[Federal Register Volume 78, Number 166 (Tuesday, August 27, 2013)]
[Notices]
[Pages 52994-52995]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-20774]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70241; File No. SR-NASDAQ-2013-109]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Modify NASDAQ's Optional Anti-Internalization Functionality
August 21, 2013.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given
that on August 16, 2013, The NASDAQ Stock Market LLC (``NASDAQ'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III 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 the
Substance of the Proposed Rule Change
NASDAQ proposes to modify NASDAQ's optional anti-internalization
functionality.
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, NASDAQ 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 those 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 parts of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
NASDAQ is proposing to modify its voluntary anti-internalization
functionality to provide an additional option under that functionality.
In addition, the proposed rule change contains certain clarifications
to the text of the rule. Anti-internalization functionality is designed
to assist market participants in complying with certain rules and
regulations of the Employee Retirement Income Security Act (``ERISA'')
that preclude and/or limit broker-dealers managing accounts governed by
ERISA from trading as principal with orders generated for those
accounts. The functionality can also assist market participants in
avoiding execution fees that may result from the interaction of
executable buy and sell trading interest from the same firm. NASDAQ
notes that use of the functionality does not relieve or otherwise
modify the duty of best execution owed to orders received from public
customers. As such, market participants using anti-internalization
functionality will need to take appropriate steps to ensure that public
customer orders that do not execute because of the use of anti-
internalization functionality ultimately receive the same execution
price (or better) they would have originally obtained if execution of
the order was not inhibited by the functionality.
Currently, market participants may apply anti-internalization logic
to all quotes/orders entered through a particular MPID, or to all
orders entered through a particular order entry port, to which a unique
group identification modifier is then appended. In other words, the
logic may be applied on an MPID-by-MPID, or on a port-by-port basis.\3\
Currently, two forms of anti-internalization logic may be applied: (i)
if quotes/orders are equivalent in size, both quotes/orders will be
cancelled, or if they are not equivalent in size, the smaller will be
cancelled and the size of the larger will be reduced by the size of the
smaller; or (ii) regardless of the size of the quotes/orders, the
oldest quote/order will be cancelled in full. The applicable logic may
be applied to an entire MPID, or alternatively, different logic may be
applied to different order entry ports under a particular MPID.\4\
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\3\ In the proposed rule change that introduced the ability to
assign a group identification modifier with respect to anti-
internalization processing, NASDAQ stated that the modifier may be
assigned ``at the port level.'' Securities Exchange Act Release No.
65868 (December 2, 2011), 76 FR 76795 (December 8, 2011) (SR-NASDAQ-
2011-158). However, this level of specificity was not included in
the text of Rule 4757. In addition, although the rule indicates that
designation of functionality at the port level is an option
available to the market participant, the rule does not make it clear
that in order to make use of these options, market participants must
use NASDAQ's OUCH order entry protocol. Thus, the proposed rule
change also adds additional specificity to the rule text with
respect to these aspects of the anti-internalization functionality.
\4\ With respect to this functionality also, participants
wishing to make designations on the order port level must use the
OUCH order entry protocol.
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In response to member input, the proposed rule change will add an
additional form of anti-internalization logic that a market participant
could choose to apply, under which the most recent quote/order would be
cancelled. As with the two existing forms of anti-internalization
logic, the logic could be applied to an entire MPID, or to selected
order entry ports under a particular MPID.\5\ NASDAQ believes that the
change will provide members with an additional tool for managing the
book of
[[Page 52995]]
orders that they submit to NASDAQ and the associated execution costs.
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\5\ Id.
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2. Statutory Basis
NASDAQ believes that the proposed rule change is consistent with
the provisions of Section 6 of the Act,\6\ in general, and with Section
6(b)(5) of the Act \7\ 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. Specifically, NASDAQ
believes that the change, which is responsive to member input, will
facilitate transactions in securities and perfect the mechanism of a
free and open market by providing members with additional optional
functionality that may assist them with managing the book of orders
that they submit to NASDAQ and the associated execution costs.
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\6\ 15 U.S.C. 78f.
\7\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
NASDAQ 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. Specifically, by
offering market participants additional options with regard to
preventing inadvertent internalization of orders submitted to NASDAQ,
the change has the potential to enhance NASDAQ's competitiveness with
respect to other trading venues, thereby promoting greater competition.
Moreover, the change does not burden competition in that its use is
optional and provided at no additional cost to members.
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 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)(ii) of the Act \8\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\9\ 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.
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\8\ 15 U.S.C. 78s(b)(3)(a)(ii).
\9\ 17 CFR 240.19b-4(f)(6).
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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-2013-109 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-2013-109. 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 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
offices 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-2013-109, and should be submitted on or before September 17,
2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-20774 Filed 8-26-13; 8:45 am]
BILLING CODE 8011-01-P