
[Federal Register: August 11, 2008 (Volume 73, Number 155)]
[Notices]               
[Page 46696-46698]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11au08-130]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58305; File No. SR-NASDAQ-2008-063]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Modify the Rules Governing the Requirements for Market Maker 
Quotations on the NASDAQ Options Market

August 5, 2008.
    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 July 15, 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. NASDAQ has designated the proposed rule 
change as constituting a non-controversial rule change under Rule 19b-
4(f)(6) under the Act,\3\ which renders the proposal effective upon 
filing with the Commission. 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.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to modify Chapter VII, Section 6 of the Nasdaq 
rules governing the requirements for market maker quotations on the 
NASDAQ Options Market (``NOM''). The text of the proposed rule change 
is below. Proposed new language is italicized; proposed deletions are 
in brackets.\4\
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    \4\ Changes are marked to the rule text that appears in the 
electronic Nasdaq Manual found at http://nasdaq.complinet.com.
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* * * * *

Chapter VII, Sec. 6 Market Maker Quotations

    (a) Size Associated with Quotes. A Market Maker's bid and offer for 
a series of options contracts shall be accompanied by the number of 
contracts at that price the Market Maker is willing to buy or sell. The 
best bid and best offer entered by a Market Maker must have a size of 
at least [ten (10)] one (1) contract[s].
    (b)-(e) 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
    On March 12, 2008, the Commission approved SR-NASDAQ-2007-004 and 
SR-NASDAQ-2007-080, proposals to create the NASDAQ Options Market or

[[Page 46697]]

NOM.\5\ NOM has been performing above expectations since NASDAQ 
launched trading on March 31, 2008. There are multiple firms registered 
as market makers and over two dozen additional firms providing 
liquidity through NOM's system. NOM's market share of listed options 
continues to grow although NOM trades only a small percentage of all 
available options classes and series. Despite this early success, 
NASDAQ continues to monitor the market to identify instances where 
market efficiency can be enhanced.
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    \5\ Securities Exchange Act Release No. 57478 (March 12, 2008), 
73 FR 14521 (March 18, 2008) (order approving SR-NASDAQ-2007-004 and 
2007-080).
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    NASDAQ believes that the efficiency of its market can be enhanced 
by permitting market makers to enter quotations for one or more 
contracts rather than requiring that they enter quotations for 10 or 
more contracts in series in which they are registered. NASDAQ projects 
that modifying the quotations requirements in this manner will 
encourage more options trading firms to register as market makers on 
NOM and to provide more liquidity to NOM participants. An overall 
increase in liquidity will benefit investors and serve the public 
interest.
    The NOM Rules will continue to ensure that market makers actively 
quote. For example, NOM Rule Chapter VII, Section 6(d)(i) states that, 
on a daily basis, a market maker must maintain continuous two-sided 
quotations and participate in the pre-opening phase in 75% of the 
options series in which the market maker is registered. In addition, 
NOM provides functionality that allows registered market makers to 
automatically input a quotation on the side of the market that has been 
depleted. Moreover, pursuant to paragraph (d)(ii) of Section 6, Nasdaq 
Regulation may call upon a market maker registered in a particular 
series to maintain continuous bids or offers. Thus, Nasdaq may require 
a market maker to continuously quote if it is the only registered 
market maker in the series.
    NASDAQ believes that this proposal is consistent with the Act and 
also with the Commission's well-settled position that the Act does not 
mandate any particular market model:

    The Commission agrees that the Act does not mandate a particular 
market model for national securities exchanges, and believes that 
many different types of market models could satisfy the requirements 
of the Act. The Commission does not believe that the Act requires an 
exchange to have market makers. Although Market Makers could be an 
important source of liquidity on NOM, they likely will not be the 
only source. In particular, the NOM System is designed to match 
buying and selling interest of all Participants on NOM. The 
Commission therefore believes that the NOM structure is consistent 
with the Act.\6\
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    \6\ Id. at 14527 (footnotes omitted).

    The Commission went on to note that ``[i]n its release adopting 
Regulation ATS, the Commission rejected the suggestion that a 
guaranteed source of liquidity was a necessary component of an 
exchange'' and that the approved rules of the Archipelago Exchange did 
not include a market maker requirement.\7\
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    \7\ Id. at note 92.
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    Nasdaq's proposal is also consistent with the current practice of 
the NYSE/Arca Exchange of permitting options market makers to enter 
quotations for one contract. The NYSE/Arca Options Market Maker 
Orientation Manual states that a market maker quotation must be entered 
for a minimum of one contract:

    All Market Makers must contribute to the maintenance of a fair 
and orderly market. Market Makers must honor the number of contracts 
entered into the system in all series of options classes within 
their Appointment. Any change to a quote (including reduction of 
volume) causes the quote to lose priority. The minimum size is one 
contract. Neither LMMs or MMs are required to quote on the Opening 
Auction. (emphasis added).\8\
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    \8\ http://www.nyse.com/pdfs/Options_MM_Orientation_
Manual.pdf at page 2.

Nasdaq proposes to adopt the same requirement and to make it 
transparent by including it in Nasdaq's official rule manual.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\9\ in general and with Section 
6(b)(5) of the Act,\10\ in particular, in that it is designed 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; and are not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(5).
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    The proposed changes are consistent with the statute in that they 
are designed to facilitate transactions in options on the Nasdaq 
Options Market by encouraging participants to provide liquidity through 
Nasdaq's system. If the proposal succeeds in attracting additional 
liquidity providers and additional liquidity, the Nasdaq system will 
then match more buying and selling interest between and among all NOM 
participants.

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. To the contrary, the proposal 
is designed to enhance competition and is based upon the rules of 
another national securities exchange that trades standardized options.

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

    Nasdaq has designated this rule filing as non-controversial under 
Section 19(b)(3)(A) of the Act,\11\ and Rule 19b-4(f)(6) 
thereunder.\12\ Nasdaq believes that the rule change should take effect 
immediately upon filing because it will effect a change that: (1) Does 
not significantly affect the public interest or the protection of 
investors, and (2) does not impose any significant burden on 
competition, and (3) does not become operative for 30 days after the 
date of this filing. As such, the proposal is effective upon filing 
with the Commission. Nasdaq intends to make this rule proposal 
operative 30 days after the date of filing.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission may summarily abrogate the 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 the furtherance of the purposes of the Act.

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:

[[Page 46698]]

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 No. SR-NASDAQ-2008-063 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-2008-063. 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-2008-063 and should 
be submitted on or before September 2, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-18459 Filed 8-8-08; 8:45 am]

BILLING CODE 8010-01-P
