[Federal Register Volume 83, Number 85 (Wednesday, May 2, 2018)]
[Notices]
[Pages 19384-19386]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-09260]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-83115; File No. SR-NASDAQ-2018-030]
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 To Make Conforming and
Technical Changes
DATES: April 26, 2018.
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 April 17, 2018, 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, 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 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 make the following three changes to
the Rule 7000A Order Audit Trail Series: (1) Amend Rule 7410A(o)(1)(A)
to harmonize the rule with FINRA Rule 7410(o)(1)(A); (2) correct rule
citations in Rules 7430A and 7450A; and (3) delete the rule text under
Rule 7470A, which lapsed in 2015.
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. FINRA's Order Audit Trail System (``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.
The Exchange adopted the Rule 7000A Series to copy FINRA OATS
rules, where appropriate. As a general principle, the Exchange
endeavors to keep its rules corresponding to FINRA rules as closely
worded and structured as possible to the FINRA rules on which they are
based. In certain instances, such as FINRA Rule 7410(o)(2), which
concerns an exception to the definition of a Reporting Member relating
to members operating on equities floors, the Exchange has not copied
those inapplicable FINRA rules. Generally, the Exchange seeks to keep
the Rule 7000 Series consistent with the applicable portions FINRA Rule
7040 Series. The proposed changes will harmonize Nasdaq rules with
analogous FINRA rules, which have changed since the Exchange first
adopted its rules.
First Change
The Exchange is proposing to amend Rule 7410A(o)(1)(A) to harmonize
the rule with FINRA Rule 7410(o)(1)(A). Rule 7410A(o) provides the
definition of ``Reporting Member,'' which means a member that receives
or originates an order and has an obligation to record and report
information under Rules 7440A and 7450A. Rule 7410A(o)(1) provides an
exception to the general definition if the member meets four
conditions. The first condition the member must meet is that the member
engages in a non-discretionary order routing process, pursuant to which
it immediately routes, by electronic or other means, all of its orders
to a single receiving Reporting Member. On May 12, 2014, FINRA amended
FINRA Rule 7410(o)(1)(A) to allow a member to route its orders to two
receiving Reporting Members, if two conditions were met.\3\ First, the
orders are routed by the member to each receiving Reporting Member on a
pre-determined schedule approved by FINRA. Second, the FINRA member's
orders are routed to two receiving Reporting Members pursuant to the
schedule for a time period not to exceed one year. The rule change
permits FINRA members to continue to rely on the exception from the
definition of Reporting Member if, for a limited time, the member
routes orders to two different Reporting Members, provided the criteria
are met. FINRA noted in adopting the change that the rule was intended
to accommodate introducing firms that transition to a different
clearing firm over time and, during the transition, route their orders
two different clearing firms, both of which report the introducing
firm's information to OATS
[[Page 19385]]
during the transition time.\4\ The Exchange believes that this
additional limited exception is appropriate for its members, which
likewise may encounter a transition to a clearing firm whereby it [sic]
would no longer be eligible for the exception to the definition of
Reporting Member. Accordingly, the Exchange is proposing to adopt the
FINRA rule text under Rule 7410A(o)(1)(A)(ii).
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\3\ See Securities Exchange Act Release No. 72191 (May 20,
2014), 79 FR 30219 (May 27, 2014) (SR-FINRA-2014-024).
\4\ Id. at 30220.
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Second Change
The Exchange is also proposing to correct rule citations in Rules
7430A and 7450A. Rule 7430A ``Synchronization of Member Business
Clocks'' provides the requirements for synchronizing member business
clocks, and states that Nasdaq members shall comply with FINRA Rule
7430 as if such Rule were part of Nasdaq's rules. There is no FINRA
Rule 7430, but rather the appropriate FINRA rule to cite to is FINRA
Rule 4590 ``Synchronization of Member Business Clocks.'' Accordingly,
the Exchange is correcting the erroneous citation in Rule 7430A.
