
[Federal Register Volume 81, Number 63 (Friday, April 1, 2016)]
[Notices]
[Pages 18902-18907]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-07337]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77460; File No. SR-NASDAQ-2016-040]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Delete From the Rulebook Section 10, Limitations on Dealings, of 
Chapter VII, Market Participants

March 28, 2016.
    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 March 22, 2016, The NASDAQ Stock Market LLC (``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule change as described in Items I and II below, which 
Items have been prepared by the Exchange. The Exchange has designated 
this proposal as a ``non-controversial'' proposed rule change pursuant 
to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6)(iii) 
thereunder,\4\ which renders it 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\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to delete from the Exchange's rulebook 
Section 10, Limitations on Dealings, of Chapter VII, Market 
Participants.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaq.cchwallstreet.com, at the principal office of 
the Exchange, 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 Exchange is proposing to adopt a principles-based approach to 
prohibit the misuse of material nonpublic information by NOM Options 
Market Makers (``Market Makers'') by deleting from the Exchange's 
rulebook Section 10, Limitations on Dealings, of Chapter VII, Market 
Participants (the ``Market Maker Restrictions''). In doing so, the 
Exchange would harmonize its rules governing Exchange Options 
Participants,\5\ generally, and Exchange Market Makers, in particular, 
relating to protecting against the misuse of material, non-public 
information.
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    \5\ The term ``Options Participant'' or ``Participant'' means a 
firm or organization that is registered with the Exchange pursuant 
to Chapter II of the NOM Rules for purposes of participating in 
options trading on NOM as a ``Nasdaq Options Order Entry Firm'' or 
``Nasdaq Options Market Maker''.
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    The Exchange believes that the Market Maker Restrictions are no 
longer necessary because all Market Makers are subject to the 
Exchange's general principles-based requirements governing the 
protection against the misuse of material, non-public information, 
pursuant to Chapter III, Business Conduct, Section 4, Prevention of the 
Misuse of Material Nonpublic Information, discussed below, which 
obviates the need for separately-prescribed requirements for a subset 
of market participants on the Exchange.
    Additionally, there is no separate regulatory purpose served by 
having separate rules for Market Makers. The Exchange notes that this 
proposed rule change will not decrease the protections against the 
misuse of material, non-public information; instead, it is designed to 
provide more flexibility to market participants. This is a competitive 
filing that is based on a proposal recently submitted by NYSE

[[Page 18903]]

