[Federal Register Volume 77, Number 241 (Friday, December 14, 2012)]
[Notices]
[Pages 74538-74540]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-30164]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68389; File No. SR-NASDAQ-2012-122]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend and Adopt Several NASDAQ Rules To Reflect Changes to Rules of the
Financial Industry Regulatory Authority (``FINRA'')
December 10, 2012.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on November 26, 2012, The NASDAQ Stock Market LLC (the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
[[Page 74539]]
below, which Items have been prepared by the Exchange. The Exchange
filed the proposal as a ``non-controversial'' proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ 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)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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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 and adopt several NASDAQ rules to
reflect changes to rules of the Financial Industry Regulatory Authority
(``FINRA''). NASDAQ will implement the proposed rule change thirty days
after the date of the filing. The text of the proposed rule change is
available at http://nasdaq.cchwallstreet.com, at NASDAQ'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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
Many of NASDAQ's rules governing member conduct are based on rules
of FINRA (formerly the National Association of Securities Dealers
(``NASD'')). During 2008, FINRA embarked on an extended process of
moving rules formerly designated as ``NASD Rules'' into a consolidated
FINRA rulebook. In most cases, FINRA has renumbered these rules, and in
some cases has substantively amended them. Accordingly, NASDAQ has also
been undertaking a process of modifying its rulebook to ensure that
NASDAQ rules corresponding to FINRA/NASD rules continue to mirror them
as closely as practicable. To the extent possible, NASDAQ will
designate a NASDAQ rule that is intended to parallel a FINRA rule with
the suffix ``A''. For example, the NASDAQ rule paralleling FINRA Rule
2090 will be designated as Rule 2090A. This filing makes the following
changes:
(1) NASDAQ is adopting Rule 5310A, which incorporates FINRA Rule
5310 (Best Execution and Interpositioning) by reference. The new rule
takes the place of Rule 2320 (Best Execution and Interpositioning) and
IM-2320 (Interpretive Guidance with Respect to Best Execution
Requirements).\5\ References in FINRA Rule 5310 to NASD Rule 2440 and
IM-2440 will not be reflected in NASDAQ's rule, since NASDAQ has not
adopted corresponding rules regulating the activities of NASDAQ Members
with respect to commissions and mark-ups.
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\5\ See Securities Exchange Act Release No. 65895 (December 5,
2011), 76 FR 77042 (December 9, 2011) (SR-FINRA-2011-052). NASDAQ
Rule 2320 and IM-2320 had not previously incorporated NASD or FINRA
rules by reference, but had closely tracked the language of the
analogous NASD rules in effect at the time of their adoption. By
incorporating FINRA Rule 5310 by reference, NASDAQ will be
incorporating changes made by FINRA in the interim. Specifically,
FINRA has moved portions of former NASD Rule 2320 and IM-2320 into a
new section of Supplementary Material reflecting guidance with
respect to (i) The definition of ``market'' for purposes of the
rule, (ii) best execution and executing brokers, and (iii) use of a
broker's broker, and has adopted new Supplementary Material
providing guidance with respect to (i) Execution of marketable
customer orders, (ii) best execution and debt securities, (iii)
orders involving securities with limited quotations or pricing
information, (iv) orders involving foreign securities, (v) customer
instructions regarding order handling, and (vi) regular and rigorous
review of execution quality. In addition, FINRA modified its rule to
make it clear that an interpositioning arrangement must be
consistent with the overall rule governing best execution, rather
than focusing exclusively on the cost of such an arrangement. FINRA
also deleted language focused on the channeling of customers' orders
through a broker's broker, again because such arrangements would be
subject to the overall rule governing best execution. Specifically,
the rule requires a broker to use reasonable diligence to ascertain
the best market, based on a consideration of a range of factors
enumerated in the rule. Through this rule filing, NASDAQ will be
making all of the foregoing changes applicable to NASDAQ members in
their capacities as NASDAQ members. NASDAQ notes that NASDAQ members
with public customers are required to be members of FINRA by virtue
of Section 15(b)(8) of the Act, 15 U.S.C. 78o(b)(8), and SEC Rule
15b9-1, 17 CFR 240.15b9-1. The change is designed to ensure that
NASDAQ may enforce the rule against its members under the same
parameters as FINRA enforces the rule against its members.
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(2) NASDAQ is redesignating Rule 3060 (Influencing or Rewarding
Employees of Others) as Rule 3220A and changing the incorporated rule
from NASD Rule 3060 to FINRA Rule 3220.\6\
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\6\ See Securities Exchange Act Release No. 58660 (September 26,
2008), 73 FR 57393 (October 2, 2008) (SR-FINRA-2008-027).
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(3) NASDAQ is redesignating Rule 3090 (Transactions Involving
Nasdaq Employees) as Rule 2070A.\7\
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\7\ Id.
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(4) NASDAQ is replacing Rule 2310 (Recommendations to Customers
(Suitability)), IM-2310-1 (Reserved), IM-2310-2 (Fair Dealing with
Customers), and IM-2310-3 (Suitability Obligations to Institutional
Customers) with Rule 2111A (Suitability), which incorporates FINRA Rule
2111, and Rule 2090A (Know Your Customer), which incorporates FINRA
Rule 2090.\8\ However, references in FINRA Rule 2111 to NASD IM-2210-6
will not be reflected in NASDAQ's rule, since NASDAQ has not adopted a
corresponding rule regulating the activities of NASDAQ Members in
connection with investment analysis tools.
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\8\ See Securities Exchange Act Release No. 63325 (November 17,
2010), 75 FR 71479 (November 23, 2010) (SR-FINRA-2010-039).
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NASDAQ notes that in some instances, the amended rules reference
rules that are being adopted or renumbered by contemporaneous NASDAQ
rule filings that have been filed on an immediately effective basis.\9\
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\9\ See Securities Exchange Act Release Nos. 68123 (October 31,
2012), 77 FR 66658 (November 6, 2012) (SR-NASDAQ-2012-123); 68153
(November 5, 2012), 77 FR 67409 (November 9, 2012) (SR-NASDAQ-2012-
124).
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\10\ in general, and with
Section 6(b)(5) of the Act,\11\ in particular, in that the proposal is
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, 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 proposed
changes will conform various NASDAQ Rules to changes made to
corresponding FINRA rules, thus promoting application of consistent
regulatory standards with respect to rules that FINRA enforces pursuant
to its regulatory services agreement with NASDAQ.
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\10\ 15 U.S.C. 78f.
\11\ 15 U.S.C. 78f(b)(5).
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[[Page 74540]]
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
Because the foregoing proposed rule 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, provided that the self-regulatory
organization has given the Commission written notice of its intent to
file 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 proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-
4(f)(6) thereunder.\13\
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\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 17 CFR 240.19b-4(f)(6).
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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.
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 [email protected]. Please include
File Number SR-NASDAQ-2012-122 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-2012-122. 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 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-2012-122 and should
be submitted on or before January 4, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-30164 Filed 12-13-12; 8:45 am]
BILLING CODE 8011-01-P