[Federal Register Volume 75, Number 193 (Wednesday, October 6, 2010)]
[Notices]
[Pages 61797-61799]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-25107]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63022; File No. SR-NASDAQ-2010-116)]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
To Modify Nasdaq's Order Routing Rule
September 30, 2010.
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 September 27, 2010, The NASDAQ Stock Market LLC (``Nasdaq'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I and
II, 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 is filing a proposal for the NASDAQ Options Market (``NOM''
or ``Exchange'') to modify Chapter VI, Section 11 of the NOM rules, to
add a new order routing option and to assign a name to the existing
routing option.
The text of the proposed rule change is available from Nasdaq's Web
site at http://nasdaq.cchwallstreet.com, at Nasdaq's principal office,
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
[[Page 61798]]
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
Nasdaq is amending Section 11, Order Routing, of Chapter VI of the
NOM rules which describes NOM's order routing processes, to add a new
routing option, and to assign the name ``SEEK'' to the existing routing
option. Currently SEEK, the only routing option available through NOM,
is described in Section 11(a) of Chapter VI. NOM is now proposing to
replace this existing language with text describing new, separately
named routing options, including SEEK. The proposed change to introduce
the SRCH routing option will provide market participants additional
tools with which to manage their order flow. Routing options may be
combined with all available order types and times-in-force, with the
exception of order types and times-in-force whose terms are
inconsistent with the terms of a particular routing option. The routing
options are described below.
Section 11(a)(1)(A) provides a description of SEEK which is the
Exchange's existing, unnamed order routing option. Section 11(a)(1)(A)
also specifically assigns the name SEEK to this existing routing
option. Pursuant to this option, an order first checks the System for
available contracts for execution. After checking the System for
available contracts, orders are sent to other available market centers
for potential execution, per the entering firm's instructions. When
checking the book, the System seeks to execute at the price at which it
would send the order to a destination market center. If contracts
remain un-executed after routing, they are posted on the book. Once on
the book, should the order subsequently be locked or crossed by another
market center, the System does not route the order to the locking or
crossing market center. The SEEK option is valuable to Participants
interested in executing as many contracts as possible upon submission
of the order to the Exchange. After executing on the Exchange and
routing to other destinations, any remaining unfilled portion will rest
passively on the Exchange book regardless of whether the order is
subsequently locked or crossed by another options exchange. This
provides participants with the ability to aggressively seek available
liquidity in the marketplace while also allowing the participant to set
the new market price (once available liquidity has been exhausted in
the marketplace) and avoid re-routing the order, potentially reducing
the fees paid by the participant.
The SRCH routing option operates in the same manner as SEEK except
that if the order is not completely executed after routing and is then
posted on the Exchange book, if another options exchange subsequently
locks or crosses the limit price of the order, it will re-route.
Similarly to SEEK, the SRCH option is valuable to Participants
interested in executing as many contracts as possible upon submission
of the order to the Exchange. However, there may be times that
participants wish to execute against any available liquidity that may
exist in the marketplace after the order has been posted, regardless of
other drawbacks associated with re-routing, in which case the SRCH
routing option better fits the participant's needs.
Pursuant to Section 11(c) of Chapter VI, orders sent by the System
pursuant to the SEEK and SRCH routing options to other markets would
not retain time priority with respect to other orders in the System. If
an order routed pursuant to SEEK or SRCH is subsequently returned, in
whole or in part, that order, or its remainder, will receive a new time
stamp reflecting the time of its return to the System.
Nasdaq is also deleting language from subsection 11(a) of Chapter
VI, which describes existing order routing processes. This language is
no longer necessary because it would be duplicative of the SEEK rule
language.
Nasdaq is also amending Section 11 to include a definition of
``System routing table,'' defined as the proprietary process for
determining the specific trading venues to which NOM routes orders and
the order in which it routes them.\3\ The definition reflects the fact
that NOM, like other trading venues, maintains different routing tables
for different routing options and modifies them on a regular basis to
reflect assessments about the destination markets. Such assessments
consider factors such as a destination's latency, fill rates,
reliability, and cost. Accordingly, the definition specifies that NOM
reserves the right to maintain a different routing table for different
routing options and to modify routing tables at any time without
notice. All routing complies with Chapter XII of the NOM rules, the
Options Order Protection and Locked and Crossed Market Rules.
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\3\ Nasdaq has previously defined the term ``System routing
table'' in connection with the Nasdaq Stock Market. See Securities
Exchange Act Release No. 34-61460 (February 1, 2010), 75 FR 6077
(February 5, 2010) (SR-NASDAQ-2010-018).
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Use of the various NOM routing options is purely voluntary. Market
Participants wishing to use a NOM routing option must provide the
Exchange with instructions specifying the option they wish to use. If
no instructions are provided, the Exchange will not route on behalf of
the participant.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \4\ in general, and furthers the objectives of Section
6(b)(5) of the Act \5\ 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.
The Exchange believes that the proposed change to introduce the new
routing options will provide market participants with greater
flexibility and success in managing and executing order flow while also
minimizing trading costs.
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\4\ 15 U.S.C. 78f(b).
\5\ 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
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 \6\ and Rule 19b-
4(f)(6) thereunder.\7\
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\6\ 15 U.S.C. 78s(b)(3)(A).
\7\ 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.
Nasdaq has satisfied this requirement.
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[[Page 61799]]
A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \8\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6) permits the Commission to
designate a shorter time if such action is consistent with the
protection of investors and the public interest. Nasdaq requests that
the Commission waive the 30-day operative delay. Nasdaq requests this
waiver because it currently has the technological changes ready to
support the proposed rule change, and believes that the benefits of
greater flexibility that are expected from the rule change should not
be delayed.
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\8\ 17 CFR 240.19b-4(f)(6).
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The Exchange believes that the rule change is designed to provide
market participants with an additional choice when availing themselves
of NOM's order routing and execution services. By offering an
additional routing option, Nasdaq hopes to benefit market participants
and their customers by allowing them greater flexibility in their
efforts to fill orders and minimize trading costs. Nasdaq provides
these services in a highly competitive market in which participants may
avail themselves of a wide variety of routing options. In such an
environment, system enhancements such as the changes proposed in this
rule filing do not burden competition, because they can succeed in
attracting order flow to NOM only if they offer investors higher
quality and better value than services offered by others. Encouraging
competitors to provide higher quality and better value is the essence
of a well-functioning competitive marketplace.
The Exchange also believes that immediate effectiveness of this
proposed rule change is especially appropriate given that routing
through NOM is purely optional. Market participants have the
flexibility to mark their orders as not available for routing. If there
is no benefit to the new routing strategy, market participants will
simply not use it. The Exchange will not apply the new order routing
strategy to market participants' orders without their positive consent.
In fact, market participants would have to make programming changes to
adopt the new routing strategy and would need to do nothing if they
chose not to adopt it.
The Commission believes that waiving the 30-day operative delay \9\
is consistent with the protection of investors and the public interest
and designates the proposal operative upon filing.
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\9\ For purposes only of waiving the 30-day operative delay, the
Commission has considered the proposed rule's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f).
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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.
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 [email protected]. Please include
File Number SR-NASDAQ-2010-116 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-NASDAQ-2010-116. 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, 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 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 No. SR-NASDAQ-
2010-116 and should be submitted on or before October 27, 2010.
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\10\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-25107 Filed 10-5-10; 8:45 am]
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