MKT LLC (``NYSE MKT'') and approved by the Commission.\6\
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    \6\ See Securities Exchange Act Release No. 75432 (July 13, 
2015), 80 FR 42597 (July 17, 2015) (Order Approving SR-NYSEMKT-2015-
23). See also Securities Exchange Act Release Nos. 75792 (August 31, 
2015), 80 FR 53606 (September 4, 2015) (SR-ISE-2015-26) and 76687 
(December 18, 2015), 80 FR 80403 (December 24, 2015) (SR-PHLX-2015-
85).
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    A Market Maker is an Options Participant registered with the 
Exchange for the purpose of making markets in options contracts traded 
on the Exchange and that is vested with the rights and responsibilities 
specified in Chapter VII of the NOM rules.\7\ Importantly, all Market 
Makers have access to the same information in the Exchange's order 
book. Moreover, Market Makers have no agency obligations on the 
Exchange's order book. Notwithstanding that Market Makers have access 
to the same Exchange trading information as all other market 
participants on the Exchange, the Exchange has specific rules governing 
how Market Makers may operate.
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    \7\ See Chapter I, General Provisions, Section 1, Definitions, 
subsection (a)(26).
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Proposed Rule Change
    The Exchange believes that the Market Maker Restrictions are no 
longer necessary and proposes to delete them. The Exchange also 
believes that Chapter III, Section 4, governing the misuse of material, 
non-public information, provides for an appropriate, principles-based 
approach to prevent the market abuses the Market Maker Restrictions are 
designed to address.
    Specifically, Chapter III, Section 4, provides that every Options 
Participant shall establish, maintain, and enforce written policies and 
procedures reasonably designed, taking into consideration the nature of 
the Participant's business, to prevent the misuse of material nonpublic 
information by such Participant or persons associated with such 
Participant in violation of the federal securities laws or the Rules 
thereunder, and the Rules of the Exchange.
    Chapter III, Section 4, provides that misuse of material nonpublic 
information includes, but is not limited to: (i) Trading in any 
securities issued by a corporation, or in any related securities or 
related options or other derivative securities, while in possession of 
material nonpublic information concerning that corporation; (ii) 
trading in an underlying security or related options or other 
derivative securities, while in possession of material nonpublic 
information concerning imminent transactions in the underlying security 
or related securities; and (iii) disclosing to another person any 
material nonpublic information involving a corporation whose shares are 
publicly traded or disclosing an imminent transaction in an underlying 
security or related securities for the purpose of facilitating the 
possible misuse of such material nonpublic information.
    Subsection (c) of Chapter III, Section 4, requires each Options 
Participant to establish, maintain, and enforce certain policies and 
procedures as appropriate for the nature of each Participant's 
business.\8\ Under the rule, Participants that are required to file 
Form X-17A-5 under the Exchange Act or Rules thereunder, with the 
Exchange on an annual basis only, shall, contemporaneously with those 
submissions, file attestations signed by such Participants stating that 
the procedures mandated by this Section have been established, enforced 
and maintained. The rule requires any Options Participant or associated 
person who becomes aware of any possible misuse of material nonpublic 
information to promptly notify Nasdaq Regulation.
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    \8\ In particular, the rule requires that (i) all associated 
persons must be advised in writing of the prohibition against the 
misuse of material nonpublic information; (ii) signed attestations 
from the Participant and all associated persons affirming their 
awareness of, and agreement to abide by, the aforementioned 
prohibitions must be maintained for at least three (3) years, the 
first two (2) years in an easily accessible place; (iii) records of 
all brokerage accounts maintained by the Participant and all 
associated persons must be acquired and maintained for at least 
three (3) years, the first two (2) years in an easily accessible 
place, and such brokerage accounts must be reviewed periodically by 
the Participant for the purpose of detecting the possible misuse of 
material nonpublic information; and (iv) any business dealings the 
Participant may have with any corporation whose securities are 
publicly traded, or any other circumstances that may result in the 
Participant receiving, in the ordinary course of business, material 
nonpublic information concerning any such corporation, must be 
identified and documented.
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    Finally, subsection (f) of Chapter III, Section 4, specifies that 
it may be considered conduct inconsistent with just and equitable 
principles of trade for any Participant or person associated with a 
Participant who has knowledge of all material terms and conditions of 
(i) an order and a solicited order, (ii) an order being facilitated or 
submitted to NOM for price improvement (e.g., price improving orders), 
or (iii) orders being crossed; the execution of which are imminent, to 
enter, based on such knowledge, an order to buy or sell an option for 
the same underlying security as any option that is the subject of the 
order, or an order to buy or sell the security underlying such class, 
or an order to buy or sell any related instrument until (a) the terms 
and conditions of the order and any changes in the terms and conditions 
of the order of which the Participant or person associated with the 
Participant has knowledge are disclosed, or (b) the trade can no longer 
reasonably be considered imminent in view of the passage of time since 
the order was received. It states that the terms of an order are 
``disclosed'' to NOM Option Participants when the order is entered into 
the NOM Book.
    For purposes of subsection (f), an order to buy or sell a ``related 
instrument'' means, in reference to an index option, an order to buy or 
sell securities comprising 10% or more of the component securities in 
the index or an order to buy or sell a futures contract on an 
economically equivalent index.
    Because Options Participants are already subject to the 
requirements of Chapter III, Section 4, as described above, the 
Exchange does not believe it necessary to separately require specific 
limitations on Market Makers. Deleting the Market Maker Restrictions 
including its requirements for specific procedures would provide Market 
Makers flexibility to adapt their policies and procedures as 
appropriate to reflect changes to their business model, business 
activities, or the securities market in a manner similar to how Options 
Participants on the Exchange currently operate and consistent with 
Chapter III, Section 4.
    Options Participants registered as Market Makers have certain 
rights and bear certain responsibilities beyond those of other Options 
Participants.\9\

[[Page 18904]]

