
[Federal Register Volume 79, Number 145 (Tuesday, July 29, 2014)]
[Notices]
[Pages 44075-44076]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-17638]



[[Page 44075]]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72650]


Order Granting Applications by NASDAQ OMX BX, Inc. and the NASDAQ 
Stock Market LLC for Exemption Pursuant to Section 36(a) of the 
Exchange Act From the Rule Filing Requirements of Section 19(b) of the 
Exchange Act With Respect to Certain Rules Incorporated by Reference

July 22, 2014.
    NASDAQ OMX BX, Inc. (``BX'') and The NASDAQ Stock Market LLC 
(``NASDAQ'' or collectively, ``Exchanges'') have filed with the 
Securities and Exchange Commission (``Commission'') applications for an 
exemption under Section 36(a)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'') \1\ from the rule filing requirements of Section 
19(b) of the Exchange Act \2\ with respect to certain rules of NASDAQ 
OMX PHLX LLC (``PHLX'') that the Exchanges seek to incorporate by 
reference. Section 36 of the Exchange Act authorizes the Commission to 
conditionally or unconditionally exempt any person, security, or 
transaction, or any class thereof, from any provision of the Exchange 
Act or rule thereunder, if necessary or appropriate in the public 
interest and consistent with the protection of investors.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78mm(a)(1).
    \2\ 15 U.S.C. 78s(b).
---------------------------------------------------------------------------

    BX and NASDAQ each recently filed rule changes with the Commission 
to incorporate by reference comparable position and exercise limit 
rules of PHLX.\3\ Specifically, in both the BX Options and NOM Rules, 
(i) Chapter III, Section 7 incorporates the position limit rules of 
PHLX for U.S. Dollar-Settled Foreign Currency Options; (ii) Chapter 
III, Section 9 incorporates the exercise limit rules of PHLX for U.S. 
Dollar-Settled Foreign Currency Options; (iii) Chapter XIV, Section 5 
incorporates the position limit rules of PHLX for PHLX proprietary 
broad-based index options products; and (iv) Chapter XIV, Section 7 
incorporates the exercise limit rules of PHLX for PHLX proprietary 
industry and micro-narrow based index options products. Thus, BX 
Options Participants and NOM Participants comply with these BX Options 
and NOM rules by complying with the relevant, incorporated PHLX 
rule.\4\
---------------------------------------------------------------------------

    \3\ BX modified its Options Rules Chapter III, Sections 7 
(Position Limits) and 9 (Exercise Limits) and Chapter XIV, Sections 
5 (Position Limits for Broad-Based Index Options) and 7 (Position 
Limits for Industry and Micro-Narrow Based Index Options). See 
Securities Exchange Act Release No. 71977 (April 21, 2014), 79 FR 
23023 (April 25, 2014) (SR-BX-2014-019). NASDAQ modified its NASDAQ 
Options Market (``NOM'') Rules bearing the same section references 
and headings. See Securities Exchange Act Release No. 71978 (April 
21, 2014), 79 FR 23036 (April 25, 2014) (SR-NASDAQ-2014-039).
    \4\ The Exchanges have not previously sought an exemption from 
the Commission pursuant to Section 36(a)(1) of the Exchange Act from 
the rule filing requirements of Section 19(b) of the Exchange Act 
with respect to these incorporations by reference.
---------------------------------------------------------------------------

    The Exchanges have requested, pursuant to Rule 0-12 under the 
Exchange Act,\5\ that the Commission grant them an exemption from the 
rule filing requirements of Section 19(b) of the Exchange Act for 
changes to BX Options and NOM Rules Chapter III, Sections 7 and 9, and 
Chapter XIV, Sections 5 and 7 that are effected solely by virtue of a 
change to the corresponding cross-referenced rules of PHLX. 
Specifically, the Exchanges request that they be permitted to 
incorporate by reference changes made to each such PHLX rule without 
the need for them to file separately the same proposed rule changes 
pursuant to Section 19(b) of the Exchange Act.\6\ By virtue of these 
incorporations by reference, the requirements applicable to BX Options 
Participants and NOM Participants will change when the applicable 
incorporated PHLX rules change, without the need for the Exchanges to 
file separately the proposed rule changes pursuant to Section 19(b) of 
the Exchange Act.\7\ The Exchanges state that the PHLX rules the 
Exchanges seek to incorporate by reference are regulatory in nature and 
that these incorporations by reference of PHLX rules are intended to be 
a comprehensive integration of the relevant rules of PHLX into the 
Exchanges' rules. The Exchanges have agreed to provide written notice 
to their Options Participants whenever PHLX proposes a change to a 
cross-referenced rule.\8\
---------------------------------------------------------------------------

    \5\ 17 CFR 240.0-12.
    \6\ See Letters from Angela S. Dunn, BX and NASDAQ, to 
Secretary, Commission, dated April 25, 2014 (``Exemptive 
Requests''), at 1.
    \7\ Id. at 1-2.
    \8\ Id. at 2. The Exchanges state that they will provide such 
notice via a posting on the same Web sites where they post their own 
proposed rule change filings pursuant to Rule 19b-4(l). In addition, 
the Exchanges state that the Web site postings will include a link 
to the location on the PHLX Web site where the proposed rule change 
is posted. Id. at 2 n.3.
---------------------------------------------------------------------------

