[Federal Register: January 2, 2009 (Volume 74, Number 1)]
[Notices]
[Page 160-161]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02ja09-65]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-59163; File No. SR-NASDAQ-2008-097]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by The NASDAQ Stock Market LLC Adopting a Limited Exemption From
OATS Order Data Recordation Requirements for Registered Options Market
Makers
December 24, 2008.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on December 12, 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. 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 proposes to adopt a limited exemption from OATS order data
recordation requirements for Bona Fide Hedging Transactions in Nasdaq-
listed equities that are transacted by Nasdaq members that are
registered market makers in standardized options.
The text of the proposed rule change is below. Proposed new
language is in italics; proposed deletions are in [brackets].\3\
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\3\ Changes are marked to the rule text that appears in the
electronic manual of Nasdaq found at http://nasdaq.complinet.com.
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* * * * *
6951. Definitions
For purposes of the Rule 6950 Series:
(a)-(h) No change.
(i) ``Order'' shall mean any oral, written, or electronic
instruction to effect a transaction in an equity security listed on
The Nasdaq Stock Market that is received by a member from another
person for handling or execution, or that is originated by a
department of a member for execution by the same or another member,
other than any such instruction to effect (1) a proprietary
transaction originated by a trading desk in the ordinary course of a
member's market making activities in a Nasdaq-listed equity security
or (2) effect a Bona Fide Hedge Transaction involving a Nasdaq-
listed equity security originated by a trading desk in the ordinary
course of the member's options market making activities.
(j)-(n) 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
Nasdaq proposes to modify its OATS rules to adopt a limited
exemption from OATS order recordation requirements for bona fide
hedging transactions in Nasdaq-listed equity securities that are part
of a Nasdaq member's market
[[Page 161]]
making activity in options. The proposal applies to options transaction
on any options market in any standardized option made available for
clearing through the Options Clearing Corporation.
OATS is an integrated audit trail of order, quote, and trade
information for Nasdaq equity securities used to recreate events in the
life cycle of orders and more completely monitor the trading practices
of member firms. The basis for OATS is customer protection through the
transparency of the executions of customer orders in equity securities.
OATS was designed to provide an accurate, time-sequenced record of
orders and transactions, beginning with the receipt of an equity order
at the first point of contact between the broker-dealer and the
customer or counterparty and further documenting the life of the equity
order through the process of execution.
Consistent with that basis, there is currently no OATS requirement
with respect to options listed on the NASDAQ Options Market.
Additionally, there are currently exemptions from OATS requirements for
orders entered by market makers in Nasdaq securities and by proprietary
trading firms because such orders are not submitted on behalf of
customers and therefore do not necessitate the customer protection
provided by OATS.
The proposed rule change does not impact the customer protection
orientation of OATS since, by definition, bona fide hedging
transactions in equity securities that are undertaken by options market
makers do not involve customer orders in those equity securities.
Rather, bona fide hedging transactions in equity securities are
undertaken by an options market maker to hedge against the firm risk
that it creates through its conduct as a registered options market
maker. Accordingly, submitting bona fide hedging transactions to OATS
recording requirements provides no customer protection or equivalent
regulatory benefit. It is also very expensive for firms that are not
currently FINRA members or that do not currently trade NASDAQ equities
to develop and maintain the compliance systems and compliance staff
required to continuously monitor the daily transmission of OATS data.
Additionally, information regarding bona fide hedging transactions
retained by a registered NOM market maker is otherwise available to
FINRA and Nasdaq Regulation through Nasdaq's electronic delivery
systems, upon request. This information includes trade reporting data,
including order time and sales data captured by the Nasdaq system.
2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
the provisions of Section 6 of the Act,\4\ in general, and with Section
6(b)(5) of the Act,\5\ in particular, 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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\4\ 15 U.S.C. 78f.
\5\ 15 U.S.C. 78f(b)(5).
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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
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self regulatory organization consents, the Commission will:
(A) By order approve the proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be 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 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-2008-097 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-2008-097. 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 the 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-2008-097 and should
be submitted on or before January 23, 2009.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\6\
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\6\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-31203 Filed 12-31-08; 8:45 am]
BILLING CODE 8011-01-P