
[Federal Register Volume 77, Number 126 (Friday, June 29, 2012)]
[Notices]
[Pages 38875-38877]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-15955]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67246; File No. SR-NASDAQ-2012-071]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Amend Rule 4758(a)(1)(A) To 
Reflect a Change in NASDAQ's Routing Functionality

June 25, 2012.
    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 June 14, 2012, The NASDAQ Stock Market LLC (``NASDAQ'' or 
``Exchange'') 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 the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 4758(a)(1)(A) to reflect a 
change in NASDAQ's routing functionality.
    The text of the proposed rule change is below. Proposed new 
language is in italics; proposed deletions are in brackets.
* * * * *

4758. Order Routing

(a) Order Routing Process

    (1) The Order Routing Process shall be available to Participants 
from 7:00 a.m. until 8:00 p.m. Eastern Time, and shall route orders 
as described below. All routing of orders shall comply with Rule 611 
of Regulation NMS under the Exchange Act.
    (A) The System provides a variety of routing options. 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. The System will consider the quotations only of accessible 
markets. The term ``System routing table'' refers to the proprietary 
process for determining the specific trading venues to which the 
System routes orders and the order in which it routes them. Nasdaq 
reserves the right to maintain a different System routing table for 
different routing options and to modify the System routing table at 
any time without notice. The System routing options are:
    (i) 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 are routed directly to NYSE 
or NYSE Amex, as appropriate. After attempting to execute in the 
opening or closing process, DOT orders thereafter check the System 
for available shares and are converted into SCAN or STGY orders, 
depending on the designation of the entering firm. DOT orders that 
are designated to participate in the NYSE or NYSE Amex opening 
process but that are entered after 9:30 a.m. will also be converted 
into SCAN or STGY orders, depending on the designation of the 
entering firm.
    (ii) a. DOTI is a routing option for orders that the entering 
firm wishes to direct to the NYSE or NYSE Amex without returning to 
the Nasdaq Market Center. DOTI orders check the System for available 
shares and then are sent to destinations on the System routing table 
before being sent to NYSE or NYSE Amex, as appropriate. DOTI orders 
do not return to the Nasdaq Market Center book after routing.
    b. The entering firm may alternatively elect to have DOTI orders 
check the System for available shares and thereafter be directly 
sent to NYSE or NYSE Amex as appropriate.
    (iii) STGY is a routing option under which orders check the 
System for available shares and simultaneously route the remaining 
shares[then are sent] to destinations on the System routing table. 
If shares 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 accessible market center, the System shall route 
the order to the locking or crossing market center. SKNY is a form 
of STGY in which the entering firm 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.
    (iv) SCAN is a routing option under which orders check the 
System for available shares and simultaneously route the remaining 
shares[then are sent] to destinations on the System routing table. 
If shares 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. SKIP is a form of 
SCAN in which the entering firm 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.
    (v) TFTY is a routing option under which orders check the System 
for available shares only if so instructed by the entering firm and 
are thereafter routed to destinations on the System routing table. 
If shares remain un-

[[Page 38876]]

executed after routing, they are posted to 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.
    (vi) MOPP is a routing option under which orders route only to 
Protected Quotations and only for displayed size. If shares remain 
unexecuted after routing, they are posted to 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.
    (vii) SAVE is a routing option under which orders may either (i) 
route to the NASDAQ OMX BX Equities Market and NASDAQ OMX PSX, check 
the System, and then route to other destinations on the System 
routing table, or (ii) may check the System first and then route to 
destinations on the System routing table. If shares remain un-
executed after routing, they are posted to 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.
    (viii) SOLV is a routing option under which orders may either 
(i) route to the NASDAQ OMX BX Equities Market and NASDAQ OMX PSX, 
check the System, and then route to other destinations on the System 
routing table, or (ii) may check the System first and then route to 
destinations on the System routing table. If shares remain un-
executed after routing, they are posted to the book. Once on the 
book, should the order subsequently be locked or crossed by another 
accessible market center, the System shall route the order to the 
locking or crossing market center.
    (ix) ``Directed Orders'' are routed orders described in Rule 
4751.
    (x) LIST is a routing option under which an order, if received 
before the security has opened on its primary listing market, will 
be routed to the primary listing market for participation in that 
market's opening process. After the security has opened on its 
primary listing market, unexecuted shares will be returned to the 
NASDAQ system. Thereafter, the order will check the System for 
available shares and simultaneously route the remaining 
shares[before being sent] to destinations on the System routing 
table. Any remaining shares will be posted on the book. In addition, 
LIST orders entered after the security has opened on the primary 
listing market (but before 3:58 p.m.) will check the System for 
available shares and simultaneously route the remaining 
shares[before being sent] to destinations on the System routing 
table, with remaining shares posted on the book. Once on the book, 
if the order is subsequently locked or crossed by another market 
center, the System will not route the order to the locking or 
crossing market center. At 3:58pm, all LIST orders will be cancelled 
on the System and any remaining shares will route to the security's 
primary listing market for participation in its closing process. 
LIST orders received at or after 3:58 p.m. but before 4:00 p.m. will 
check the System for available shares and simultaneously route the 
remaining shares[before being sent] to destinations on the System 
routing table, and remaining shares will be routed to the security's 
primary listing market to participate in its closing process. Shares 
unexecuted in the closing process will be posted to the NASDAQ book. 
LIST orders received after 4:00 p.m. will be posted to the NASDAQ 
book. If trading in the security is stopped across all markets, LIST 
orders will be sent to the primary listing market to participate in 
the re-opening process. When normal trading resumes, unexecuted 
shares will be cancelled off of the primary and posted on the NASDAQ 
book. LIST orders may not be designated as MGTC or SGTC.
    (xi) CART is a routing option under which orders route to the 
NASDAQ OMX BX Equities Market and NASDAQ OMX PSX and then check the 
System. If shares remain un-executed, they are posted to the book or 
cancelled. 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.
    Orders that do not check the System for available shares prior 
to routing may not be sent to a facility of an exchange that is an 
affiliate of Nasdaq, except for orders that are sent to the NASDAQ 
OMX BX Equities Market or to the NASDAQ OMX PSX facility of NASDAQ 
OMX PHLX.
    (B) No change.
    (b)-(c) 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, 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 proposing to amend Rule 4758(a)(1)(A) to reflect a change 
in NASDAQ's order routing functionality, which will allow routable 
orders \3\ to simultaneously execute against NASDAQ available shares 
and route to other markets for execution of the remainder of the order. 
Currently, when a routable order is entered into the NASDAQ system, the 
NASDAQ book is first checked for available shares. If such an order is 
not filled or filled only partially, then the order is routed to away 
markets with the best bid or best offer pursuant to NASDAQ's System 
routing table.\4\ For example, if a NASDAQ member submitted an order to 
buy 5,000 shares of a security, and NASDAQ had 500 shares displayed 
with another 500 shares undisplayed, under the current routing process 
1,000 shares would be executed on NASDAQ. Thereafter, NASDAQ would 
route the remaining 4,000 shares of the order to other markets for 
execution.
---------------------------------------------------------------------------

