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Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Correct NOM Rules

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Start Preamble December 2, 2011.

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 November 29, 2011, The NASDAQ Stock Market LLC (the “Exchange” or “NASDAQ”) 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.

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

NASDAQ is filing with the Securities and Exchange Commission (“Commission”) a proposal for the NASDAQ Options Market (“NOM”) to eliminate from its rules two order types and two data feeds that are not in place. Specifically, NASDAQ proposes to delete Chapter VI, Sections 1(e)(1) and (4), 7(b)(3)(A), and 10(1)(B) and (C) to delete Reserve Orders and Discretionary Orders from its rules. Secondly, NASDAQ proposes to amend Chapter VI, Trading Systems, Section 1(a)(3), in order to eliminate from its rules NASDAQ Options Depth at Price and NASDAQ Options Net Order Imbalance, two data feeds.[3]

The text of the proposed rule change is available at​, 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 Statutory Basis for, the Proposed Rule Change

1. Purpose

The purpose of the proposed rule change is to make corrections to NOM rules that are needed as a result of transitioning to a new system. NOM recently completed the rollout of enhancements to its trading system; the deletions proposed herein have already been implemented.

First, NASDAQ proposes to eliminate two order types from its rules. Specifically, NASDAQ proposes to amend Chapter VI, Section 1(e)(1) and (4), to delete Reserve Orders and Discretionary Orders from its rules. These order types are also proposed to be deleted from Chapter VI, Section 6(a)(2), Section 7(b)(3)(A), and Section 10(1)(B) and (C).[4] Reserve Orders are limit orders that have both a displayed Start Printed Page 76787size as well as an additional non-displayed amount. Both the displayed and non-displayed portions of a Reserve Order are available for potential execution against incoming orders. If the displayed portion of a Reserve Order is fully executed, the System will replenish the display portion from reserve up to the size of the original display amount. A new timestamp is created for the replenished portion of the order each time it is replenished from reserve, while the reserve portion retains the time-stamp of its original entry. Although Reserve Orders were available on NOM, they were rarely used; accordingly, when rolling out new trading enhancements, NASDAQ determined not to make the technical changes necessary to accommodate them; Reserve Orders have not been available on NOM since September 28, 2011.

Discretionary Orders are orders that have a displayed price and size, as well as a non-displayed discretionary price range, at which the entering party, if necessary, is also willing to buy or sell. The non-displayed trading interest is not entered into the System book but is, along with the displayed size, converted to an IOC buy (sell) order priced at the highest (lowest) price in the discretionary price range when displayed contracts become available on the opposite side of the market or an execution takes place at any price within the discretionary price range. The generation of this IOC order is triggered by the automatic cancellation of the displayed contracts portion of the Discretionary Order. If more than one Discretionary Order is available for conversion to an IOC order, the system will convert and process all such orders in the same priority in which such Discretionary Orders were entered. If an IOC order is not executed in full, the unexecuted portion of the order is automatically re-posted and displayed in the System book with a new time stamp, at its original displayed price, and with its non-displayed discretionary price range. Although the Exchange received approval for the Discretionary Order type when NOM was launched, it was not made available due to lack of participant interest. For this reason, NASDAQ has determined not to offer it going forward and, accordingly, did not make the necessary technical changes to accommodate this order type when implementing its trading enhancements.

Second, NASDAQ proposes to delete two NOM data feeds from its rules, NASDAQ Options Depth at Price (“DAP”) and NASDAQ Options Net Order Imbalance (“NOIView”). DAP provides aggregate quotation information for each price level of trading interest on the NOM book, last sale data for trades executed on NOM, and order imbalance information. It is described in Chapter VI, Section 1(a)(3)(C) of NOM Rules and is available without charge.[5] In adopting this rule, the Exchange stated that:

* * * NASDAQ is making a voluntary decision to make this data available. NASDAQ is not required by the Exchange Act in the first instance to make the data available, unlike the best bid and offer which must be made available under the Act. NASDAQ chooses to make the data available as proposed in order to improve market quality, to attract order flow, and to increase transparency. Once this filing becomes effective, NASDAQ will be required to continue making the data available until such time as NASDAQ changes its rule.[6]

The Exchange retired DAP because few participants subscribed to it and its content is available on another data feed, ITTO; a fee is charged for ITTO.

Similarly, NASDAQ also retired NOIView. NOIView provides order imbalance information, which is also available on ITTO. NOIView is described in Chapter VI, Section 1(a)(3)(D).

At this time, NASDAQ is filing this proposed rule change to reflect its decision to retire these data feeds and to eliminate them from its rules. Although NASDAQ notified subscribers, NASDAQ retired the feeds prior to the submission of this filing, as part of a rollout of new trading system enhancements. Once an option was switched over to the new system, DAP and NOIView were no longer available for that option.

2. Statutory Basis

The Exchange believes that its proposal is consistent with Section 6(b) of the Act [7] in general, and furthers the objectives of Section 6(b)(5) of the Act [8] in particular, in that it 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 facilitating transactions in securities, and to remove impediments to and perfect the mechanisms of a free and open market and a national market system, and, in general, to protect investors and the public interest, because the data is available on other data feeds, albeit for a fee, and the Reserve Order and the Discretionary Order types were not used or rarely used, such that the Exchange does not believe that this elimination will negatively impact market quality. The Exchange is not required to make these features available and made a decision to eliminate them, which the Exchange believes is consistent with promoting just and equitable principles of trade as well as protecting investors and the public interest.

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.

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 after the date of the filing, or such shorter time as the Commission may designate, it has become effective pursuant to 19(b)(3)(A) of the Act [9] and Rule 19b-4(f)(6) [10] thereunder.

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. 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 Start Printed Page 76788change 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 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-2011-164. 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 (​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 a.m. and 3 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-2011-164 and should be submitted on or before December 29, 2011.

Start Signature

For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.[11]

Kevin M. O'Neill,

Deputy Secretary.

End Signature End Preamble


4.  Because the deletion of subparagraphs (B) and (C) would leave the last sentence in paragraph (1) with a list consisting of one item (that is, subparagraph (A)), NASDAQ proposes to finish that sentence by stating that within each price level, trading interest will be executed in time priority; this is not a change to the system but rather a clarification of that sentence. The words “orders that are displayed within the System” in paragraph (A) are no longer needed because all orders are displayed now that NASDAQ will no longer have Reserve and Discretionary Orders.

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5.  See Securities Exchange Act Release No. 63983 (February 25, 2011), 76 FR 12178 (SR-NASDAQ-2011-032).

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6.  See id. at 12179.

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10.  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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[FR Doc. 2011-31481 Filed 12-7-11; 8:45 am]