
[Federal Register: February 5, 2010 (Volume 75, Number 24)]
[Notices]               
[Page 6077-6079]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05fe10-136]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61460; File No. SR-NASDAQ-2010-018]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Modify NASDAQ's Order Routing Rule

February 1, 2010.
    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 January 29, 2010, The NASDAQ Stock Market LLC (``Nasdaq'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by Nasdaq. Nasdaq has 
designated the proposed rule change as constituting a 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

    The Exchange is filing this proposed rule change to amend Rule 4758 
to describe available routing options in greater detail, to modify an 
existing routing option, and to add a new routing option. NASDAQ 
proposes to implement the rule change on February 1, 2010. The text of 
the proposed rule change is available at http://
nasdaq.cchwallstreet.com/, at the Exchange's principal office, and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange 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. The Exchange 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 amending Rule 4758, which describes its order routing 
processes, to describe existing order routing options with greater 
specificity, to modify an existing routing option, and to add a new 
routing option. Currently, routing options available through NASDAQ are 
all variations of three main routing options, known as DOT, STGY, and 
SCAN. Although the rule language for these routing options describes 
the available variations of the main options in general terms, NASDAQ 
believes that understanding of these options would be enhanced by 
describing the different versions as separately named routing options. 
NASDAQ is also amending Rule 4758 to include a definition of ``System 
routing table,'' defined as the proprietary process for determining the 
specific trading venues to which the NASDAQ System routes orders and 
the order in which it routes them. The definition reflects the fact 
that NASDAQ, like other trading venues, maintains different routing 
tables for different routing options and modifies them on a regular 
basis to reflect assessments about the destination markets. Such 
assessments consider factors such as a destination's latency, fill 
rates, reliability, and cost. Accordingly, the definition specifies 
that NASDAQ reserves the right to maintain a different routing table 
for different routing options and to modify routing tables at any time 
without notice.\4\ All routing complies with the requirements of Rule 
611 of Regulation NMS.
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    \4\ At present, all System routing tables include NASDAQ's 
affiliate, NASDAQ OMX BX (``BX''). Thus, all routed orders have the 
opportunity to route to this venue, with the exception of DOT orders 
routed directly to the NYSE or NYSE Amex opening or closing 
processes and directed orders that are directed to route to venues 
other than BX.
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     DOT is a routing option for orders that the entering firm 
wishes to designate for participation in the NYSE or NYSE Amex opening 
or closing processes. DOT orders do not check the NASDAQ book prior to 
routing directly to NYSE or NYSE Amex. After attempting to execute at 
NYSE or NYSE Amex, DOT orders thereafter check the NASDAQ book for 
available shares and are then converted into SCAN or STGY orders, 
depending on the designation of the entering firm. If a DOT order 
designated to participate in the opening process is entered after 9:30 
a.m., moreover, it will be converted into a SCAN or STGY order, 
depending on the designation of the entering firm.
     DOTI is a routing option under which orders check the 
NASDAQ book and destinations on the DOTI System routing table and then 
are sent to NYSE or NYSE Amex. Such orders do not return to the NASDAQ 
book if they are not executed, but rather remain on the NYSE or NYSE 
Amex book until executed, cancelled, or expired.
     STGY is a routing option under which orders check the 
NASDAQ book, check destinations on the STGY System routing table, and 
then return to the NASDAQ book. After returning to the NASDAQ book, a 
STGY order will subsequently route out to another market center if it 
posts a bid or offer that locks or crosses the STGY order.
     SKNY is a form of STGY in which the entering party 
instructs the System to bypass any market centers included in the STGY 
System routing table that are not posting Protected Quotations within 
the meaning of Regulation NMS.
     SCAN is a routing option under which orders check the 
NASDAQ book, check destinations on the SCAN System routing table, and 
then return to the NASDAQ book. After returning to the NASDAQ book, a 
SCAN order will not subsequently route out to another market center if 
it posts a bid or offer that locks or crosses the SCAN order.
     SKIP is a form of SCAN in which the entering party 
instructs the System to bypass any market centers included in the SCAN 
System routing table that are not posting Protected Quotations within 
the meaning of Regulation NMS.
     TFTY is a routing option that was formerly comprised 
within the definition of SCAN. TFTY orders currently do not check the 
NASDAQ book for available shares prior to routing to destinations on 
the TFTY System routing table. Thereafter, they return to the NASDAQ 
book and, like SCAN orders, do not route out again. TFTY is being 
modified by this proposed rule