    The Exchanges believe this exemption is necessary and appropriate 
because it will result in the BX Options and NOM rules being consistent 
with the relevant cross-referenced PHLX rules at all times, thus 
ensuring identical regulation of joint members of PHLX, BX, and NOM 
with respect to the incorporated rules.\9\ The Exchanges also believe 
that, without such an exemption, such members could be subject to two 
different standards.\10\
---------------------------------------------------------------------------

    \9\ Id. at 2.
    \10\ Id.
---------------------------------------------------------------------------

    The Commission has issued exemptions similar to the Exchanges' 
requests.\11\ In granting one such exemption in 2010, the Commission 
repeated a prior, 2004 Commission statement that it would consider 
similar future exemption requests from other SROs, provided that:
---------------------------------------------------------------------------

    \11\ For example, on behalf of their respective options markets, 
BX, BATS Exchange, Inc. (``BATS''), and NASDAQ incorporate, among 
other things, the position limit rules of other exchanges. See, 
e.g., Securities Exchange Act Release Nos. 67256 (June 26, 2012), 77 
FR 39277, 39286 (July 2, 2012) (order approving SR-BX-2012-030 and 
granting exemptive request relating to rules incorporated by 
reference by the BX Options rules); 61534 (February 18, 2010), 75 FR 
8760 (February 25, 2010) (order granting BATS' exemptive request 
relating to rules incorporated by reference by the BATS Options 
Market rules) (``BATS Options Market Order''); 57478 (March 12, 
2008), 73 FR 14521, 14539-40 (March 18, 2008) (order approving SR-
NASDAQ-2007-004 and SR-NASDAQ-2007-080, and granting exemptive 
request relating to rules incorporated by reference by NOM).
---------------------------------------------------------------------------

     An SRO wishing to incorporate rules of another SRO by 
reference has submitted a written request for an order exempting it 
from the requirement in Section 19(b) of the Exchange Act to file 
proposed rule changes relating to the rules incorporated by reference, 
has identified the applicable originating SRO(s), together with the 
rules it wants to incorporate by reference, and otherwise has complied 
with the procedural requirements set forth in the Commission's release 
governing procedures for requesting exemptive orders pursuant to Rule 
0-12 under the Exchange Act; \12\
---------------------------------------------------------------------------

    \12\ See 17 CFR 240.0-12 and Securities Exchange Act Release No. 
39624 (February 5, 1998), 63 FR 8101 (February 18, 1998) (Commission 
Procedures for Filing Applications for Orders for Exemptive Relief 
Pursuant to Section 36 of the Exchange Act; Final Rule).
---------------------------------------------------------------------------

     An incorporating SRO has requested incorporation of 
categories of rules (rather than individual rules within a category) 
that are not trading rules (e.g., the SRO has requested incorporation 
of rules such as margin, suitability, or arbitration); and
     The incorporating SRO has reasonable procedures in place 
to provide written notice to its members each time a change is proposed 
to the incorporated rules of another SRO.\13\
---------------------------------------------------------------------------

    \13\ See BATS Options Market Order, supra note 11 (citing 
Securities Exchange Act Release No. 49260 (February 17, 2004), 69 FR 
8500 (February 24, 2004) (order granting exemptive request relating 
to rules incorporated by reference by several SROs) (``2004 
Order'')).

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

[[Page 44076]]

    The Commission believes that the Exchanges have satisfied each of 
these conditions. The Commission also believes that granting the 
Exchanges an exemption from the rule filing requirements under Section 
19(b) of the Exchange Act will promote efficient use of Commission and 
the Exchanges' resources by avoiding duplicative rule filings based on 
simultaneous changes to identical rule text sought by BX, NASDAQ, and 
PHLX.\14\ The Commission therefore finds it appropriate in the public 
interest and consistent with the protection of investors to exempt the 
Exchanges from the rule filing requirements under Section 19(b) of the 
Exchange Act with respect to the above-described rules they have 
incorporated by reference. This exemption is conditioned upon the 
Exchanges promptly providing written notice to their BX Options 
Participants and NOM Participants, respectively, whenever PHLX changes 
a rule that they have incorporated by reference.
---------------------------------------------------------------------------

    \14\ See BATS Options Market Order, supra note 11, 75 FR at 
8761; see also 2004 Order, supra note 13, 69 FR at 8502.
---------------------------------------------------------------------------

    Accordingly, it is ordered, pursuant to Section 36 of the Exchange 
Act,\15\ that the Exchanges are exempt from the rule filing 
requirements of Section 19(b) of the Exchange Act solely with respect 
to changes to the rules identified in their requests that incorporate 
by reference certain PHLX rules that are the result of changes to such 
PHLX rules, provided that the Exchanges promptly provide written notice 
to their BX Options Participants and NOM Participants, respectively, 
whenever PHLX proposes to change a rule that the Exchanges have 
incorporated by reference.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78mm.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(76).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-17638 Filed 7-28-14; 8:45 am]
BILLING CODE 8011-01-P


