting Application 
for a Temporary Conditional Exemption Pursuant To Section 36(a) of 
the Exchange Act by the National Association of Securities Dealers, 
Inc. Relating to the Acquisition of an ECN by The Nasdaq Stock 
Market, Inc.) and 52902 (December 7, 2005), 70 FR 73810 (December 
13, 2005) (SR-NASD-2005-128) (Order Approving a Proposed Rule Change 
To Establish Rules Governing the Operation of the INET System). See 
also SR-NASDAQ-2011-004 (January 14, 2011); Securities Exchange Act 
Release Nos. 63083 (October 13, 2010), 75 FR 64370 (October 19, 
2010) (SR-NASDAQ-2010-127); 62736 (August 17, 2010), 75 FR 51861 
(August 23, 2010) (SR-NASDAQ-2010-100); 61682 (March 10, 2010), 75 
FR 12592 (March 16, 2010) (SR-NASDAQ-2010-030); 61460 (February 1, 
2010), 75 FR 6077 (February 5, 2010) (SR-NASDAQ-2010-018); 60039 
(June 3, 2009), 74 FR 27365 (June 9, 2009) (SR-NASDAQ-2009-050); 
59875 (May 6, 2009), 74 FR 22794 (May 14, 2009) (SR-NASDAQ-2009-
043); 59807 (April 21, 2009), 74 FR 19251 (April 28, 2009) (SR-
NASDAQ-2009-036); 59153 (December 23, 2008), 73 FR 80485 (December 
31, 2008) (SR-NASDAQ-2008-098); 58752 (October 8, 2008), 73 FR 61181 
(October 15, 2008) (SR-NASDAQ-2008-079); 58135 (July 10, 2008), 73 
FR 40898 (July 16, 2008) (SR-NASDAQ-2008-061); 58069 (June 30, 
2008), 73 FR 39360 (July 9, 2008) (SR-NASDAQ-2008-054); 56708 
(October 26, 2007), 72 FR 61925 (November 1, 2007) (SR-NASDAQ-2007-
078); 56867 (November 29, 2007), 72 FR 69263 (December 7, 2007) (SR-
NASDAQ-2007-065); 55335 (February 23, 2007), 72 FR 9369 (March 1, 
2007) (SR-NASDAQ-2007-005); 54613 (October 17, 2006), 71 FR 62325 
(October 24, 2006) (SR-NASDAQ 2006-043); 54271 (August 3, 2006), 71 
FR 45876 (August 10, 2006) (SR-NASDAQ-2006-027); and 54155 (July 14, 
2006), 71 FR 41291 (July 20, 2006) (SR-NASDAQ-2006-001).
    \6\ See Securities Exchange Act Release Nos. 59154 (December 23, 
2008), 73 FR 80468 (December 31, 2008) (SR-BX-2008-048); 61271 
(December 31, 2009), 75 FR 1102 (January 8, 2010) (SR-BX-2009-085); 
61782 (March 25, 2010), 75 FR 16534 (April 1, 2010) (SR-BX-2010-
021); 62528 (July 19, 2010), 75 FR 43210 (July 23, 2010) (SR-BX-
2010-048). See also Securities Exchange Act Release No. 63769 
(January 26, 2011)(SR-BX-2011-003).
    \7\ See Securities Exchange Act Release No. 63769 (January 26, 
2011)(SR-BX-2011-003).
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    In the initial Order, the Commission granted the BX and NES inbound 
routing relationship on a pilot basis. During this pilot period, BX 
committed to the following conditions:
    1. The Exchange and FINRA will enter into a regulatory services 
agreement (``Regulatory Contract''), as well as an agreement pursuant 
to Rule 17d-2 under the Act (``17d-2 Agreement'').\8\ Pursuant to the 
Regulatory Contract and the 17d-2 Agreement, FINRA will be allocated 
regulatory responsibilities to review NES's compliance with certain 
Exchange rules.\9\ Pursuant to the Regulatory Contract, however, BX 
retains ultimate responsibility for enforcing its rules with respect to 
NES;
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    \8\ 17 CFR 240.17d-2.
    \9\ The Exchange also states that NES is subject to independent 
oversight by FINRA, its Designated Examining Authority, for 
compliance with financial responsibility requirements. See 
Securities Exchange Act Release No. 58927 (November 10, 2008), 73 FR 
69685, 69689 (November 19, 2008) (``Notice'').
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    2. FINRA will monitor NES for compliance with the Exchange's 
trading rules, and will collect and maintain certain related 
information; \10\
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    \10\ Pursuant to the Regulatory Contract, both FINRA and the 
Exchange will collect and maintain all alerts, complaints, 
investigations and enforcement actions in which NES (in its capacity 
as a facility of Nasdaq routing orders to the Exchange) is 
identified as a participant that has potentially violated applicable 
Commission or Exchange rules. The Exchange and FINRA will retain 
these records in an easily accessible manner in order to facilitate 
any potential review conducted by the Commission's Office of 
Compliance Inspections and Examinations. Id.

