[Federal Register Volume 75, Number 195 (Friday, October 8, 2010)]
[Notices]
[Pages 62443-62444]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-25420]
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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.
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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. 62724 (August 16,
2010), 75 FR 51509 (``Notice'').
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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.
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\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).
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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\
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\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).
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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\
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\10\ According to NASDAQ, NOM only accepts orders that are
marked as customer, firm, market maker, or away market maker orders.
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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\
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\11\ See, e.g., Chapter VI, Section 11 and Chapter XII.
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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.
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\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).
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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.
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\13\ See supra note 9.
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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.
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\14\ 15 U.S.C. 78s(b)(2).
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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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-25420 Filed 10-7-10; 8:45 am]
BILLING CODE 8011-01-P