[Federal Register Volume 78, Number 14 (Tuesday, January 22, 2013)]
[Notices]
[Pages 4536-4537]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-01076]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68654; File No. SR-NASDAQ-2013-007]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Extend the Operative Date of Recent Changes Made to Rules 4613(a)(2)(F)
and (G), and Rule 4751(f)(15)
January 15, 2013.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on January 14, 2013, The NASDAQ Stock Market LLC (the
``NASDAQ'' or the ``Exchange'') filed with the Securities and Exchange
Commission (the ``Commission'') the proposed rule change as described
in Items I and II below, which Items have been prepared by the self-
regulatory organization. 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\ 15 U.S.C. 78a.
\3\ 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 extend the operative date of recent
changes made to Rules 4613(a)(2)(F) and (G), and Rule 4751(f)(15) to
February 25, 2013, thereby extending the retirement of the automated
quotation refresh functionality from January 15, 2013 to February 25,
2013.
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
On December 17, 2012, the Exchange filed an immediately effective
rule change to retire the automated quotation refresh functionality
(``AQR'') provided to Exchange market makers under Rules 4613(a)(2)(F)
and (G), and to make conforming changes to Rule 4751(f)(15).\4\ The
proposed changes are operative on January 15, 2013. The Exchange
received one comment letter to the rule change, seeking an extension of
the AQR retirement date to February 25, 2013.\5\ The commenter, an
industry association which represents a substantial number of NASDAQ
members, noted it was concerned that the January 15, 2013 retirement
date does not allow sufficient time for implementation of all
functionality associated with the AQR system. The commenter explained
that new functionality to automate quote movement after quote execution
must be developed and incorporated into order management and trading
systems. In support of its argument for an extension, the commenter
noted that some firms require architectural reprogramming to mission
critical systems that control trading operations, and that thorough
testing of such changes must be done. The commenter further noted that
year-end code freezes, which typically extend into the first week of
January, will make it difficult for firms to adequately implement and
test these significant changes to their systems by January 15, 2013.
The Exchange has received similar telephonic comments from some of its
member firms that are Exchange market makers.
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\4\ Securities Exchange Act Release No. 68528 (December 21,
2012), 77 FR 77165 (December 31, 2012) (SR-NASDAQ-2012-140).
\5\ See Letter from Manisha Kimmel, Executive Director,
Financial Information Forum, to Elizabeth M. Murphy, Secretary,
Commission, dated December 21, 2012.
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In light of member firm and industry feedback received on the
current retirement date, the Exchange believes that a brief extension
is warranted to allow member firms adequate time to program and test
their systems to use the Market Maker Peg Order \6\ or develop
alternative means of complying with their market maker obligations.
Given that member firms may not be prepared to comply with their market
making obligations on January 15, 2013 in the absence of AQR and the
potential market disruption that may be caused by eliminating AQR on
that date, the Exchange has determined to extend the retirement date of
AQR to February 25, 2013, and likewise extend the related changes to
Rules 4613(a)(2)(F) and (G), and Rule 4751(f)(15) filed with the
Commission on December 21, 2012 \7\ to February 25, 2013.
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\6\ On August 2, 2012, the Commission approved the Exchange's
new Market Maker Peg Order, which is designed to replace AQR. See
Securities Exchange Act Release No. 67584 (August 2, 2012), 77 FR
47472 (August 8, 2012) (SR-NASDAQ-2012-066).
\7\ Supra note 3.
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The Exchange reminds member firms that AQR presents difficulties to
market makers in meeting their obligations under Rule 15c3-5 under the
Act (the ``Market Access Rule'') \8\ and Regulation SHO under the
Act.\9\ The Exchange emphasizes that market makers using AQR remain
obligated to monitor their quotes and are responsible for complying
with all Exchange rules, the Market Access Rule, as well as Rule 610,
Rule 611 of Regulation NMS and Rule 200(g) of Regulation SHO, even in
the event that AQR is not functioning properly. Market makers must have
policies and procedures to address such contingencies and systems in
place to ensure that they can continuously meet their two-sided
obligation.
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\8\ 17 CFR 240.15c3-5.
\9\ 17 CFR 242.200 through 204.
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2. Statutory Basis
The statutory basis for the proposed rule change is Section 6(b)(5)
of the Act,\10\ which requires the rules of an exchange 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
[[Page 4537]]
general, to protect investors and the public interest. The Exchange
believes that the proposed rule meets these requirements in that it
provides a brief extension to the retirement date of AQR to allow
member firms that are market makers to adequately test and implement
changes to their systems. AQR is a duplicative function and has been
replaced with a new order type that allows member firms to better meet
their minimum market maker quotation requirements and also comply with
regulatory requirements, such as the Market Access Rule and Regulation
SHO. Given the feedback received from both member firms and others in
the industry concerning the AQR retirement date, NASDAQ believes
granting a short extension will minimize the potential that an
inadequately-tested or -implemented member firm market making system
will disrupt or otherwise harmfully impact the market.
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\10\ 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
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The proposed
change is designed to promote market making on the Exchange that
complies with other regulatory obligations, such as the Market Access
Rule and Regulation SHO. By extending the retirement date of AQR,
member firms will be afforded additional time to test and implement new
coding to their systems, thus avoiding the potential market disruption
that may be caused by one or more market makers that are unable to meet
their market maker obligations due to a system error.
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 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 after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-4(f)(6)
\12\ thereunder.
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give 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 Commission has waived this requirement in this case.
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The Exchange has requested that the Commission waive the 30-day
operative delay.\13\ The Commission believes that waiver of the
operative delay is consistent with the protection of investors and the
public interest. Such waiver provides a brief extension of the AQR
retirement date in response to concerns by market participants that the
currently scheduled retirement date does not allow sufficient time for
testing and implementation of changes to member firms' market making
systems. Accordingly, the Commission designates the proposal operative
upon filing.\14\
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\13\ 17 CFR 240.19b-4(f)(6)(iii).
\14\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule change's impact on
efficiency, competition, and capital formation. 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.
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-2013-007 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-2013-007. 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-2013-007 and should
be submitted on or before February 12, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-01076 Filed 1-18-13; 8:45 am]
BILLING CODE 8011-01-P