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[[Page 8392]]

    3. FINRA will provide a report to the Exchange's chief regulatory 
officer (``CRO''), on a quarterly basis, that: (i) Quantifies all 
alerts (of which FINRA is aware) that identify NES as a participant 
that has potentially violated Commission or Exchange rules, and (ii) 
lists all investigations that identify NES as a participant that has 
potentially violated Commission or Exchange rules; \11\
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    \11\ Id.
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    4. adopt Rule 2140(c), which requires NASDAQ OMX, as the holding 
company owning both the Exchange and NES, to establish and maintain 
procedures and internal controls reasonably designed to ensure that NES 
does not develop or implement changes to its system, based on non-
public information obtained regarding planned changes to the Exchange's 
systems as a result of its affiliation with the Exchange, until such 
information is available generally to similarly situated Exchange 
members, in connection with the provision of inbound order routing to 
the Exchange; \12\ and
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    \12\ See Equity Rule 2140(c). See also Notice, supra note 7, 73 
FR at 69689-69690.
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    5. That the routing of orders from NES to the Exchange, in NES's 
capacity as a facility of Nasdaq, be authorized for a pilot period of 
twelve months.\13\
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    \13\ See Amendment No. 2 to Notice, filed December 23, 2008. In 
Amendment No. 2, the Exchange clarified that its proposal, as 
opposed to Nasdaq's corresponding proposal, be approved on a twelve-
month pilot basis. See also Notice, supra note 7, n.15 and 
accompanying text.
     See e-mail from Arlinda J. Clark, Assistant General Counsel, 
NASDQ OMX BX, to Jennifer Dodd, Special Counsel, Office of Market 
Supervision, Division of Trading and Markets, Commission, dated 
February 3, 2011 (requesting corrections to this footnote).
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    The Exchange has met all the above-listed conditions. By meeting 
the above-conditions, the Exchange has set up mechanisms that protect 
the independence of the Exchange's regulatory responsibility with 
respect to NES, as well as demonstrate that NES cannot use any 
information advantage it may have because of its affiliation with the 
Exchange. Since the Exchange has met all the above-listed conditions, 
it now seeks permanent approval of the BX and NES inbound routing 
relationship. The Exchange will continue to comply with the conditions 
1-4 stated above.
2. Statutory Basis
    The Exchange 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. Specifically, 
the proposed rule change will allow the Exchange to continue receiving 
inbound routes of equities orders from NES, acting in its capacity as a 
facility of NASDAQ, in a manner consistent with prior approvals and 
established protections. The Exchange believes that having met the 
commitments established during the pilot program demonstrates that the 
Exchange has mechanisms that protect the independence of the Exchange's 
regulatory responsibility with respect to NES, as well as demonstrate 
that NES cannot use any information advantage it may have because of 
its affiliation with the Exchange.
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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 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

    No written comments were either solicited or received.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-BX-2011-007 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-BX-2011-007. 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 Web site viewing and 
printing in the Commission's Public Reference Room on official business 
days between the hours of 10 a.m. and 3 p.m. Copies such 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-BX-
2011-007 and should be submitted on or before March 7, 2011.

[[Page 8393]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-3186 Filed 2-11-11; 8:45 am]
BILLING CODE 8011-01-P