Market Makers are distinguished under Exchange rules from other Options 
Participants in that Market Makers have quoting obligations.\10\ 
However, none of these heightened obligations or different entitlements 
provides different or greater access to nonpublic information than any 
other Options Participant on the Exchange. Accordingly, because Market 
Makers do not have any trading advantages at the Exchange due to their 
market role, the Exchange believes they should be subject to the same 
rules as other Options Participants regarding the protection against 
the misuse of material non-public information, which in this case is 
existing Chapter III, Section 4.\11\
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    \9\ Chapter VII, Section 5, Obligations of Market Makers, of the 
NOM rules provides that in registering as a Market Maker, an Options 
Participant commits himself to various obligations and that 
transactions of a Market Maker in its market making capacity must 
constitute a course of dealings reasonably calculated to contribute 
to the maintenance of a fair and orderly market. The rule states 
that Market Makers should not make bids or offers or enter into 
transactions that are inconsistent with such course of dealings and 
that ordinarily, Market Makers are expected to (i) during trading 
hours, 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, (ii) [Reserved], (iii) engage, to 
a reasonable degree under the existing circumstances, in dealings 
for their own accounts when there exists, or it is reasonably 
anticipated that there will exist, a lack of price continuity, a 
temporary disparity between the supply of (or demand for) a 
particular option contract, or a temporary distortion of the price 
relationships between option contracts of the same class, (iv) 
compete with other Market Makers in all options in which the Market 
Maker is registered to trade, (v) make markets that will be honored 
for the number of contracts entered into NOM's System in all options 
in which the Market Maker is registered to trade (vi) update 
quotations in response to changed market conditions in all options 
in which the Market Maker is registered to trade (vii) maintain 
active markets in all options in which the Market Maker is 
registered, and (viii) honor all orders that the Trading System 
routes to away markets pursuant to Chapter XII of the NOM rules. 
Section 5 further provides that Market Makers should not effect 
purchases or sales on NOM except in a reasonable and orderly manner. 
If Nasdaq Regulation finds any substantial or continued failure by a 
Market Maker to engage in a course of dealings as specified in 
paragraph (a) of Section 5, such Market Maker will be subject to 
disciplinary action or suspension or revocation of registration in 
one or more of the securities in which the Market Maker is 
registered.
    \10\ Section 6, Market Maker Quotations, of Chapter VII, Market 
Participants, details specific Market Maker quoting obligations.
    \11\ The Exchange notes that by deleting the Market Maker 
Restrictions, the Exchange would no longer require specific 
information barriers for Market Makers or require pre-approval of 
any information barriers that a Market Maker would erect for 
purposes of protecting against the misuse of material non-public 
information. However, the policies and procedures of Market Makers, 
including those relating to information barriers, would be subject 
to review by FINRA, on behalf of the Exchange, pursuant to a 
Regulatory Services Agreement.
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    The Exchange is not proposing to change what is considered to be 
material, nonpublic information that an affiliated brokerage business 
of a Market Maker could share with such Market Maker. In that regard, 
the proposed rule change will not permit affiliates of a Market Maker 
to have access to any non-public order or quote information of the 
Market Maker, including hidden or undisplayed size or price information 
of such orders or quotes. Affiliates of Market Makers would only have 
access to orders and quotes that are publicly available to all market 
participants. Members do not expect to receive any additional order or 
quote information as a result of this proposed rule change.
    The Exchange does not believe that there will be any material 
change to member information barriers as a result of the removal of the 
Exchange pre-approval requirement. The Exchange has rules prohibiting 
Options Participants from disadvantaging their customers or other 
market participants by improperly capitalizing on the Options 
Participant's access to or receipt of material, non-public 
information.\12\
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    \12\ For example, Chapter XI, Doing Business with the Public, 
Section 8, Supervision of Accounts, provides in part that each 
member that conducts a public customer options business shall ensure 
that its written supervisory system policies and procedures pursuant 
to NASD Rules 3010, 3012, and 3013 adequately address the member's 
public customer options business. The Exchange has separately filed 
a proposed rule change to replace references to these NASD rules 
with FINRA rules which have replaced them. See SR-NASDAQ-2016-038 
filed March 14, 2016.
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    Further, the Exchange does not believe there will be any material 
