Document ID: SEC-2015-0725-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The NASDAQ Stock Market, LLC
Posted Date: 2015-04-28T04:00Z

[Federal Register Volume 80, Number 81 (Tuesday, April 28, 2015)]
[Notices]
[Pages 23625-23627]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-09765]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74784; File No. SR-NASDAQ-2015-034]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to NASDAQ Market Center Participant Registration and Sponsored 
Access

April 22, 2015.
    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 April 20, 2015, The NASDAQ Stock Market LLC (``NASDAQ'' 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 NASDAQ. 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

    NASDAQ proposes to amend Rule 4611, entitled ``Nasdaq Market Center 
Participant Registration'' and adopt a new Rule 4615, entitled 
``Sponsored Participants.''
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.nasdaq.cchwallstreet.com, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

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
    The purpose of the proposed rule change is to amend Rule 4611, 
entitled ``Nasdaq Market Center Participant Registration'' to relocate 
4611(d), pertaining to Sponsored Access, to a new Rule 4615, entitled 
``Sponsored Participants,'' and adopt rule text similar to other 
exchanges.\3\ The Exchange does not believe that this proposed rule 
change will impact market participants currently accessing the System 
pursuant to Rule 4611.
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    \3\ The proposed rule text is similar to NASDAQ OMX PHLX LLC 
(``Phlx'') Rule 1094, the International Securities Exchange LLC 
(``ISE'') Rule 706, the Chicago Board Options Exchange Incorporated 
(``CBOE'') Rule 6.20A and NYSE ARCA, Inc. (``NYSE Arca'') Rule 7.29.
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    On January 13, 2010, the Commission approved the Exchange's current 
rule.\4\

[[Page 23626]]

On November 3, 2010, the Commission adopted Rule 15c3-5 which governs 
risk management controls by broker-dealers with market access.\5\ At 
this time, the Exchange proposes to modify its current rule to conform 
the rule text to that of other exchanges. Specifically, this proposed 
rule change would conform rule text related to Sponsored Access by 
eliminating provisions already covered by 15c3-5. The current rule 
applies to members conducting either an equities or an options 
business.
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    \4\ Securities Exchange Act Release No. 61345 (January 13, 
2010), 75 FR 3263 (January 20, 2010) (SR-NASDAQ-2008-104) (``NASDAQ 
Sponsored Access Approval Order'').
    \5\ Securities Exchange Act Release No. 63241, 75 FR 69792 
(November 15, 2010).
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    A Sponsored Participant is an entity with authorized electronic 
access to the Exchange for the entry and execution of orders. A 
Sponsored Participant trades under a Sponsoring Member's execution and 
clearing identity pursuant to a sponsorship arrangement. The proposed 
rule continues to require the Sponsoring Member to take responsibility 
for the Sponsored Participant's activity on the Exchange.
    Today, Nasdaq Rule 4611 provides that members that enter into an 
arrangement with another person or entity to provide that person with 
access to Nasdaq or otherwise allow such person to route its orders to 
Nasdaq using the member's market participant identifier, to provide 
such access are responsible for all trading conducted pursuant to that 
arrangement to the same extent as trading directly conducted by the 
member for customers. Consequently, the member is responsible for 
implementing policies and procedures for supervising and monitoring 
trading effected pursuant to the arrangement to ensure that it is in 
compliance with all applicable federal securities laws and rules and 
Exchange rules. A Sponsoring Member is required to execute and maintain 
agreements with each Sponsored Participants and commit to various 
Regulatory requirements and provided access to book and records and 
financial information. Financial limits are imposed on Sponsored 
Participants. Requirements are specified with respect to permissible 
technology. Other arrangements with Third Party Providers must also be 
documented and contain the commitments specified in Rule 4611(d)(3)(B). 
Rule 4611(d)(4) specified financial controls to monitor and control the 
Sponsored Access to limit financial exposure. Rule 4611(d)(5) specifies 
regulatory control to effectively monitor and control compliance with 
Regulatory Requirements.
    The Exchange intends to remove current Rule 4611(d) and adopt a new 
Rule 4515 with provisions related to Sponsored Access similar to that 
of other exchanges.\6\ The new proposed rule text similarly permits 
members conducting, either an equity or options business, to permit 
authorized access to the Exchange by Sponsored Participants provided 
they enter into a Sponsored Participant Agreement with the Exchange. 
Similar to current Rule 4611(d), the Sponsored Participant and its 
Sponsoring Member must enter into and maintain an agreement whereby the 
Sponsoring Member would continue to be responsible for orders entered 
into the System by the Sponsored Participant as well as all actions 
taken by the Sponsored Participant. The Sponsored Member shall continue 
to be bound to comply with Exchange' governance documents, Bylaws, 
Rules and procedures. The Sponsored Participant is required to provide 
a list of individuals authorized to access the Nasdaq Market Center on 
behalf of the Sponsored Participant and provide training to these 
individuals. The Sponsored Member must continue to restrict access to 
unauthorized persons, take reasonable security precautions to prevent 
unauthorized access, have in place adequate procedures and controls to 
monitor use and access to the Nasdaq Stock Market and pay fees that are 
owed. The Sponsoring Member must provide the Exchange with Notice of 
Consent acknowledging its responsibility for the orders, executions and 
actions of its Sponsored Participant at issue. The requirements 
specified with new Rule 4615(d), other than the list of individuals and 
the Notice of Consent, are currently required today in Rule 4611. The 
Exchange's new Rule requires a list of individuals and the consent that 
were previously not required by Rule. The rule text of current Rule 
4611(d), pertaining to financial and regulatory controls, is being 
removed. Members continue to be obligated to adhere to financial and 
regulatory controls as specified in Rule 15c3-5. New Rule 4615 
specifies the obligations of Sponsoring Members and Sponsoring 
Participants relative to accessing the Nasdaq Market Center. This new 
rule is consistent with rules of other exchanges.\7\ Market 
participants are required to comply with Rule 15c3-5 in addition to 
relevant exchange provisions where they are members.
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    \6\ The proposed rule text is similar to NASDAQ OMX PHLX LLC 
(``Phlx'') Rule 1094, the International Securities Exchange LLC 
(``ISE'') Rule 706, the Chicago Board Options Exchange Incorporated 
(``CBOE'') Rule 6.20A and NYSE ARCA, Inc. (``NYSE Arca'') Rule 7.29.
    \7\ Id.
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    The rule text is the current Rule 4611(d)(3) requires a Sponsoring 
Member that provides Sponsored Access to execute and maintain 
agreements with each Sponsored Participant containing the commitments 
noted in Rule 4611(d)(3)(i) through (v). The proposed rule would 
require the Sponsored Participant to enter into and maintain customer 
agreements with one or more Sponsoring Members establishing proper 
relationship(s) and account(s) through which the Sponsored Participant 
may trade on the Nasdaq Market Center in accordance with provisions set 
forth in Rule 4615(b)(ii). In addition, proposed Rule 4615(b)(ii)(D) 
requires the Sponsored Participant to maintain, keep current and 
provide to the Sponsoring Member a list of individuals authorized to 
obtain access to the Nasdaq Market Center on behalf of the Sponsored 
Participant. This list of authorized persons is not required under the 
current rules.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \8\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \9\ in particular, in that it is 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, 
by continuing to permit market participants gain access to a 
marketplace. Specifically, the Exchange believes the proposed rule 
change is consistent with the Section 6(b)(5) requirements that the 
rules of an exchange be designed to promote just and equitable 
principles of trade, to prevent fraudulent and manipulative acts, 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 
to perfect the mechanism for a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest.\10\ Additionally, the Exchange believes the proposed rule 
change is consistent with the Section 6(b)(5) requirement that the 
rules of a national securities exchange be designed to not permit 
unfair