[[Page 6078]]

change to provide users the option of checking the NASDAQ book prior to 
routing out.
     MOPP is a routing option formerly comprised within the 
definition of SCAN. MOPP orders route only to Protected Quotes, 
including the NASDAQ Market Center, but only for displayed size. If 
shares remain un-executed after routing, they are posted to the NASDAQ 
book and do not route out again.
     Directed Orders, as described in Rule 4751, are orders 
that are directed to an exchange other than NASDAQ as requested by the 
entering party without checking the NASDAQ book. Directed Orders must 
have a time-in-force of Immediate or Cancel and therefore do not post 
on the book of the market to which they route, nor do they return and 
post on NASDAQ.
     NASDAQ is introducing the new SAVE routing option, under 
which a market participant may specify that an order will either (i) 
route to BX, check the NASDAQ book, and then route to other venues on 
the SAVE System routing table, or (ii) check the NASDAQ book first and 
then route to destinations on the SAVE System routing table. Under the 
second option, the applicable routing table includes BX, and as is the 
case with all market destinations, the placement of BX on the routing 
table depends on NASDAQ's ongoing assessments of factors such as 
latency, fill rates, reliability, and cost. If shares remain un-
executed after routing, they are posted to the NASDAQ book and do not 
route out again.
    NASDAQ is also removing specific references to order types and 
times-in-force in the routing rule with a general statement that 
routing options may be combined with all available order types and 
times-in-force, with the exception of order types and times-in-force 
whose terms are inconsistent with the terms of a particular routing 
option. Thus, for example, a good-till-cancelled order could not be 
combined with the DOT routing option, since a DOT-routed order is 
intended to execute in another market's opening or closing process on a 
particular day. Finally, NASDAQ is removing obsolete language that had 
been added to Rule 4758 last year to reflect a commitment to 
distinguish ``flash'' orders from NASDAQ's protected quote. NASDAQ 
discontinued the use of flash orders shortly after it introduced 
them.\5\
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    \5\ Securities Exchange Act Release No. 60570 (August 26, 2009), 
74 FR 45505 (September 2, 2009) (SR-NASDAQ-2009-079).
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2. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\6\ in general, and with 
Sections 6(b)(5) of the Act,\7\ 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. The proposed 
change to introduce the SAVE routing option and modify the TFTY routing 
option will provide market participants with greater flexibility in 
routing orders to low cost trading venues, including BX and other 
venues with low execution fees that are included on the System routing 
tables. The other modifications to Rule 4758 will enhance the clarity 
of the rule.
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    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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 foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \8\ and Rule 19b-
4(f)(6) thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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. 
Nasdaq has satisfied this requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \10\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6) \11\ permits the Commission to 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. Nasdaq requests that 
the Commission waive the 30-day operative delay NASDAQ requests this 
waiver because it currently has the technological changes ready to 
support the proposed rule change, and believes that the benefits of 
greater flexibility and increased clarity that are expected from the 
rule change should not be delayed. The Commission believes that waiving 
the 30-day operative delay \12\ is consistent with the protection of 
investors and the public interest and designates the proposal operative 
upon filing.
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    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ For 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 such 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-2010-018 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-2010-018. 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

[[Page 6079]]

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 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 publicly available. All submissions 
should refer to File Number SR-NASDAQ-2010-018 and should be submitted 
on or before February 26, 2010.

    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. 2010-2501 Filed 2-4-10; 8:45 am]
BILLING CODE 8011-01-P