change to Market Maker information barriers as a result of removal of 
the Exchange's pre-approval requirements. In fact, the Exchange 
anticipates that eliminating the pre-approval requirement should 
facilitate implementation of changes to Market Maker information 
barriers as necessary to protect against the misuse of material, non-
public information. The Exchange also suggests that the pre-approval 
requirement is unnecessary because Market Makers do not have agency 
responsibilities to orders in the book, or time and place information 
advantages because of their market role.
    The Exchange notes that its proposed principles-based approach to 
protecting against the misuse of material non-public information for 
all its Options Participants is consistent with recently filed and 
approved rule changes for NYSE MKT, NYSE Arca Equities, Inc. (``NYSE 
Arca''), BATS Exchange, Inc. (``BATS''), and New York Stock Exchange 
LLC (``NYSE'') governing cash equity market makers on those respective 
exchanges.\13\
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    \13\ See Securities Exchange Act Release No. 75432 (July 13, 
2015), 80 FR 42597 (July 17, 2015) (Order Approving Adopting a 
Principles-Based Approach to Prohibit the Misuse of Material 
Nonpublic Information by Specialists and e-Specialists by Deleting 
Rule 927.3NY and Section (f) of Rule 927.5NY). See also Securities 
Exchange Act Release Nos. 60604 (Sept. 2, 2009), 76 FR 46272 (Sept. 
8, 2009) (SR-NYSEArca-2009-78) (Order approving elimination of NYSE 
Arca rule that required market makers to establish and maintain 
specifically prescribed information barriers, including discussion 
of NYSE Arca and Nasdaq rules) (``Arca Approval Order''); 61574 
(Feb. 23, 2010), 75 FR 9455 (Mar. 2, 2010) (SR-BATS-2010-003) (Order 
approving amendments to BATS Rule 5.5 to move to a principles-based 
approach to protecting against the misuse of material, nonpublic 
information, and noting that the proposed change is consistent with 
the approaches of NYSE Arca and Nasdaq) (``BATS Approval Order''); 
and 72534 (July 3, 2014), 79 FR 39440 (July 10, 2014), SR-NYSE-2014-
12) (Order approving amendments to NYSE Rule 98 governing designated 
market makers to move to a principles-based approach to prohibit the 
misuse of material non-public information) (``NYSE Approval 
Order''); and 76687 (December 18, 2015), 80 FR 80403 (December 24, 
2015) (SR-PHLX-2015-85).
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    Except for prescribed rules relating to floor-based designated 
market makers on the NYSE, who have access to specified non-public 
trading information, each of these exchanges have moved to a 
principles-based approach to protecting against the misuse of material 
non-public information. In connection with approving those rule 
changes, the Commission found that, with adequate oversight by the 
exchanges of their members, eliminating prescriptive information 
barrier requirements should not reduce the effectiveness of exchange 
rules requiring members to establish and maintain systems to supervise 
the activities of members, including written procedures reasonably 
designed to ensure compliance with applicable federal securities law 
and regulations, and with the rules of the applicable exchange.
    The Exchange believes that a principles-based rule applicable to 
members of options markets would be equally effective in protecting 
against the misuse of material non-public information.\14\ Indeed, 
Chapter III, Section 4, is currently applicable to Market Makers and 
already requires policies and procedures reasonably designed to protect 
against the misuse of material nonpublic information, which is similar 
to the respective NYSE MKT, NYSE Arca Equities, BATS, and NYSE rules 
governing cash equity market makers. The Exchange believes Chapter III, 
Section 4, provides appropriate protection against the misuse of 
material nonpublic information by Market Makers such that there is no 
further need for prescriptive information barrier requirements as set 
forth in the Market Maker Restrictions.
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    \14\ International Securities Exchange, Inc. (``ISE'') and BOX 
Options Exchange LLC (``BOX'') have recently taken a similar 
approach. See Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change Adopting a Principles-Based Approach to 
Prohibit the Misuse of Material, Non-public Information by Market 
Makers by Deleting Rule 810, Securities Exchange Act Release No. 
75792 (August 31, 2015), 80 FR 53606 (September 4, 2015) (SR-ISE-
2015-26). See also Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change to Adopt a Principles-based Approach to 
Prohibit the Misuse of Material Nonpublic Information by Market 
Makers, Securities Exchange Act Release No. 75916 (September 14, 
2015), 80 FR 56503 (September 18, 2015) (SR-BOX-2015-31).
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    The Exchange notes that even with this proposed rule change, 
pursuant to Chapter III, Section 4, a Market Maker would still be 
obligated to ensure that its policies and procedures reflect the 
current state of its business and continue to be reasonably designed to 
achieve compliance with applicable federal securities law and 
regulations, including without limitation, Regulation

