

[Federal Register: November 14, 2007 (Volume 72, Number 219)]
[Notices]               
[Page 64102-64103]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14no07-89]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56759; File No. SR-NASDAQ-2007-069]

 
Self-Regulatory Organization; The NASDAQ Stock Market LLC; Order 
Approving Proposed Rule Change and Amendment No. 1 Thereto To Amend Its 
Rule Governing the Relation of a Nasdaq Market Maker's Quotations to 
the Prevailing Market

November 7, 2007.
    On August 1, 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 eliminate a 
requirement governing the relation of Nasdaq market makers' quotations 
to the prevailing market. On September 19, 2007, Nasdaq filed Amendment 
No. 1 to the proposed rule change. The proposed rule change, as 
amended, was published for comment in the Federal Register on October 
5, 2007.\3\ The Commission received no comments regarding the proposal, 
and is thereby approving the proposed rule change as modified by 
Amendment No. 1.
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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. 56586 (October 1, 
2007), 72 FR 57085.
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    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.\4\ In 
particular, the Commission finds that the proposed rule change is 
consistent with section 6(b)(5) of the Act, \5\ which requires that the 
rules of an 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 securities

[[Page 64103]]

system, and, in general, to protect investors and the public interest.
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    \4\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \5\ 15 U.S.C. 78f(b)(5).
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    Nasdaq proposes to amend Rule 4613(c) to eliminate the requirement 
that a Nasdaq market maker's quotations be ``reasonably related to the 
prevailing market.'' The requirement was adopted in 1987, at which time 
Nasdaq was part of the National Association of Securities Dealers, Inc. 
and operated an over-the-counter market with competing dealers. Nasdaq 
states that the requirement is no longer meaningful, given the 
regulatory changes, as well as the changes Nasdaq has made to the way 
its market operates in the last 20 years. However, for each security in 
which they are registered, market makers would continue to be required 
to be willing to buy and sell the security for their own account on a 
continuous basis and at all times maintain a two-sided, attributable 
quotation that is displayed in the Nasdaq Quotation Montage. The 
Commission believes that the proposal is reasonable in that it mirrors 
the market maker definition set forth in section 3(a)(38) of the Act 
\6\ and is consistent with market maker obligations contained in rules 
of other national securities exchanges.\7\ Furthermore, the Commission 
notes that Nasdaq has represented that it will carefully monitor the 
performance of market makers to determine if the proposal has any 
impact on the extent to which market makers quote at or near the inside 
market.\8\
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    \6\ 15 U.S.C. 78c(a)(38).
    \7\ See, e.g., NYSE Arca Rule 7.23.
    \8\ In addition, the Commission notes that this rule change does 
not affect the market maker exception from the ``locate'' 
requirement of Regulation SHO under the Act. Rule 203(b)(2)(iii) of 
Regulation SHO provides an exception from the ``locate'' requirement 
for short sales executed by market makers, as defined in section 
3(a)(38) of the Act, but only in connection with bona-fide market 
making activities.
    To qualify for Regulation SHO's ``locate'' exception, a broker-
dealer must be both a market maker in the specific security and 
engaged in bona fide market making at the time of the short sale for 
which the broker-dealer is claiming the exception. Thus, a broker-
dealer's general status as a market maker or its status as a market 
maker in the security being sold short does not qualify it for the 
exception. Further, Regulation SHO's ``locate'' requirement applies 
on a transaction-by-transaction basis and, therefore, a market maker 
must determine whether it is engaged in bona fide market making for 
each short sale transaction. See Securities Exchange Act Release No. 
50103 (July 28, 2004), 69 FR 48008 (August 6, 2004).
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    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\9\ that the proposed rule change (SR-NASDAQ-2007-069), as modified 
by Amendment No. 1, be, and it hereby is, approved.
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    \9\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-22164 Filed 11-13-07; 8:45 am]

BILLING CODE 8011-01-P
