[Federal Register Volume 76, Number 46 (Wednesday, March 9, 2011)]
[Notices]
[Pages 13007-13010]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-5380]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64032; File No. SR-NASDAQ-2011-029]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Modify the Minor Rules Violation Plan of the Nasdaq Options Market With
Respect to Standardized Options
March 4, 2011.
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 February 18, 2011, The NASDAQ Stock Market LLC (``NASDAQ'' or
``Exchange'') 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. 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 240.19-b4.
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I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
NASDAQ proposes to modify the Minor Rules Violation Plan with
respect to standardized options as set forth in Chapter X, Section 7 of
the Nasdaq Options Market (``NOM'') rules.
The text of the proposed rule change is available at http://nasdaq.cchwallstreet.com/, at NASDAQ's principal office, on the
Commission's Web site at http://www.sec.gov, 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, 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
The Minor Rules Violation Plan (``MRVP'') fosters compliance with
applicable rules and also helps to reduce the number and extent of rule
violations committed by Options Participants and associated persons.
The MRVP is particularly useful in reducing both the number and extent
of rule violations because the text of the rule, located at Chapter X,
Section 7, enables staff to promptly impose a limited but meaningful
financial penalty soon after the violations are detected. The prompt
imposition of a financial penalty helps to quickly educate and improve
the conduct of Options Participants and associated persons that have
engaged in inadvertent or otherwise minor violations of the Exchange's
rules, particularly those parties who may not pay attention to mere
warnings that they are violating Exchange rules. By promptly imposing a
meaningful financial penalty for such violations, the MRVP focuses on
correcting conduct before it gives rise to more serious enforcement
action.
The Exchange believes its proposal places the Exchange on par with
all other options exchanges. Currently, all options exchanges have
entered into a plan pursuant to Rule 17d-2 of the Act (the ``Plan'') to
agree to allocate regulatory responsibility for certain rules common to
all options exchanges. Adding the proposed rules to the Exchange's
minor rule plan promotes consistency with the minor rule violations
plans of the other exchanges, particularly with respect to rule [sic]
that are classified as common rules pursuant to the Plan.
In light of recent amendments to Exchange rules, the Exchange is
proposing to make amendments to the MVRP as described in greater detail
below. While the MRVP will continue to be used for inadvertent and
occasional rule violations, serious violations of Exchange rules will
continue to be addressed through formal enforcement action.\3\
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\3\ See Exchange Section 9200 Series Rules.
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LOPR Reporting and Position Limit Violations
Proposed new subsection (d) of Chapter X, Section 7 will govern
minor violations of the rules regarding Large Option Position Report
(``LOPR'') Reporting and Position Limits as set forth in Chapter III,
Sections 7-10. This
[[Page 13008]]
section applies to position limits and maintaining and furnishing
reports related to applicable position limits for options contracts.
For minor rule violations of LOPR Reporting, the fine for a first
offense would be $1,000; the fine for a second offense would be $2,500;
and for any subsequent offense the fine would be $5,000. For minor rule
violations of position limits, the fine for a first offense would be
$500; for a second offense the fine would be $1,000; and for any
subsequent offense the fine would be $2,500. The scope of this proposed
subsection is substantially similar to and is applicable to the conduct
covered by the MRVP provision of Rule 476A, Part 1C(i)(17) of the NYSE
Amex Exchange (``Amex''). Specifically, Amex Rule 476A, Part 1C(i)(17),
entitled ``Position Limit or Exercise Limit Violation. (Rule 904, 904C,
905, 905C, 1107, 1108)'' governs violations of position and exercise
limits set forth in the enumerated Amex rules. Furthermore, proposed
new subsection (d) references Chapter III, Sections 7, 8, and 9 of the
Exchange Rules and also govern violations of position (Sections 7 and
8) and exercise (Section 9) limits. Likewise, Amex Rule 476A, Part
1C(i)(38), entitled ``Reporting of options positions. (Rule 906(a) and
906C(a))'' governs a failure to report options positions as set forth
in Amex Rule 906 (Reporting of Options Positions), which is similar to
Exchange Rule Chapter III, Section 10 (Reports Related to Position
Limits). Based on the similarity of rules between the Exchange and Amex
and the overlap between NOM and Amex members, the Exchange believes
that the proposal is non-controversial.
Expiring Exercise Declaration Rule Violations
Proposed new subsection (e) would govern minor violations regarding
exercise of options contracts, allocation of exercise notices and
delivery and payment of the underlying security set forth in Chapter
VIII, Sections 1-3 of the Exchange's Rules. For these minor rules
violations by individuals, the fine for a first offense would be $500,
the fine for a second offense would be $1,000, and for any subsequent
offense the fine would be $2,500. For these minor rules violations by a
firm, the fine for a first offense would be $1,000, the fine for a
second offense would be $2,500, and for any subsequent offense the fine
would be $5,000. The language of this proposed subsection is identical
to and applicable to the conduct covered by the MRVP provision in
Chapter X, Section 2(f) of the rules of the rules of Boston Options
Exchange (``BOX'').
