
[Federal Register Volume 77, Number 168 (Wednesday, August 29, 2012)]
[Notices]
[Pages 52375-52377]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-21274]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67722; File No. SR-NASDAQ-2012-095]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Eliminate Market Maker Pre-Opening Obligations on NOM

August 23, 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 August 10, 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 and 
II below, which Items have been prepared by the Exchange. 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 modify Chapter VII, Section 6 (Market 
Maker Quotations) of the NASDAQ Options Market, LLC (``NOM''), to 
eliminate market maker pre-opening obligations on NOM. The Exchange 
also proposes to modify Chapter VII, Section 5 (Obligations of Market 
Makers) to conform it to Section 6.
    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
    The purpose of the proposed rule change is to modify Chapter VII, 
Section 6 of the NOM rulebook to remove obligations imposed on NOM 
market makers (``Market Makers'') \3\ to participate in the pre-opening 
phase in terms of continuous quotes; and to conform Section 5 to 
Section 6 as modified. This is done to put Market Makers on par with 
the market makers on other options Exchanges that do not

[[Page 52376]]

have pre-market continuous quoting obligations.\4\
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    \3\ A Market Maker is a NOM participant that is registered with 
the Exchange as a Market Maker and has certain rights and bears 
certain responsibilities beyond those of other Options Participants. 
All Market Makers are designated as specialists on NOM. See Chapter 
VII, Section 2.
    \4\ NASDAQ OMX Phlx (``Phlx''), and International Securities 
Exchange, LLC (``ISE'') have market pre-opening phases. However, 
Phlx and ISE do not, as discussed in the proposal, impose pre-
opening obligations on their respective options market makers; none 
of the exchanges require continuous quoting prior to the regular 
options trading market. The regular trading market opens on both 
exchanges at 9:30 Eastern Time.
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    Currently, Section 6 of Chapter VII requires that a Market Maker 
must enter continuous bids and offers in options in which the Market 
Maker is registered on NOM, an all-electronic market. Specifically, 
Section 6(d)(i) requires that on a daily basis a Market Maker must: (1) 
Participate in the pre-opening phase; and (2) thereafter make markets 
consistent with the applicable quoting requirements specified in NOM 
rules, on a continuous basis in at least sixty percent (60%) of the 
series in options in which the Market Maker is registered. 
Additionally, subsection 6(d)(i)1) indicates that to satisfy the 
Section 6(d)(i) requirement with respect to quoting a series, a Market 
Maker must: (3) quote such series 90% of the trading day (as a 
percentage of the total number of minutes in such trading day) or such 
higher percentage as Nasdaq may announce in advance. \5\ The Exchange 
does not propose to change any of the continuous quoting requirements 
applicable to a Market Maker (e.g. continuous quoting in 60% of the 
Market Maker's registered series for 90% of the trading day) \6\ other 
than to eliminate the requirement to participate in the pre-opening 
phase in Section 6(d)(i), which is noted in 1) above.
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    \5\ Subsection (6)(d)(i)2) establishes that three different 
types of option series are exempted from the continuous quote 
requirements: quarterly option series, adjusted option series, and 
series with an expiration of nine months or greater.
     For continuous quotation requirements on NOM generally, see 
Chapter XIV, Section 6(d).
    \6\ The NOM trading day, which represents the regular market 
hours, is 9:30 a.m. to 4:00 p.m. Eastern Time, except for option 
contracts on fund shares or broad-based indexes which will close as 
of 4:15 p.m. Eastern Time. Chapter VI, Section 2.
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    Subsequent to this proposal, a Market Maker will continue to have 
all of the other quoting obligations that the Market Maker now has 
pursuant to Section 6, and pursuant to Section 6(d)(i), during regular 
market hours will be responsible to quote on a continuous basis in at 
least sixty percent (60%) of the series in options in which the Market 
Maker is registered for 90% of the trading day (as a percentage of the 
total number of minutes in such trading day). The change that the 
Exchange is proposing to Section 6(d)(i) is removal of the Market Maker 
pre-opening quoting obligation and the insertion of text clarifying 
that the quoting obligation is during regular market hours.\7\ As a 
result of the Exchange's proposed rule filing, the NOM continuous 
quoting requirement on NOM's electronic market makers will not have a 
pre-opening quoting obligation, just as other options exchanges (e.g. 
Phlx and ISE) do not impose a pre-opening obligation on their 
electronic market makers.
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    \7\ Proposed Section 6(d)(i) states, in relevant part:
    i. On a daily basis, a Market Maker must during regular market 
hours make markets consistent with the applicable quoting 
requirements specified in these rules, on a continuous basis in at 
least sixty percent (60%) of the series in options in which the 
Market Maker is registered.
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    Phlx and ISE have a continuous quoting obligation during their 
regular market hours, which are similar to NOM's market hours.\8\ 
However, Phlx and ISE do not have an obligation for their market makers 
to participate in a pre-opening phase. On Phlx, for example, a Remote 
Streaming Quote Trader (``RSQT''),\9\ which is similar in nature to a 
NOM Market Maker, has an obligation during trading hours to quote 
markets in not less than 60% of the series in which such RSQT is 
assigned (this is akin to NOM Market Maker registration in a series). 
Unlike a NOM Market Maker, which currently has a pre-opening 
obligation, a Phlx RSQT does not have a pre-opening market maker 
obligation.\10\ And as a second example, there is a quoting requirement 
for an ISE market maker. However, just like Phlx, and unlike NOM, ISE 
does not have a pre-opening market maker obligation.\11\ The proposed 
filing establishes that NOM Market Makers, like Phlx and ISE market 
makers, will not have a pre-opening quoting obligation prior to market 
open.\12\
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    \8\ See supra note 6.
    \9\ A Phlx RSQT is a Registered Options Trader that is a member 
or member organization with no physical trading floor presence that 
may generate and submit option quotations electronically in assigned 
options. See Phlx Rule 1014(b)(ii)(B). While the designation of RSQT 
does not exist on NOM, a NOM Market Maker enters quotes 
electronically on NOM just as an RSQT does on Phlx purusuant to 
specific quoting obligations. See NOM Chapter VII, Section 6(d) and 
Phlx Rule 1014(b)(ii)(D).
    \10\ For the Phlx continuous quoting rule, see Phlx Rule 
1014(b)(ii)(D)(1).
    \11\ ISE rule 804(e)(2)(iii) states, in relevant part, that a 
Competitive Market Maker must maintain continuous quotations in an 
options class to which it is appointed and at least 60% of the 
series of the options class listed on the Exchange until the close 
of trading that day.
    \12\ The two-sided quote obligation is noted also in Chapter 
VII, Section 5(a)(i), which states that during trading hours a 
Market Maker must maintain a two-sided market, pursuant to Section 
6(d)(i) of Chapter VII, in those options in which the Market Maker 
is registered to trade, in a manner that enhances the depth, 
liquidity and competitiveness of the market.
    Recognizing the requirement to maintain a two-sided market 
during trading hours per Section 5(a)(i), the Exchange is removing 
reference in Section 5(a)(ii) to a Market Maker having to enter two-
sided quotes before market open by participating in opening the 
market. This is done for purposes of conforming Section 5(a)(ii) 
with proposed Section 6(d)(i), which eliminates quoting obligations 
in the pre-opening phase before the market opens.
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    Exchange Market Makers have noted that unlike NOM, other options 
exchanges do not have a pre-opening quoting obligation for their market 
makers, and have requested NOM to eliminate the pre-opening obligation 
so that NOM rules are similar to those of other options exchanges such 
as, for example, Phlx. This proposed rule change levels the playing 
field in respect of pre-opening obligations while leaving all other NOM 
quoting requirements intact.\13\
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    \13\ Chapter VII, Section 6(d).
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    Moreover, the Exchange believes that its proposal to put NOM market 
makers in the same position as market makers on other exchanges will 
not have a negative effect on NOM investors and traders (``NOM 
participants''). In particular, the Exchange believes the removal of 
pre-opening market maker obligations on NOM will have no impact on the 
functioning of the NOM opening process and in turn will not negatively 
impact NOM participants. The Exchange generally requires two other 
option markets to be open prior to NOM initiating an opening 
process.\14\ In addition, orders and quotes executed during the opening 
process on NOM will continue to be protected by the National Best Bid 
or Offer (``NBBO''). As such, the Exchange believes that NOM 
participants will continue to have a similar experience and quality of 
execution on the opening on NOM as they do today.
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    \14\ For the NOM opening process, see Chapter VI, Section 8; and 
for a description of the two options market opening process, see 
http://www.nasdaqtrader.com/content/technicalsupport/NOM_SystemSettings.pdf.
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    The Exchange believes further that the proposed rule change 
eliminating pre-opening obligations should be pro-competitive in that 
it will attract more Market Makers, and additional liquidity, onto NOM. 
This should be advantageous to traders and investors executing trading 
and hedging strategies on the Exchange.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \15\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \16\ in particular, in that the proposal is

