
[Federal Register Volume 84, Number 33 (Tuesday, February 19, 2019)]
[Notices]
[Pages 4883-4885]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-02608]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85111; File No. SR-NASDAQ-2019-005]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Certain Rules of the Rule 7000A Series Concerning the Order Audit 
Trail System

February 12, 2019.
    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 February 1, 2019, 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 amend certain rules of the Rule 7000A 
Series concerning the Order Audit Trail System to make conforming and 
technical changes. The text of the proposed rule change is available on 
the Exchange's website 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 amend certain rules of the Rule 7000A 
Series concerning FINRA's Order Audit Trail System (``OATS'') to make 
conforming and technical changes. The Exchange's Rule 7000A Series 
imposes an obligation on Exchange members to record in electronic form 
and report to FINRA on a daily basis certain information with respect 
to orders originated, received, transmitted, modified, canceled, or 
executed by members in Nasdaq-listed stocks. OATS captures this order 
information and integrates it with quote and transaction information to 
create a time-sequenced record of orders, quotes, and transactions. 
This information is used by FINRA staff to conduct surveillance and 
investigations of members for potential violation of Exchange rules, 
federal securities laws, and FINRA rules. As such, the Exchange and its 
sister exchanges, Nasdaq BX, Inc. (``BX'') and Nasdaq PHLX LLC 
(``PHLX''), endeavor to keep their OATS rules consistent with FINRA's 
OATS rules, as well as with each other's.
    BX and PHLX recently updated and harmonized their respective OATS 
rules with those of the Exchange and FINRA. Through this process, 
several technical issues were identified with the Exchange's OATS rules 
that require a rule change. This proposed rule change makes those 
changes.\3\
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    \3\ The Exchange is making a technical change to the rule 
numbering under the Rule 7000A Series to add a period after the 
individual rule numbers under the Series.
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    First, the Exchange is proposing to amend Rule 7410A, which defines 
terms used in the OATS rules. The Exchange is proposing to change the 
reference to the Rule 7400A Series immediately under the title of the 
Rule to instead reference the Rule 7000A Series, which is the correct 
citation. The Exchange is also proposing to amend the definition of 
``Nasdaq Market Center'' under Rule 7410A(d). Nasdaq has a more 
comprehensive definition of the ``Nasdaq Market Center'' under Rule 
4701(a). As a consequence, the Exchange is proposing to amend Rule 
7410A(d) to note that the term ``Nasdaq Market Center'' has the same 
meaning as that term has under Rule 4701(a). The Exchange is adding an 
omitted hyphen to the term ``over-the-counter'' within the definition 
of ``Electronic Communication Network.'' The Exchange is also proposing 
to delete the defined term ``NMS stock'' from paragraph (j) of the 
rule, and re-letter the remaining rules accordingly. The term ``NMS 
stock'' is not used in Nasdaq's OATS rules. The term is used in FINRA 
Rule 7410(k), defining ``Order Audit Trail System, whereas the Exchange 
instead references Nasdaq listed securities under Rule 7410A(l). 
Moreover, neither BX nor PHLX defines the term in its respective OATS 
rules. Thus, the Exchange believes that the defined term is not needed 
for purposes of its OATS rules, and is accordingly deleting the 
definition and re-lettering the subparagraphs that follow. The Exchange 
is proposing to apply lower case letters to the term bona fide hedge 
transaction within the definition of ``Order'' under re-lettered 
paragraph (j). The Exchange notes that it currently capitalizes the 
term ``Bona Fide Hedge Transaction'' under the rule, although the term 
is not defined in Nasdaq's rules. The Exchange believes that 
capitalizing the term was an error and is therefore not capitalizing 
the term in Rule 7410A(j). The Exchange notes that neither BX nor PHLX 
chose to capitalize the term for purposes of their [sic] OATS rules. 
The Exchange is proposing to move text within the definition of 
``Reporting Member'' to conform it to how BX and PHLX present the 
subparagraphs within their definition of ``Reporting Member'' and 
``Reporting Member Organization,'' respectively. Last, the Exchange is 
proposing to amend Rule 7410A(o) to cross-reference the definition of 
[sic] term ``customer'' under Rule 7410A(c) instead of cross-
referencing the definition under Rule 0120(g), which is equivalent to 
the definition under Rule 7410A(c).
    Second, the Exchange is proposing to amend Rule 7440A to delete a 
sentence from Rule 7440A(a), which notes that members are complying 
with these rules by complying with the related FINRA rules 7440(a). The 
Exchange believes these sentences are duplicative of the