    \3\ For purposes of this filing, a ``routable order'' is an 
order entered into the NASDAQ System, which is not of an Order Type 
precluded from routing to other markets.
    \4\ The ``System routing table'' is the proprietary process for 
determining the specific trading venues to which the System routes 
orders and the order in which it routes them. See Rule 
4758(a)(1)(A).
---------------------------------------------------------------------------

    NASDAQ has observed that upon partial execution of a routable order 
at NASDAQ, as in the example above, market participants often react to 
the order by cancelling their orders on other markets and entering new 
orders at inferior prices. This occurs because the current process 
directs the order to NASDAQ before attempting to access available 
liquidity at other markets and thereby allows market participants to 
react to the execution (an effect known as ``market impact'' or 
``information leakage''). As a consequence, the available shares at the 
away market are no longer available, resulting in a lower likelihood of 
successfully accessing liquidity on away markets (i.e., the ``fill 
rate'') and an increased likelihood of ultimately receiving an 
execution at an inferior price. As such, NASDAQ is addressing this 
problem by changing how the routing process will operate.
    NASDAQ is proposing to execute routable orders against the NASDAQ 
book for available shares and to simultaneously route any remaining 
shares to additional markets. Specifically, under the proposed change a 
routable order would attempt to execute against the available shares at 
NASDAQ and, to the extent the order would not be filled by such 
available shares, NASDAQ would simultaneously route the remainder of 
the order to other venues, according to NASDAQ's System routing table, 
in a manner consistent with Regulation NMS (i.e., satisfying all 
displayed protected quotes). For example, using the scenario above, if 
a member enters a routable order to buy 5,000 shares of a security and 
NASDAQ is displaying 500 shares of that security, with 500 undisplayed, 
NASDAQ would execute against the 500 displayed shares and 500 
undisplayed shares, while

[[Page 38877]]

simultaneously routing the remaining 4,000 shares to other venues for 
execution. In the event that the amount of shares on other markets is 
insufficient to completely fill the order, or the order fails to 
completely execute, NASDAQ would then post the remaining shares on the 
NASDAQ book or cancel the remaining shares per the routed order's 
instructions. NASDAQ believes that this simultaneous execution against 
NASDAQ available shares and routing to other venues' shares will avoid 
the deleterious effect of market impact discussed above and result in 
overall faster and better executions of its members' routable orders.
    NASDAQ notes that it is not changing the execution and routing 
sequence of all routable orders. The TFTY, SAVE, SOLV, and CART orders 
are designed to execute serially as part of their strategies, which is 
generally to reduce the blended fees associated with transacting on 
multiple markets. As such, simultaneous routing of such orders would 
not result in a better execution in terms of the goals of these 
routable order types.
2. Statutory Basis
    The statutory basis for the proposed rule change is Section 6(b)(5) 
of the Securities Exchange Act of 1934 (the ``Act''),\5\ which requires 
the rules of an exchange 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 the 
proposed rule meets these requirements in that it promotes efficiency 
in the market, and increases the speed of execution and likelihood that 
a routable order will be filled at the best price possible. In this 
regard, NASDAQ notes that simultaneous execution minimizes the market 
impact a routable order has on the markets under the current multi-step 
execution and routing process, thus improving fill rates. Accordingly, 
the proposed rule change will serve to improve execution quality for 
investors sending their routable orders to NASDAQ.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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, 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 45 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 Exchange consents, the Commission shall: (a) By order approve 
or disapprove such 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 email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2012-071 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-2012-071. This 
file number should be included on the subject line if email 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 Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. The text of the proposed rule change is 
available on the Commission's Web site at http://www.sec.gov. 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 available publicly. All submissions should refer to 
File Number SR-NASDAQ-2012-071, and should be submitted on or before 
July 20, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
---------------------------------------------------------------------------

    \6\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-15955 Filed 6-28-12; 8:45 am]
BILLING CODE 8011-01-P