[[Page 52377]]

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 the proposal to conform Market 
Maker obligations to the requirements of competing markets will promote 
the application of consistent trading practices. Therefore, the 
Exchange believes the proposal promotes just and equitable principles 
of trade and serves to protect investors and the public interest.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
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    Additionally, the Exchange believes the proposal removes a market 
maker quoting requirement that is unnecessary, as evidenced by the fact 
that it does not exist on other competitive markets. The Exchange 
operates in a highly competitive market comprised of ten U.S. options 
exchanges in which sophisticated and knowledgeable market participants 
can, and do, send order flow to competing exchanges if they deem 
trading practices at a particular exchange to be onerous or cumbersome. 
With this proposal, the Market Maker will be relieved of a market maker 
requirement that does not materially improve the quality of the 
markets. On the contrary, the pre-open phase obligation creates an 
additional obligation and burden on NOM Market Makers that does not 
exist on numerous other competitive markets. The Exchange believes that 
in this competitive marketplace, the impact of the pre-open trading 
practice that exists on the Exchange today compels this proposal. It 
will allow Market Makers on the Exchange to follow rules that are 
similar to the rules of other options exchanges that do not impose pre-
opening obligations on their market makers, and will allow Market 
Makers to focus on aspects of their operations that contribute to the 
market in a more efficient and meaningful way.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. NASDAQ's proposal to eliminate 
the pre-trading obligation for Market Makers is consistent with what is 
already occurring on other markets.

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 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 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 \17\ and Rule 19b-4(f)(6) 
thereunder.\18\ At any time within 60 days of the filing of such 
proposed rule change, the Commission summarily may temporarily suspend 
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.
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change along with a 
brief description and the 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.
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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-2012-095 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-2012-095. 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. 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-2012-095 and should 
be submitted on or before September 19, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-21274 Filed 8-28-12; 8:45 am]
BILLING CODE 8011-01-P


