[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
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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]
BILLING CODE 8010-01-P