[Federal Register Volume 73, Number 155 (Monday, August 11, 2008)]
[Notices]
[Pages 46696-46698]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-18459]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-58305; File No. SR-NASDAQ-2008-063]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
To Modify the Rules Governing the Requirements for Market Maker
Quotations on the NASDAQ Options Market
August 5, 2008.
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 July 15, 2008, The NASDAQ Stock Market LLC (``NASDAQ'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described in Items I, II, and III below, which Items
have been prepared by NASDAQ. NASDAQ has designated the proposed rule
change as constituting a non-controversial rule change under Rule 19b-
4(f)(6) under the Act,\3\ which renders the proposal effective upon
filing with the Commission. 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.
\3\ 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 modify Chapter VII, Section 6 of the Nasdaq
rules governing the requirements for market maker quotations on the
NASDAQ Options Market (``NOM''). The text of the proposed rule change
is below. Proposed new language is italicized; proposed deletions are
in brackets.\4\
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\4\ Changes are marked to the rule text that appears in the
electronic Nasdaq Manual found at http://nasdaq.complinet.com.
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* * * * *
Chapter VII, Sec. 6 Market Maker Quotations
(a) Size Associated with Quotes. A Market Maker's bid and offer for
a series of options contracts shall be accompanied by the number of
contracts at that price the Market Maker is willing to buy or sell. The
best bid and best offer entered by a Market Maker must have a size of
at least [ten (10)] one (1) contract[s].
(b)-(e) 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, NASDAQ 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. NASDAQ 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
On March 12, 2008, the Commission approved SR-NASDAQ-2007-004 and
SR-NASDAQ-2007-080, proposals to create the NASDAQ Options Market or
[[Page 46697]]
NOM.\5\ NOM has been performing above expectations since NASDAQ
launched trading on March 31, 2008. There are multiple firms registered
as market makers and over two dozen additional firms providing
liquidity through NOM's system. NOM's market share of listed options
continues to grow although NOM trades only a small percentage of all
available options classes and series. Despite this early success,
NASDAQ continues to monitor the market to identify instances where
market efficiency can be enhanced.
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\5\ Securities Exchange Act Release No. 57478 (March 12, 2008),
73 FR 14521 (March 18, 2008) (order approving SR-NASDAQ-2007-004 and
2007-080).
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NASDAQ believes that the efficiency of its market can be enhanced
by permitting market makers to enter quotations for one or more
contracts rather than requiring that they enter quotations for 10 or
more contracts in series in which they are registered. NASDAQ projects
that modifying the quotations requirements in this manner will
encourage more options trading firms to register as market makers on
NOM and to provide more liquidity to NOM participants. An overall
increase in liquidity will benefit investors and serve the public
interest.
The NOM Rules will continue to ensure that market makers actively
quote. For example, NOM Rule Chapter VII, Section 6(d)(i) states that,
on a daily basis, a market maker must maintain continuous two-sided
quotations and participate in the pre-opening phase in 75% of the
options series in which the market maker is registered. In addition,
NOM provides functionality that allows registered market makers to
automatically input a quotation on the side of the market that has been
depleted. Moreover, pursuant to paragraph (d)(ii) of Section 6, Nasdaq
Regulation may call upon a market maker registered in a particular
series to maintain continuous bids or offers. Thus, Nasdaq may require
a market maker to continuously quote if it is the only registered
market maker in the series.
NASDAQ believes that this proposal is consistent with the Act and
also with the Commission's well-settled position that the Act does not
mandate any particular market model:
The Commission agrees that the Act does not mandate a particular
market model for national securities exchanges, and believes that
many different types of market models could satisfy the requirements
of the Act. The Commission does not believe that the Act requires an
exchange to have market makers. Although Market Makers could be an
important source of liquidity on NOM, they likely will not be the
only source. In particular, the NOM System is designed to match
buying and selling interest of all Participants on NOM. The
Commission therefore believes that the NOM structure is consistent
with the Act.\6\
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\6\ Id. at 14527 (footnotes omitted).
The Commission went on to note that ``[i]n its release adopting
Regulation ATS, the Commission rejected the suggestion that a
guaranteed source of liquidity was a necessary component of an
exchange'' and that the approved rules of the Archipelago Exchange did
not include a market maker requirement.\7\
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\7\ Id. at note 92.
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Nasdaq's proposal is also consistent with the current practice of
the NYSE/Arca Exchange of permitting options market makers to enter
quotations for one contract. The NYSE/Arca Options Market Maker
Orientation Manual states that a market maker quotation must be entered
for a minimum of one contract:
All Market Makers must contribute to the maintenance of a fair
and orderly market. Market Makers must honor the number of contracts
entered into the system in all series of options classes within
their Appointment. Any change to a quote (including reduction of
volume) causes the quote to lose priority. The minimum size is one
contract. Neither LMMs or MMs are required to quote on the Opening
Auction. (emphasis added).\8\
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\8\ http://www.nyse.com/pdfs/Options_MM_Orientation_Manual.pdf at page 2.
Nasdaq proposes to adopt the same requirement and to make it
transparent by including it in Nasdaq's official rule manual.
2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
the provisions of Section 6 of the Act,\9\ in general and with Section
6(b)(5) of the Act,\10\ in particular, in that it is designed 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; and are not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\9\ 15 U.S.C. 78f.
\10\ 15 U.S.C. 78f(b)(5).
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The proposed changes are consistent with the statute in that they
are designed to facilitate transactions in options on the Nasdaq
Options Market by encouraging participants to provide liquidity through
Nasdaq's system. If the proposal succeeds in attracting additional
liquidity providers and additional liquidity, the Nasdaq system will
then match more buying and selling interest between and among all NOM
participants.
B. Self-Regulatory Organization's Statement on Burden on Competition
Nasdaq does not believe that the proposed rule change will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. To the contrary, the proposal
is designed to enhance competition and is based upon the rules of
another national securities exchange that trades standardized options.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Nasdaq has designated this rule filing as non-controversial under
Section 19(b)(3)(A) of the Act,\11\ and Rule 19b-4(f)(6)
thereunder.\12\ Nasdaq believes that the rule change should take effect
immediately upon filing because it will effect a change that: (1) Does
not significantly affect the public interest or the protection of
investors, and (2) does not impose any significant burden on
competition, and (3) does not become operative for 30 days after the
date of this filing. As such, the proposal is effective upon filing
with the Commission. Nasdaq intends to make this rule proposal
operative 30 days after the date of filing.
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(6).
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At any time within 60 days of the filing of such proposed rule
change, the Commission may summarily abrogate the 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 the furtherance of the purposes of the Act.
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:
[[Page 46698]]
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File No. SR-NASDAQ-2008-063 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2008-063. 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-2008-063 and should
be submitted on or before September 2, 2008.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-18459 Filed 8-8-08; 8:45 am]
BILLING CODE 8010-01-P