
[Federal Register: July 24, 2009 (Volume 74, Number 141)]
[Notices]               
[Page 36790-36792]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24jy09-147]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60335; File No. SR-NASDAQ-2009-066]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Modify the Processing of Orders on the NASDAQ Options Market

July 17, 2009.
    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 July 7, 2009, The NASDAQ Stock Market LLC (``Exchange'' or 
``Nasdaq'') filed with the Securities and Exchange Commission the 
proposed rule change as described in Items I and II 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

    The Exchange proposes to amend Chapter VI, Section 10 of the NASDAQ 
Options Market (``NOM'' or ``Exchange'') to allow marketable orders to 
be exposed to market participants for a brief period of time before 
routing to an away market center for execution at the National Best 
Bid/Offer (``NBBO'') or cancelling the order. The text of the proposed 
rule change is available from Nasdaq's Web site at http://
nasdaq.cchwallstreet.com, at Nasdaq's principal office, and at the 
Commission's Public Reference Room.
    The text of the proposed rule change is below. Proposed new 
language is underlined; proposed deletions are in brackets.\3\
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    \3\ Changes are marked to the rules of The NASDAQ Stock Market 
LLC found at http://nasdaqomx.cchwallstreet.com.
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* * * * *
Chapter VI Trading Systems
Sec. 1 Definitions
    The following definitions apply to Chapter VI for the trading of 
options listed on NOM.
    (a)-(d) No change.
    (e) The term ``Order Type'' shall mean the unique processing 
prescribed for designated orders that are eligible for entry into the 
System, and shall include:
    (1)-(7) No Change.
    (8) ``Additional Exposure Orders'' are orders that are priced at 
the National Best Offer, for buys, and the National Best Bid, for 
sells. The order is exposed on the System Book Feed for a time 
determined by the Exchange, not to exceed one second. At the end of the 
exposure period, if still unexecuted, the order will be routed to the 
market(s) at the NBBO, cancelled back to the entering party, or posted 
on the book pursuant to Section 7 of Chapter VI.
    Any update to the NBBO that improves the exposed order price will 
cause an immediate end to the exposure period. Any unexecuted portion 
of the order will be routed to the market(s) at the NBBO, cancelled 
back to the entering party or posted on the book pursuant to Section 7 
of Chapter VI.
    Any update to the NBBO that unlocks the exposed order price will 
cause an immediate end to the exposure period. Any unexecuted portion 
of the order will be executed against contra interest on the book, 
routed to the market(s) at the NBBO, cancelled back to the entering 
party or posted on the book pursuant to Section 7 of Chapter VI.
* * * * *
Sec. 6 Acceptance of Quotes and Orders
    All bids or offers made and accepted on NOM in accordance with the 
NOM Rules shall constitute binding contracts, subject to applicable 
requirements of the Rules of the Exchange and the Rules of the Clearing 
Corporation.
    (a) General--A System order is an order that is entered into the 
System for display and/or execution as appropriate. Such orders are 
executable against marketable contra-side orders in the System.
    (1) All System Orders shall indicate limit price and whether they 
are a call or put and buy or sell. Systems Orders can be designated as 
Immediate or Cancel (``IOC''), Good-till-Cancelled (``GTC''), Day 
(``DAY''), WAIT or Expire Time (``EXPR'').
    (2) A System order may also be designated as a Reserve Order, a 
Limit Order, a Minimum Quantity Order, a Discretionary Order, a Market 
Order, a Price Improving Order, [or] an Exchange

[[Page 36791]]

Direct Order, or an Additional Exposure Order.
* * * * *
Sec. 11 Order Routing
    (a) For System securities, the order routing process shall be 
available to Participants from 9:30 a.m. Eastern Time until market 
close, and shall route orders as follows. Participants can designate 
orders as either available for routing or not available for routing. 
Orders designated as not available for routing shall follow the book 
processing rules set forth in Section 10 above. Orders designated as 
available for routing, will first check the System for available 
contracts for execution. After checking the System for available 
contracts, orders are sent to other available market centers for 
potential execution, per entering firm's instructions. When checking 
the book, the System will seek to execute at the price at which it 
would send the order to a destination market center. Orders designated 
as Additional Exposure Orders, as defined in Chapter VI, Section 1, 
will be exposed on the System Book Feed prior to routing to other 
markets. If contracts remain un-executed after routing, they are posted 
on the book. Once on the book, should the order subsequently be locked 
or crossed by another market center, the System will not route the 
order to the locking or crossing market center. With the exception of 
the Minimum Quantity order type, all time-in-force parameters and order 
types may be used in conjunction with this routing option.
* * * * *

