Document ID: SEC-2007-1001-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: NASDAQ Stock Market LLC
Posted Date: 2007-07-25T04:00Z

[Federal Register: July 25, 2007 (Volume 72, Number 142)]
[Notices]               
[Page 40917-40918]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25jy07-107]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56096; File No. SR-NASDAQ-2007-037]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Amendment No. 2 and Order Granting Accelerated 
Approval of Proposed Rule Change, as Modified by Amendment Nos. 1 and 
2, To Modify Order Audit Trail System Rules To Provide an Exemption 
From Transmission Requirements for Proprietary Orders

July 18, 2007.

I. Introduction

    On April 3, 2007, The NASDAQ Stock Market LLC (``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 
provide an exemption from OATS transmission requirements for certain 
proprietary orders. On June 4, 2007, Nasdaq filed Amendment No. 1. The 
proposed rule change, as amended, was published for comment in the 
Federal Register on June 6, 2007.\3\ The Commission received one 
comment letter expressing support for the proposal.\4\ On July 17, 
2007, Nasdaq filed Amendment No. 2. This notice and order notices 
Amendment No. 2; solicits comments from interested persons on Amendment 
No. 2; and approves the proposed rule change, as amended, on an 
accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 55870, 72 FR 32692 
(June 13, 2007).
    \4\ See letter from Stephen Schuler, Managing Member, Global 
Electronic Trading Company, LLC to Nancy M. Morris, Secretary, 
Commission, dated July 3, 2007.
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II. Description of Proposal

    Nasdaq proposes to modify its OATS rules to adopt a limited 
exemption from OATS \5\ order data transmission requirements for 
proprietary trading firms. Nasdaq proposes to define a ``Proprietary 
Trading Firm'' as a Nasdaq member that trades its own capital, with all 
the trading being done in the firm's accounts by traders that are 
owners of, employees of, or contractors to the firm. A Proprietary 
Trading Firm would not have ``customers,'' as that term is defined in 
Nasdaq Rule 0120(g) and would not be a member of the NASD.
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    \5\ OATS is an integrated audit trail of order, quote, and trade 
information for Nasdaq securities used to recreate events in the 
life cycle of orders and more completely monitor the trading 
practices of member firms.
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    Nasdaq proposes to amend Nasdaq Rule 6955 regarding transmission of 
OATS data to provide that a Proprietary Trading Firm would be required 
to transmit OATS order data information to Nasdaq Regulation only upon 
request.\6\ Although a Proprietary Trading Firm would not be required 
to transmit the order data information to Nasdaq Regulation unless 
requested, it still would be responsible for maintaining and retaining 
the information in a format that could be easily integrated into the 
NASD's OATS system in the event Nasdaq Regulation makes a request for 
such information.
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    \6\ Rule 0130 provides that the term Nasdaq Regulation should be 
understood as also referring to NASD staff, NASD Regulation staff, 
and NASD departments acting on behalf of Nasdaq pursuant to a 
regulatory services agreement between Nasdaq and the NASD.
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III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 2, including whether Amendment No. 2 
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-NASDAQ-2007-037 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-2007-037. 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, 100 F Street, 
NE., Washington, DC 20549, on official business days between the hours 
of 10 a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of Nasdaq. 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-2007-037 and should 
be submitted on or before August 15, 2007.

IV. Discussion

    After careful review, the Commission finds that the proposed rule 
change, as amended, is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange,\7\ and, in

[[Page 40918]]

particular, the requirements of Section 6 of the Act.\8\ Specifically, 
the Commission finds that the proposal is consistent with Section 
6(b)(5) of the Act \9\ 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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    \7\ The Commission has considered the amended proposed rule 
change's impact on efficiency, competition and capital formation. 15 
U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(5).
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    OATS was designed to provide an accurate, time-sequenced record of 
orders and transactions, beginning with the receipt of an order at the 
first point of contact between the broker-dealer and the customer or 
counterparty and further documenting the life of the order through the 
process of execution. One of the principle objectives of OATS is 
customer protection through the transparency of the executions of 
customer orders. The Commission does not believe that the proposed rule 
change would impact this objective since, by definition, Proprietary 
Trading Firms do not handle customer orders. Further, the Commission 
notes that Nasdaq believes that the current requirement for Proprietary 
Trading Firms to transmit all order data information is onerous and is 
not offset by an equivalent regulatory benefit. In addition, the 
Commission notes that this approach parallels the approach undertaken 
by the New York Stock Exchange (``NYSE'') in NYSE Rule 132C, which 
requires NYSE members, upon request, to transmit order tracking data to 
the NYSE.\10\
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    \10\ See Securities Exchange Act Release No. 47689 (April 17, 
2003), 68 FR 20200 (April 24, 2003) (Order approving SR-NYSE-99-51).
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    The Commission therefore believes that it is consistent with the 
Act to permit Proprietary Trading Firms to submit OATS data to Nasdaq 
only upon request.

V. Accelerated Approval

    The Commission finds good cause for approving the proposed rule 
change, as modified by Amendment Nos. 1 and 2, prior to the thirtieth 
day after publishing notice of Amendment No. 2 in the Federal Register 
pursuant to Section 19(b)(2) of the Act.\11\ In Amendment No. 2, Nasdaq 
clarified that the proposed exception from the daily OATS transmissions 
requirements for Proprietary Trading Firms would not extend to persons 
associated with Proprietary Trading Firms. The Commission believes that 
this is a clarifying change to the scope of the proposed rule change 
and raises no significant regulatory issues. The Commission therefore 
finds good cause exists to accelerate approval of the proposed change, 
as modified by Amendment Nos. 1 and 2, pursuant to Section 19(b)(2) of 
the Act.
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    \11\ 15 U.S.C. 78s(b)(2). Pursuant to Section 19(b)(2) of the 
Act, the Commission may not approve any proposed rule change prior 
to the thirtieth day after the date of publication of the notice 
thereof, unless the Commission finds good cause for so doing.
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-NASDAQ-2007-037), as 
modified by Amendments No. 1 and 2, is approved on an accelerated 
basis.
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    \12\ 15 U.S.C. 78s(b)(2).
    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-14356 Filed 7-24-07; 8:45 am]

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