Rule 7450A ``Order Data Transmission Requirements'' provides the
requirements for order data transmission, and states that, except as
provided in paragraph (b), Nasdaq members and persons associated with a
member shall comply with FINRA Rule 7450A as if such Rule were part of
Nasdaq's rules. There is no FINRA Rule 7450A and FINRA Rule 7450
``Order Data Transmission Requirements'' is the appropriate FINRA rule
to cite. Accordingly, the Exchange is deleting the erroneous ``A'' from
the citation.
Third Change
The Exchange is proposing to delete the rule text under Rule 7470A
in its entirety, which lapsed in 2015, and to hold the rule [sic] in
reserve. Rule 7470A provided an exemption from the order recording and
data transmission requirements of Rules 7440A and 7450A OATS rules
applicable to manual orders. To qualify for the exemption, a member
must have met the following criteria: (1) The member and current
control affiliates and associated persons of the member have not been
subject within the last five years to any final disciplinary action,
and within the last ten years to any disciplinary action involving
fraud; (2) the member has annual revenues of less than $2 million; (3)
the member does not conduct any market making activities in Nasdaq
Stock Market equity securities; (4) the member does not execute
principal transactions with its customers (with limited exception for
principal transactions executed pursuant to error corrections); and (5)
the member does not conduct clearing or carrying activities for other
firms. The exemption was limited to a maximum time of two years
although a member was able to request an additional exemption prior to
the expiration of a grant of existing exemptive relief. The exemptive
authority provided by the rule permitted the Exchange to grant relief
to members that meet certain criteria in situations where, for example,
the reporting of order information would be unduly burdensome for the
member or where temporary relief from the OATS Rules, in the form of
additional time to achieve compliance, would permit the members to
avoid unnecessary expense or hardship. The exemption has not been
requested by any Nasdaq member to date and the Exchange does not
believe that Nasdaq members are likely to need the exemption, since the
vast majority of such members to which the rule applies are electronic
proprietary trading firms that would not qualify for the exemption.
Thus, the Exchange is proposing to eliminate the rule text under Rule
7470A from its rule book, and to hold the rule [sic] in reserve.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\5\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\6\ 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 FINRA, on which
they are based. Consequently, the proposed changes will conform
Exchange 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 the Exchange. With respect to the proposed amendment to
Rule 7410A(o)(1)(A), the exemption will provide Exchange members the
same flexibility to transition to a new clearing firm that FINRA
members enjoy. The rule is intended to accommodate introducing firms
that transition to a different clearing firm over time and, during the
transition, route their orders two different clearing firms, both of
which report the introducing firm's information to OATS during the
transition time. With respect to the proposed amendment to Rule 7470A
to eliminate the expired exemption from the rule book, the Exchange
believes that it is consistent with the Act because the exemption has
never been requested by a Nasdaq member. Moreover, the Exchange does
not believe that the vast majority of its members would qualify for the
exemption, since such most Nasdaq members that are subject to the rule
conduct an electronic proprietary trading business and the exemption
applies to manual orders. Adopting the amended rule text under Rules
7410A will also align the Exchange rulebook with FINRA's, thereby
eliminating complexity from FINRA's work under a regulatory services
agreement with the Exchange. With respect to the technical corrections
to Rules 7430A and 7450A, the Exchange believes that these changes are
consistent with the Act because they will prevent investor confusion
that may be caused by incorrect rule citations in the Rules.
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\5\ 15 U.S.C. 78f(b).
\6\ 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 changes align the
Exchange's rules with those of FINRA, which will assist it in its
oversight work done pursuant to a regulatory services agreement, and
makes technical corrections to the rules. 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)(iii) of the Act \7\ and
[[Page 19386]]
subparagraph (f)(6) of Rule 19b-4 thereunder.\8\
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\7\ 15 U.S.C. 78s(b)(3)(A)(iii).
\8\ 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 Exchange has satisfied this requirement.
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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: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) 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 [email protected]. Please include
File Number SR-NASDAQ-2018-030 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-2018-030. 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 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-2018-030, and should be submitted
on or before May 23, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-09260 Filed 5-1-18; 8:45 am]
BILLING CODE 8011-01-P