[[Page 23627]]

discrimination between customer, issuers, brokers or dealers.\11\
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ Id.
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    The Commission adopted Rule 15c3-5 under the Act, which, among 
other things, requires broker-dealers providing others with access to 
an exchange or alternative trading system to establish, document, and 
maintain a system of risk management controls and supervisory 
procedures reasonably designed to manage the financial, regulatory, and 
other risks of providing such access.\12\ Rule 15c3-5 requires members 
to have in place certain pre-trade risk controls filters for sponsored 
orders, prior to those order being sent to the Exchange to ensure that 
regulatory and financial risk controls. Pursuant to Rule 15c3-5, 
broker-dealers with market access are obligated to establish, document, 
and maintain a system of risk management controls and supervisory 
procedures reasonably designed to manage financial, regulatory, and 
other risks of this business activity.
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    \12\ See Securities Exchange Act Release No. 63241 (November 3, 
2010), 75 FR 69792 (November 15, 2010).
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    The Exchange believes that the changes proposed herein should 
continue to offer market participants access to its marketplace. The 
Exchange believes that proposed Rule 4615 continues to require members 
to provide requisite information concerning sponsored arrangements, 
which aids the Exchange's efforts to monitor and regulate Nasdaq's 
markets and aids the prevention of fraudulent and manipulative 
practices.
    The Exchange believes that the proposed rule change is designed to 
avoid unfair discrimination among members, as the proposed rule change 
provides for the Exchange to impose requirements on members in an 
objective manner. Finally, the proposed rule change will help remove 
impediments to and promote a free and open market and a national market 
system because it is consistent with rules in place at other exchanges 
and imposes similar requirements on its members.

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 purposes of the Act. The proposed rule for 
Sponsored Access will continue to treat all members, equity and 
options, in a uniform fashion. The proposed rule change seeks to 
provide clear guidelines on the responsibilities of Sponsoring Members 
that provide Sponsored Access as well as the responsibilities owed by 
Sponsoring Members, with respect to Sponsored Participants, to the 
Exchange.
    The proposed rule change does not impose any undue burden on 
competition, rather it seeks to enable market participants to gain 
access to the marketplace.

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

    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 from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \13\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 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 Exchange has satisfied this requirement.
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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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
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 email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2015-034 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2015-034. 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 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-2015-034 and should 
be submitted on or before May 19, 2015.

    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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Brent J. Fields,
Secretary.
[FR Doc. 2015-09765 Filed 4-27-15; 8:45 am]
 BILLING CODE 8011-01-P