[[Page 4884]]

first sentence of Rule 7440A(a), which states that Nasdaq members and 
persons associated with a member shall comply with FINRA Rule 7440 as 
if such Rule were part of Nasdaq's rules. The Exchange notes that 
neither BX nor PHLX chose to incorporate that sentence into their [sic] 
related OATS rules.
    Third, the Exchange is proposing to amend Rule 7450A(b) to include 
the term ``associated persons.'' Rule 7450A concerns order data 
transmission requirements, and paragraph (b) thereunder provides the 
requirements applicable to proprietary trading firms. Both BX and PHLX 
apply their related rules to both proprietary trading firms and their 
associated persons. The Exchange believes that it was an omission to 
not include associated persons under the rule and is therefore 
including associated persons thereunder.
    Last, the Exchange is proposing to clarify under Rules 7440A and 
7450A that certain rules cited thereunder are FINRA rules. The Exchange 
is also clarifying under Rules 7440A(a) and 7450A(a) that the 
regulatory services contract noted under the rule is an agreement with 
FINRA. These clarifying changes will also harmonize the pertinent parts 
of Rules 7440A and 7450A with the respective rules of BX and PHLX.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\4\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\5\ 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, 
by harmonizing the Exchange's OATS rules with those of BX and PHLX, 
with which they should materially match. Consequently, the proposed 
change will promote consistent regulatory standards with respect to 
rules that FINRA enforces pursuant to its Regulatory Services 
Agreements with the Exchange, BX and PHLX. With respect to the proposed 
technical corrections to the rules, the Exchange believes that these 
changes are consistent with the Act because they will prevent investor 
confusion that may be caused by inconsistencies and vagueness in the 
Rules.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 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 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed rule change align 
[sic] the Exchange's rules with those of BX and PHLX, which will assist 
FINRA in its oversight work done pursuant to a regulatory services 
agreement with the Exchange. The proposed changes also provide uniform 
standards with which market participants must comply. Consequently, the 
Exchange does not believe that the proposed changes implicate 
competition at all.

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 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 \6\ and Rule 19b-
4(f)(6) thereunder.\7\
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    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \8\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \9\ 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 requested that the Commission waive the 30-day operative delay so 
that the proposed rule change may become operative upon filing. Waiver 
of the operative delay would allow the Exchange to update its rules 
without delay to make technical changes that would improve clarity and 
simplify FINRA's work under the Regulatory Services Agreements with the 
Exchange, BX, and PHLX. Therefore, the Commission believes that waiver 
of the 30-day operative delay is consistent with the protection of 
investors and the public interest. Accordingly, the Commission hereby 
waives the operative delay and designates the proposed rule change 
operative upon filing.\10\
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    \8\ 17 CFR 240.19b-4(f)(6).
    \9\ 17 CFR 240.19b-4(f)(6)(iii).
    \10\ For purposes only of waiving the 30-day operative delay, 
the Commission also 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 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 change 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-2019-005 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2019-005. 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 website (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 website viewing and printing in 
the Commission's Public

[[Page 4885]]

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. Persons submitting comments are cautioned that we do 
not redact or edit personal identifying information from comment 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
NASDAQ-2019-005 and should be submitted on or before March 12, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-02608 Filed 2-15-19; 8:45 am]
 BILLING CODE 8011-01-P