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 is proposing to change the NOM rules in order to provide 
marketable orders an additional opportunity for execution on the NOM 
when NOM is not part of the NBBO. Currently, if an order that is 
marketable against the NBBO is received, it is matched against any 
possible contra side orders available in the Trading System. If the 
order is still unexecuted, or if only partially unexecuted, the order 
is then routed away to the market or markets at the NBBO, cancelled 
back to the entering party or posted on the NOM Book and displayed at a 
non-locking price according to the instructions on the order.
    The proposed rule change will provide for the NOM System to expose 
the order, at the NBBO price, to subscribers of a data feed for System 
securities (``System Book Feed''), for a brief period of time (the 
``exposure period'') not to exceed one second. All Members have the 
opportunity to respond to any order exposed or displayed on the System 
Book Feed.
    Participants may designate orders to be Additional Exposure Orders 
using a notation on the order message submitted to the Exchange. 
Additional Exposure Orders will be exposed at a price equal to the 
National Best Offer, if a buy, or the National Best Bid, if a sell. 
During the exposure period, the Additional Exposure Order will be 
treated as a Limit Order (as defined in Chapter VI, Section 1(e)(2)) 
for book processing purposes. Specifically, during the exposure period, 
orders and quotes that are equal to the NBBO and on the opposite side 
of the market will be matched against the exposed order and immediately 
executed as they are received. Orders and quotes that are better than 
the NBBO and on the opposite side of the market will also be matched 
against the exposed order, and immediately executed as they are 
received at the price of the exposed order as per Chapter VI, Section 
10(1) and (3) of the NOM rules. If the order is still unexecuted, or if 
only partially unexecuted, it will be routed to the market(s) at the 
NBBO, cancelled back to the entering party or posted on the NOM Book 
and displayed at a non-locking price as per the instructions of the 
order.
    Any update to the NBBO during the exposure period that unlocks the 
exposed order will cause the exposure period to terminate, and any 
unexecuted portion of the order will either be (i) executed against 
contra interest on the NOM book; (ii) immediately routed to the new 
NBBO market(s); (iii) cancelled if the order is marked as a Do Not 
Route order and there is no contra interest available; or (iv) the 
order will be posted on the NOM book for possible display and/or 
execution pursuant to Section 7 of Chapter VI if the order is marked as 
a Do Not Route order and has a Time In Force other than IOC.
    Conversely, an update to the NBBO that crosses the exposed price 
will also bring the exposure period to an immediate end, and any 
unexecuted portion of the order will either be routed away, cancelled 
or posted on the NOM book pursuant to Section 7 of Chapter VI.\4\
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    \4\ For example, with regard to posting on the NOM book, if the 
order was a non-routable order and CBOE's offer (see Example 1) 
updated to 3.10, the exposure period would terminate, and the non-
routable order would then be posted on the NOM book at a price of 
3.10 and displayed at 3.05.
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Example 1

    NOM market 3.00-3.30.
    CBOE market (NBBO) 3.00-3.20.
    NOM receives an order to Buy paying 3.30. The order is exposed for 
one second at a price of 3.20 prior to routing to CBOE.
    200 milliseconds after the start of the exposure, CBOE offer moves 
to 3.30. The exposure period terminates, and the order is executed 
against the NOM 3.30 offer, and if not fully executed, routed to the 
CBOE offer at 3.30, cancelled or posted on the NOM book depending on 
the instructions on the order.

Example 2

    NOM 3.00-3.30.
    CBOE market (NBBO) 3.00-3.20.
    NOM receives an order to Buy paying 3.30. The order is exposed for 
one second prior to routing to CBOE.
    200 milliseconds after the start of the exposure period, ISE posts 
an offer at 3.10. Again, the exposure period terminates, and if the 
order is designated for routing, the order is immediately routed to the 
ISE to trade against the 3.10 offer, otherwise the order is cancelled 
or posted in accordance with Chapter VI, Section 7(b)(3)(C) (``Trade-
Through Compliance and Locked or Crossed Markets'').
    NOM Users who do not wish to have an order exposed have the ability 
to designate their order accordingly, in which case the order will be 
executed against contra interest on the NOM book, immediately routed to 
other markets at the NBBO, posted on the NOM book at a non-locking 
price in accordance with Chapter VI, Section 7(b)(3)(C) or cancelled 
depending on the instructions on the order. Users who wish to avoid 
both exposure and routing may do so by using an order designation that 
indicates to the Exchange that the order should not be exposed and 
marking the order as Do Not Route.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b)

[[Page 36792]]

of the Act \5\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \6\ in particular, in that it is 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 market 
system, and, in general to protect investors and the public interest. 
The Exchange believes that it will provide greater opportunities for 
investors to receive executions on the NOM System so as to enhance the 
efficiency of order handling, and also provides Users the opportunity 
to match prices at other markets.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 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.

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

    Because the proposed rule change: (i) Does not significantly affect 
the protection of investors or the public interest; (ii) does not 
impose any significant burden on competition; and (iii) does not become 
operative for 30 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 proposed rule change has 
become effective pursuant to Section 19(b)(3)(A) of the Act \7\ and 
Rule 19b-4(f)(6) thereunder.\8\
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6). Pursuant to Rule 19b-4(f)(6)(iii) 
under the Act, the Exchange is required to give 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, or such shorter time as designated by the Commission. 
The Exchange has met this requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \9\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \10\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has requested that the Commission waive the 30-day operative delay. The 
Exchange asserts that waiver of the operative delay is appropriate in 
order to allow the Exchange to remain competitive with other options 
exchanges, which have a substantially similar functionality to that 
being proposed.\11\ On this basis, the Commission believes that waiving 
the 30-day operative delay is consistent with the protection of 
investors and the public interest and designates that the proposed rule 
change become operative immediately.\12\
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    \9\ 17 CFR 240.19b-4(f)(6).
    \10\ 17 CFR 240.19b-4(f)(6)(iii).
    \11\ See Item 7 of SR-NASDAQ-2009-066. See e.g., Boston Options 
Exchange Rules Chapter V, Sec. 16(b)(iii), Chicago Board Options 
Exchange Rule 6.14, and NYSE Arca Rule 6.76A.
    \12\ For the purposes only of waiving the 30-day operative 
delay, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the 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 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:

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-2009-066 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-2009-066. 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, 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-2009-066 and should be submitted on or before 
August 14, 2009.

    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,
Deputy Secretary.
[FR Doc. E9-17636 Filed 7-23-09; 8:45 am]

BILLING CODE 8010-01-P