[[Page 18905]]

SHO \15\ under the Act and Section 15(g) of the Act,\16\ and with 
applicable Exchange rules, including being reasonably designed to 
protect against the misuse of material, non-public information.
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    \15\ The Commission adopted a narrow exception to Regulation 
SHO's ``locate'' requirement only for market makers engaged in bona 
fide market making in the security at the time they effect the short 
sale. See 17 CFR 242.203(b)(2)(iii). See also Exchange Act Release 
No. 50103 (July 28, 2004), 69 FR 48008, 48015 (Aug. 6, 2004); 
Exchange Act Release No. 58775 (Oct. 14, 2008), 73 FR 61690, 61698-9 
(Oct. 17, 2008). Broker-dealers would not be able to rely on the 
Exchange's or any self-regulatory organization's designation of 
market marking for eligibility for the bona-fide market making 
exception to the ``locate'' requirement, as such designations are 
distinct and independent from Regulation SHO. Eligibility for the 
bona-fide market making exception depends on the facts and 
circumstances and a determination of bona-fide market making is 
based on the Commission's factors outlined in the aforementioned 
Regulation SHO releases. It should also be noted that a 
determination of bona-fide market making is relevant for the 
purposes of close-out obligations under Rule 204 of Regulation SHO. 
See 17 CFR 242.204(a)(3).
    \16\ 15 U.S.C. 78o(g).
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    While information barriers would not specifically be required under 
the proposal, Chapter III, Section 4, already requires that an Options 
Participant consider its business model or business activities in 
structuring its policies and procedures, which may dictate that an 
information barrier or a functional separation be part of the 
appropriate set of policies and procedures that would be reasonably 
designed to achieve compliance with applicable securities law and 
regulations, and with applicable Exchange rules.
    The Exchange believes that the proposed reliance on principles-
based Chapter III, Section 4 would ensure that a Market Maker would be 
required to protect against the misuse of any material non-public 
information. Chapter III, Section 4 already requires that firms refrain 
from trading while in possession of material non-public information 
concerning imminent transactions in the security or related product.
    The Exchange believes that moving to a principles-based approach 
rather than prescribing how and when to wall off a Market Maker from 
the rest of the firm would provide Market Makers with flexibility when 
managing risk across a firm, including integrating options positions 
with other positions of the firm or, as applicable, by the respective 
independent trading unit.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \17\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \18\ 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 the proposed rule change would 
remove impediments to and perfect the mechanism of a free and open 
market by adopting a principles based approach to permit a member or 
member organization to maintain and enforce policies and procedures to, 
among other things, prohibit the misuse of material non-public 
information and provide flexibility on how a Market Maker structures 
its operations.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
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    The Exchange notes that the proposed rule change is based on an 
approved rule of the Exchange to which members and member organizations 
are subject--Section 4, Prevention of the Misuse of Material Nonpublic 
Information, of Chapter III, Business Conduct--and harmonizes the rules 
governing Options Participants. Moreover, Market Makers would continue 
to be subject to federal and Exchange requirements for protecting 
material non-public order information.\19\
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    \19\ See 15 U.S.C. 78o(g) and Chapter III, Section 4 of the 
Exchange's rulebook.
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    The Exchange believes that the proposed rule change would remove 
impediments to and perfect the mechanism of a free and open market 
because it would harmonize the Exchange's approach to protecting 
against the misuse of material nonpublic information and no longer 
subject Market Makers to prescriptive requirements. The Exchange does 
not believe that the existing prescriptive requirements applicable to 
Market Makers are narrowly tailored to their roles because Market 
Makers do not have access to Exchange trading information in a manner 
different from any other market participant on the Exchange.
    The Exchange further believes the proposal is designed to prevent 
fraudulent and manipulative acts and practices and to promote just and 
equitable principles of trade because existing rules make clear to 
members and member organizations the type of conduct that is prohibited 
by the Exchange. While the proposal eliminates prescriptive 
requirements relating to the misuse of material non-public information, 
Market Makers would remain subject to existing Exchange rules requiring 
them to establish and maintain systems to supervise their activities, 
and to create, implement, and maintain written procedures that are 
reasonably designed to comply with applicable securities laws and 
Exchange rules, including the prohibition on the misuse of material, 
nonpublic information. Additionally, the policies and procedures of 
Market Makers, including those relating to information barriers, would 
be subject to review by FINRA, on behalf of the Exchange.
    The Exchange notes that the proposed rule change would still 
require that Market Makers maintain and enforce policies and procedures 
reasonably designed to ensure compliance with applicable federal 
securities laws and regulations and with Exchange rules.
    Even though there would no longer be pre-approval of Market Maker 
information barriers, any Market Maker written policies and procedures 
would continue to be subject to oversight by the Exchange and therefore 
the elimination of prescribed restrictions should not reduce the 
effectiveness of the Exchange rules to protect against the misuse of 
material non-public information. Rather, Options Participants will be 
able to utilize a flexible, principles-based approach to modify their 
policies and procedures as appropriate to reflect changes to their 
business model, business activities, or to the securities market 
itself.
    Moreover, while specified information barriers may no longer be 
required, an Options Participant's business model or business 
activities may dictate that an information barrier or functional 
separation be part of the appropriate set of policies and procedures 
that would be reasonably designed to achieve compliance with applicable 
securities laws and regulations, and with applicable Exchange rules. 
The Exchange therefore believes that the proposed rule change will 
maintain the existing protection of investors and the public interest 
that is currently applicable to Market Makers, while at the same time 
removing impediments to and perfecting a free and open market by moving 
to a principles-based approach to protect against the misuse of 
material non-public information.

