Document ID: SEC-2010-1537-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2010-10-08T04:00Z

[Federal Register: October 8, 2010 (Volume 75, Number 195)]
[Notices]               
[Page 62443-62444]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08oc10-96]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63028; File No. SR-NASDAQ-2010-099]

 
 Self-Regulatory Organizations; NASDAQ Stock Market LLC; Order 
Approving a Proposed Rule Change To Adopt a Definition of Professional 
and Require That All Professional Orders Be Appropriately Marked

October 1, 2010.

I. Introduction

    On August 6, 2010, The NASDAQ Stock Market (``NASDAQ''), filed with 
the Securities and Exchange Commission (``Commission''), pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ 
and Rule 19b-4 thereunder,\2\ a proposed rule change to amend Chapter 
I, Section 1 (Definitions) of the rules of the Nasdaq Options Market 
(``NOM'') to adopt a definition of ``Professional'' and require that 
all Professional orders be appropriately marked by NOM

[[Page 62444]]

Participants (``NOM Rules''). The proposed rule change was published 
for comment in the Federal Register on August 20, 2010.\3\ The 
Commission received no comment letters on the proposed rule change. 
This order approves the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 62724 (August 16, 
2010), 75 FR 51509 (``Notice'').
---------------------------------------------------------------------------

II. Description

    Under the proposal, new Chapter I, Section 1(a)(48) will state that 
the term ``Professional'' means any person or entity that (i) is not a 
broker or dealer in securities, and (ii) places more than 390 orders in 
listed options per day on average during a calendar month for its own 
beneficial account(s). A Participant \4\ or a Public Customer \5\ may, 
without limitation, be a Professional. Moreover, in order to properly 
represent orders entered on the Exchange according to the new 
definition, a Participant will be required to appropriately mark all 
Professional orders.\6\ To comply with this requirement, Participants 
will be required to review their Public Customers' activity on at least 
a quarterly basis to determine whether orders that are not for the 
account of a broker-dealer should be represented as Professional 
orders.\7\ The Exchange will issue a notice to Participants via OTA or 
ORA outlining the procedures for the implementation of the proposal.
---------------------------------------------------------------------------

    \4\ A member of NOM is known as a Participant. Some participants 
are also members of other options exchanges such as, for example, 
International Securities Exchange, LLC (``ISE''), Chicago Board 
Options Exchange, Incorporated (``CBOE''), and NASDAQ OMX PHLX LLC 
(``Phlx''). See Notice, supra note 3. See also Chapter I, Section 
1(a)(40) of the NOM Rules.
    \5\ Public Customer is defined in Chapter I, Section 1(a)(48) as 
a person that is not a broker or dealer in securities.
    \6\ The Exchange intends to require Participants to identify 
Professional orders submitted electronically by identifying them in 
the customer type field, and will notify Participants via an Options 
Trader Alert (``OTA'') or Options Regulatory Alert (``ORA'') 
regarding this requirement.
    \7\ According to NASDAQ, Participants will be required to 
conduct a quarterly review and make any appropriate changes to the 
way in which they are representing orders within five business days 
after the end of each calendar quarter. While Participants will only 
be required to review their accounts on a quarterly basis, if during 
a quarter NOM identifies a customer for which orders are being 
represented as other than Professional orders but that has averaged 
more than 390 orders per day during a month, NOM will notify the 
Participant and the Participant will be required to change the 
manner in which it is representing the customer's orders within five 
business days. This is similar to the process of other options 
exchanges that have adopted a Professional designation. See, e.g., 
Securities Exchange Act Release No. 61802 (March 30, 2010), 75 FR 
17193 (April 5, 2010) (SR-Phlx-2010-05).
---------------------------------------------------------------------------

    The professional order designation rule will apply to NOM members, 
including NASDAQ Options Services LLC (``NOS''). NOS is NOM's exclusive 
order router for all orders that come through the Exchange.\8\ Under 
the proposal, NOS, a member of several exchanges that have rules 
requiring a Professional designation, will be able to route 
Professional orders to those options exchanges that require 
Professional orders to be designated as such.\9\
---------------------------------------------------------------------------

    \8\ See Notice, supra note 3.
    \9\ The Professional definition proposed by NOM comports with 
the Professional designation that has been implemented by Phlx, 
CBOE, ISE, and NYSE Amex LLC (``NYSE Amex''). See Securities 
Exchange Act Release Nos. 61802 (March 30, 2010), 75 FR 17193 (April 
5, 2010) (SR-Phlx-2010-05); 61198 (December 17, 2009), 74 FR 68880 
(December 29, 2009) (SR-CBOE-2009-078); 59287 (January 23, 2009), 74 
FR 5694 (January 30, 2009) (SR-ISE-2006-26); and 61818 (March 31, 
2010), 75 FR 17457 (April 6, 2010) (SR-NYSEAmex-2010-18).
---------------------------------------------------------------------------

    The Professional definition will not revise the Exchange's price/
time order entry (priority) rules. For example, unlike other options 
exchanges with the Professional designation, the proposed rule change 
does not affect on NOM the priority of orders designated as 
Professional. Instead, the proposal is intended to make certain that 
Participants mark Professional orders properly regardless of whether 
the order is entered on NOM or routed to another options exchange that 
has the Professional designation. Moreover, when the proposed 
Professional designation is in place, NOM will be able to accept orders 
that are marked as Professional.\10\
---------------------------------------------------------------------------

    \10\ According to NASDAQ, NOM only accepts orders that are 
marked as customer, firm, market maker, or away market maker orders.
---------------------------------------------------------------------------

    The designation of an order as Professional will not result in any 
different treatment of such orders for purposes of NOM rules concerning 
away market protection. That is, all non-broker-dealer orders, 
including those orders that meet the definition of Professional, will 
continue to be treated equally for purposes of NOM's away market 
protection rules.\11\
---------------------------------------------------------------------------

    \11\ See, e.g., Chapter VI, Section 11 and Chapter XII.
---------------------------------------------------------------------------

III. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\12\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act, which 
requires, among other things, that the rules of a national securities 
exchange be designed 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 general, to protect 
investors and the public interest, and not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \12\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    The Commission notes that NOM's proposed definition of Professional 
and requirement that Professional orders be properly marked are 
consistent with the rules of other exchanges relating to Professional 
orders, which previously were approved by the Commission.\13\ The 
Commission notes that the proposal will not amend NOM's price/time 
order entry (priority) rules with respect to the treatment of orders 
submitted to NOM. The proposal in effect allows NOM to accept orders 
marked as Professional and, if necessary to comply with its order 
protection rules, to route them via NOS to an away market that 
maintains the Professional order designation, in accordance with that 
exchange's order marking requirements. The Commission believes that 
conforming NOM's rules to those of the other exchanges that have the 
Professional order designation will reduce disparate rules in this area 
and may help reduce regulatory arbitrage.
---------------------------------------------------------------------------

    \13\ See supra note 9.
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-NASDAQ-2010-099) be, and 
hereby is, approved.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-25420 Filed 10-7-10; 8:45 am]
BILLING CODE 8011-01-P