Skip to Content

Notice

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Clarify the Recipients of Certain Risk Disclosures

Document Details

Information about this document as published in the Federal Register.

Published Document

This document has been published in the Federal Register. Use the PDF linked in the document sidebar for the official electronic format.

Start Preamble January 18, 2008.

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 January 17, 2007, The NASDAQ Stock Market LLC (“Nasdaq”) 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 substantially by Nasdaq. Nasdaq filed the proposed rule change as a “non-controversial” proposed rule change pursuant to Section 19(b)(3)(A) of the Act [3] and Rule 19b-4(f)(6) thereunder,[4] which renders it effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

Nasdaq proposes to amend Rule 4631 to clarify to whom members must provide disclosures pursuant to the Rule. Nasdaq proposes to implement the proposed rule change immediately.

The text of the proposed rule change is available at http://nasdaq.complinet.com, the principal office of Nasdaq, and 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. The text of these statements may be examined at the places specified in Item IV below. Nasdaq 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

Nasdaq proposes to amend Rule 4631, which covers the disclosures required of members when accepting certain orders for trades outside the regular market session, to clarify to whom members must provide these disclosures. Rule 4631 requires members to provide certain risk disclosures to non-members prior to accepting orders for the pre- or post-market sessions. The term “non-member” may be interpreted to include a broker-dealer who is not a member of Nasdaq. In the approval order for the Rule,[5] however, the discussion of Nasdaq's purpose for Rule 4631 is framed in terms of disclosures to “non-member customers.” Nasdaq Rule 0120(g) defines the term “customer” to exclude a broker or dealer.[6] The differing terminology used in the Rule and in the approval order has caused some confusion among members.

Nasdaq notes that, as currently written, Rule 4631 could be interpreted to require members to make the risk disclosures to non-member broker-dealers, but not to member broker-dealers. Nasdaq believes that such a technical distinction is not meaningful nor was it Nasdaq's intention to make such a distinction when proposing the Rule. By clarifying that the Rule applies to members' disclosures to customers, as defined by Rule 0120(g), Nasdaq would avoid further member confusion surrounding the reading of the Rule and its associated approval order, while remaining consistent with the rule's intent.

Accordingly, Nasdaq believes it is necessary to amend Rule 4631 to make clear that the disclosures required by the Rule apply to members when accepting orders from customers, not “non-members.”

2. Statutory Basis

The proposed rule change is consistent with the provisions of Section 6 of the Act,[7] in general, and with Sections 6(b)(1) and (b)(5) of the Act,[8] in particular, in that the proposal enables Nasdaq to be so organized as to have the capacity to be able to carry out the purposes of the Act and to comply with and enforce compliance by Start Printed Page 5249members and persons associated with members with provisions of the Act, the rules and regulations thereunder, and self-regulatory organization rules, and 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. Nasdaq believes that the clarification of Rule 4631 is needed to avoid further confusion surrounding its applicability. Currently, members may be interpreting the Rule inconsistently, thus providing disclosures to parties that were not contemplated as requiring the protections of the Rule. Nasdaq believes that the proposed amendment will ensure that members are aware of their obligations under the rule and thus foster consistent member compliance.

B. Self-Regulatory Organization's Statement on Burden on Competition

Nasdaq does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.

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) of the Act [9] and Rule 19b-4(f)(6) thereunder.[10]

Nasdaq has requested that the Commission waive the 30-day pre-operative period. The Commission believes that conforming the language of the Rule to Nasdaq's intent in establishing it is consistent with the protection of investors and the public interest. The Rule was designed to ensure that customers receive appropriate disclosures of the risks of trading outside of regular trading hours, not non-member broker-dealers. The Commission hereby grants Nasdaq's request and designates the proposal as operative upon filing.[11]

At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate 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

Paper Comments

  • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2008-006. This file number should be included on the subject line if e-mail 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 inspection and copying in the Commission's Public Reference Room, on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at the principal office of Nasdaq. 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-2008-006 and should be submitted on or before February 19, 2008.

Start Signature

For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.[12]

Florence E. Harmon,

Deputy Secretary.

End Signature End Preamble

Footnotes

5.  Securities Exchange Act Release No. 56985 (December 18, 2007), 72 FR 73388 (December 27, 2007) (SR-NASDAQ-2007-098).

Back to Citation

6.  Rule 0120(g) states: The term “customer” shall not include a broker or dealer.

Back to Citation

8.  15 U.S.C. 78f(b)(1) and (b)(5).

Back to Citation

10.  17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 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 determined to waive the five-day pre-filing period in this case.

Back to Citation

11.  For purposes only of waiving the 30-day operative delay of this proposal, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

Back to Citation

[FR Doc. E8-1463 Filed 1-28-08; 8:45 am]

BILLING CODE 8011-01-P