Audit Trail Submissions and Record Keeping Requirements Violations
Proposed new subsection (f) would govern minor violations of the
Audit Trail Submissions and Record Keeping Requirements set forth in
Chapter V, Section 7 and Chapter IX, Sections 1-3 of the Exchange's
Rules. These rules address the submission of audit trail information
and require information to be recorded, retained and provided upon
request by the Exchange's Regulation or other applicable regulatory
entity. For minor rules violations regarding the submission of audit
trail information, the fine for a first offense would be $1,500, the
fine for a second offense would be $3,000, and for any subsequent
offense the fine would be $5,000. The proposed provision is
substantially similar to and applicable to conduct covered by Rule
10.12(h)(2) entitled ``Failure to comply with order formal and system
entry requirements of Rule 6.67'' and Rule 10.12(k)(i)(2) of the rules
of the NYSE Arca, Inc. (``NYSE Arca''). Likewise, the fine amounts are
mirror NYSE Arca for minor rules violations regarding recordkeeping
requirements and requirements for providing records upon request--the
fine for a first offense would be $2,000, the fine for a second offense
would be $4,000, and for any subsequent offense the fine would be
$5,000. The proposed provision is substantially similar to and
applicable to conduct covered by Rule 10.12(j)(10) entitled ``Failure
to comply with the books and records requirements of Rule 9.17'' and
Rule 10.12(k)(iii)(10) of the rules of NYSE Arca.
Representation of Orders Violations
Proposed new subsection (g) will govern minor violations of the
rules regarding Representation of Orders set forth in Chapter VII,
Section 12 of the Exchange Rules. These rules restrict options
participant executions of principal orders they represent as agent
unless proper exposure parameters are applied. For these minor rules
violations, the fine for a first offense would be $1000, the fine for a
second offense would be $2,500, and for any subsequent offenses the
fine would be $5,000. This proposed provision is substantially similar
to and applicable to the same conduct and fines covered by Rules
10.12(h)(34) entitled ``Failure to satisfy the Order Exposure
Requirements set forth in Rule 6.47A and its Commentary'' and Rule
10.12(k)(i)(34) of the rules of NYSE Arca. NYSE Arca Rule 6.47A governs
requirements for exposed orders.
Trade Reporting Violations
Proposed new subsection (h) will govern minor violations of the
Trade Reporting rules set forth in Chapter VI, Sections 14 and 15 of
the Exchange Rules. These rules require that all transactions effected
on the Exchange: (i) be submitted for clearance to The Options Clearing
Corporation; (ii) that Options Participants report the name of the
Clearing Participants; and (iii) the prompt reporting of any change in
this identity to the Exchange. For these minor rules violations, the
fine for a first offense would be $1,500, the fine for a second offense
would be $3,000, and for any subsequent offense the fine would be
$5,000. This proposed provision is substantially similar to and
applicable to the same conduct and fines covered by Rule 10.12(h)(38)
entitled ``Failure to comply with the reporting duties of Rule 6.69)''
of the rules of NYSE Arca. Specifically, NYSE Arca Rule 6.69(e) governs
the submission of trade reporting information regarding clearing
through The Options Clearing Corporation.
Locked and Cross Market Violations
Proposed new subsection (i) will govern Locked and Cross Market
Violations as set forth in Chapter XII, Section 3 of the Exchange
Rules. The Locked and Crossed Markets rules address violations of the
rules regarding avoidance of Locked or Crossed Markets. For these minor
rules violations, the fine for a first offense would be $500, the fine
for a second offense would be $1,000, and for any subsequent offense
the fine would be $2,500. The language of this proposed subsection is
identical to and applicable to the conduct and fines covered by Rule
10.12(h)(35) entitled ``Failure to avoid locking a market (Rule 6.95)''
and 10.12(k)(i)(35) of the rules of NYSE Arca. The underlying
provisions of the Exchange and NYSE Arca rules are all based on the
same provisions of the Options Order Protection and Locked/Crossed
Market Plan.\4\
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\4\ On August 31, 2009, the Nasdaq Stock Market, LLC and NASDAQ
OMX PHLX LLC (herein collectively referred to as ``NASDAQ'') entered
into the ``Options Order Protection and Locked/Crossed Market Plan''
(``Plan'') amongst other Participants, which was approved by the
Securities and Exchange Commission (``SEC'') pursuant to Section
11A(a)(3)(B) of the Exchange Act and Rule 608, effective on August
28, 2009, Release No. 34-60582.
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Trade-Through Violations
Proposed new subsection (j) would govern Trade-Through Violations
that occur pursuant to Chapter XII, Section 2(a) of the Exchange Rules.