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. As indicated above, the rule 
change is being proposed as a competitive response to a filing

[[Page 18906]]

submitted by NYSE MKT that was recently approved by the Commission.
    The Exchange believes that the proposal will enhance competition by 
allowing Market Makers to comply with applicable Exchange rules in a 
manner best suited to their business models, business activities, and 
the securities markets, thus reducing regulatory burdens while still 
ensuring compliance with applicable securities laws and regulations and 
Exchange rules. The Exchange believes that the proposal will foster a 
fair and orderly marketplace without being overly burdensome upon 
Market Makers.
    Moreover, the Exchange believes that the proposed rule change would 
eliminate a burden on competition for Options Participants which 
currently exists as a result of disparate rule treatment between 
options and equities markets regarding how to protect against the 
misuse of material non-public information. For those members and member 
organizations that are also members of equity exchanges, their 
respective equity market maker operations are now subject to a 
principles-based approach to protecting against the misuse of material 
non-public information.
    The Exchange believes it would remove a burden on competition to 
enable members and member organizations to similarly apply a 
principles-based approach to protecting against the misuse of material 
nonpublic information in the options space as ISE has recently done. To 
this end, the Exchange notes that Chapter III, Section 4, still 
requires a Market Maker to evaluate its business to assure that its 
policies and procedures are reasonably designed to protect against the 
misuse of material nonpublic information. However, with this proposed 
rule change, an Options Participant that trades equities and options 
could look at its firm more holistically to structure its operations in 
a manner that provides it with better tools to manage its risks across 
multiple security classes, while at the same time protecting against 
the misuse of material non-public information.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or 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, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6) 
thereunder.\20\
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    \20\ In addition, Rule 19b-4(f)(6)(iii) requires the Exchange to 
give the Commission written notice of the Exchange's 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 satisfied this 
requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act normally does not become operative for 30 days after the date of 
its filing. However, Rule 19b-4(f)(6)(iii) 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 asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. Waiver of the 30-day 
operative delay would help facilitate the harmonization of information 
barrier rules across options exchanges. The Exchange represents that 
Exchange rules still require a Market Maker to evaluate its business to 
assure that its policies and procedures are reasonably designed to 
protect against the misuse of material nonpublic information. Further, 
the Exchange represents that the proposed rule change will not decrease 
the protections against the misuse of material, non-public information; 
instead, it is designed to provide more flexibility to market 
participants. Based on the foregoing, the Commission believes the 
waiver of the operative delay is consistent with the protection of 
investors and the public interest.\21\ The Commission hereby grants the 
waiver and designates the proposal operative upon filing.
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    \21\ For purposes only of waiving the 30-day operative delay, 
the Commission has also 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 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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or 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-2016-040 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2016-040. 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-2016-040 and 
should be submitted on or before April 22, 2016.


[[Page 18907]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-07337 Filed 3-31-16; 8:45 am]
 BILLING CODE 8011-01-P