The Trade-Through Rules prevent market
[[Page 13009]]
participants from executing orders at prices that are inferior to other
displayed quotations. For these minor rules violations, the fine for a
First Offense would be $500, the fine for a second offense would be
$1,000, and for any subsequent offense the fine would be $2,500. The
language of this proposed subsection is substantially applicable to the
conduct and fines covered by Rule 10.12(h)(29) entitled ``Failure to
comply with the requirements for avoidance of trade-throughs set forth
in Rule 6.94(a)'' and Rule 10.12(k)(i)(29) of the rules of NYSE Arca.
The underlying provisions of the Exchange and NYSE Arca rules are all
based on the same provisions of the Options Order Protection and
Locked/Crossed Market Plan.
Failure to Timely File Amendments to Form U4, Form U5 and Form BD
Violations
Proposed new subsection (k) would govern Failure to Timely File
Amendments to Form U4, Form U5 and Form BD. Any member and/or
participant organization that is required to file Form U4, Form U5 or
Form BD pursuant to Section 1031 of the Exchange Rules, the Act, and/or
the rules promulgated thereunder, is required to amend the applicable
Form U4, Form U5 or Form BD to keep such forms current at all times.
Members and/or participant organizations must amend Form U4, Form U5
and Form BD within thirty days after the filer knew of or should have
known of the need for the amendment. For these minor rules violations,
implemented on a running twelve (12) month period the fine for a first
offense would be $500, the fine for a second offense would be $1,000,
and for any subsequent offense the fine would be $2,000. The language
of this proposed subsection is identical to and applicable to the
conduct and fines covered by the MRVP provision in Chapter X, Section
2(e) of the rules of BOX, which addresses the same provisions.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\5\ in general, and Section
6(b)(5) of the Act,\6\ in particular, because it 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 facilitating transactions in securities, and to
remove impediments to and perfect the mechanism of a free and open
market and a national market system. The proposed rule change is
consistent with the statute in that it directly addresses fraudulent
and manipulative acts and practices by NOM members.
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\5\ 15 U.S.C. 78f.
\6\ 15 U.S.C. 78f(b)(5).
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The proposed rule change is consistent with Section 6(b)(6) of the
Act \7\ which provides that members and persons associated with members
shall be appropriately disciplined for violation of the provisions of
the rules of the exchange, by expulsion, suspension, limitation of
activities, functions, and operations, fine, censure, being suspended
or barred from being associated with a member, or any other fitting
sanction. The establishment and modification of a MRVP directly
addresses such requirement.
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\7\ 15 U.S.C. 78f(b)(6).
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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, as amended.
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
Pursuant to Section 19(b)(3)(A) of the Act \8\ and Rule 19b-4(f)(6)
thereunder,\9\ The [sic] Exchange has designated this proposal as one
that effects a change that: (i) Does not significantly affect the
protection of investors or the public interest; (ii) does not impose
any significant burden on competition; and (iii) by its terms, does not
become operative for thirty days after the date of the filing, or such
shorter time as the Commission may designate if consistent with the
protection of investors and the public interest. The Exchange has
provided the Commission written notice of its intent to file the
proposed rule change, along with a brief description and text of the
proposed rule change, at least five business days prior to the date of
filing of the proposed rule change.
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\8\ 15 U.S.C. 78s(b)(3)(A).
\9\ 17 CFR 240.19b-4(f)(6).
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The Exchange believes that the filing may appropriately be
designated for filing under Rule 19b-4(f)(6) because the filing
eliminates inconsistencies between the Exchange's MRVP and those of
other exchanges. The proposed rules of the Exchange are substantially
similar to the rules of other exchanges. This similarity is the basis
for the Exchange's belief that the proposed rule change is non-
controversial. Since no significant issues have been raised with this
``copycat'' filing, the Exchange believes that this filing will afford
it the same operability regarding the MRVP as the other exchanges.\10\
In addition, the proposal will improve the regulation of NOM and its
members, and enhance investor protection on the Exchange.
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\10\ See Securities Exchange Act Release No. 58092 (July 3,
2008), 73 FR 40144 (July 11, 2008) at 40151, where the Securities
and Exchange Commission acknowledges that ``any increase in the
number of proposed rule changes that may become effective upon
filing with the Commission should improve the ability of SROs to
amend their rules efficiently, particularly with respect to rules
relating to trading systems and ``copycat'' proposals, which will
enhance their ability to respond to competitive pressures by
allowing them to file changes to their systems on an immediately-
effective basis''.
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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 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, as amended, 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-2011-029 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-2011-029. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your
[[Page 13010]]
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 website 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 Number SR-NASDAQ-2011-029, and should be submitted on or before
March 30, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-5380 Filed 3-8-11; 8:45 am]
BILLING CODE 8011-01-P