[Federal Register Volume 76, Number 156 (Friday, August 12, 2011)]
[Notices]
[Pages 50281-50283]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-20579]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65055; File No. SR-NASDAQ-2011-106]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Adopt a Limited Category of Principal Registration for Proprietary 
Traders

August 8, 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 August 1, 2011, The NASDAQ Stock Market LLC (the ``Exchange'' or 
``NASDAQ'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The Exchange 
filed the proposal 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\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASDAQ is filing with the Commission a proposal to amend NASDAQ 
Rule 1022, Categories of Principal Registration, to adopt a new limited 
category of principal registration for proprietary traders, as 
described further below. NASDAQ will implement the proposal upon notice 
to its membership.
    The text of the proposed rule change is available at http://nasdaq.cchwallstreet.com/, 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 recognize a new 
category of limited principal registration. Specifically, NASDAQ 
proposes to recognize the new Proprietary Trader Principal category as 
a limited principal category in Rule 1022(h). Currently, NASDAQ Rule 
1021 requires all persons engaged or to be engaged in the investment 
banking or securities business of a member who are to function as 
principals shall be registered as such with NASDAQ in the category of 
registration appropriate to the function to be performed as specified 
in Rule 1022. Before their registration can become effective, they 
shall pass a Qualification Examination for Principals appropriate to 
the category of registration as specified by the NASDAQ Board. Pursuant 
to Rule 1021(b), persons associated with a member, enumerated in 
subparagraphs (1) through (5) hereafter, who are actively engaged in 
the management of

[[Page 50282]]

the member's investment banking or securities business, including 
supervision, solicitation, conduct of business or the training of 
persons associated with a member for any of these functions are 
designated as principals. Such persons shall include: (1) Sole 
Proprietors; (2) Officers; (3) Partners; (4) Managers of Offices of 
Supervisory Jurisdiction; and (5) Directors of Corporations.
    Rule 1021(e), Requirement of Two Registered Principals for Members, 
spells out that a NASDAQ member, except a sole proprietorship, shall 
have at least two officers or partners who are registered as principals 
with respect to each aspect of the member's investment banking and 
securities business pursuant to the applicable provisions of Rule 1022; 
provided, however, that a proprietary trading firm with 25 or fewer 
registered representatives shall only be required to have one officer 
or partner who is registered as a principal.
    Rule 1022 lists the categories of principal registration. In 
addition to ``General Securities Principal,'' which is the broadest 
category, there are three [sic] limited categories of principal 
registration: Financial and Operations, Introducing Broker/Dealer 
Financial and Operations, Investment Company and Variable Contracts 
Products, and General Securities Sales Supervisor.
    NASDAQ proposes to add another category of limited principal. The 
new Proprietary Trader Principal category would be available for 
persons whose supervisory responsibilities in the investment banking 
and securities business are limited solely to the activities of a 
member that involve proprietary trading. Furthermore, it would require 
that he or she be registered pursuant to NASDAQ rules as a Proprietary 
Trader,\5\ be qualified to be so registered by passing the Series 24 
examination, and not function in a principal capacity with 
responsibility over any area of business activity other than 
proprietary trading.
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    \5\ See NASDAQ Rule 1032(c).
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    NASDAQ has been working with other exchanges and the Financial 
Industry Regulatory Authority (``FINRA'') to develop this registration 
category. This category is in lieu of registration as a General 
Securities Principal, for which the prerequisite qualification 
examination is the Series 7. The appropriate qualification examination 
for the proposed new registration category of Proprietary Trader 
Principal is the Series 24, which is the same qualification required 
for registration as a General Securities Principal; no new examination 
has been developed. However, the prerequisite examination for the new 
Proprietary Trader Principal category is the new Series 56. 
Accordingly, a person who has passed the Series 56 can register as a 
Proprietary Trader Principal and take the Series 24 examination, under 
this proposal, but cannot register as a General Securities Principal 
without first qualifying as a General Securities Representative and 
passing the Series 7. Thus, although the Series 24 will now be the 
appropriate qualification examination for both categories (General 
Securities Principal and Proprietary Trader Principal), different 
prerequisites apply and different registration categories result.
    NASDAQ believes that the new principal registration category is an 
appropriate corollary to the new Proprietary Trader representative 
registration category, filed separately, and reflects a substantial 
joint-exchange effort to develop a registration framework specific to 
principals supervising persons engaged in proprietary trading, market 
making and effecting transactions on behalf of broker-dealers. 
Furthermore, NASDAQ believes that the Series 24 is the appropriate 
examination for Proprietary Trader Principals, because it tests 
knowledge and understanding of supervision-related rules.
    The Proprietary Trader Principal registration counts towards the 
two principal requirements in Rule 1021(e). The Exchange believes that 
this is appropriate because the same comprehensive qualification 
examination, the Series 24, is required.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \6\ in general, and furthers the objectives of: (1) 
Section 6(c)(3)(B) of the Act,\7\ pursuant to which a national 
securities exchange prescribes standards of training, experience and 
competence for members and their associated persons; and (2) Section 
6(b)(5) of the Act,\8\ in that it is designed, among other things, to 
prevent fraudulent and manipulative acts and practices, 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 
offering a new, limited principal registration category to NASDAQ 
members. NASDAQ believes that the requirements of this new category 
should help ensure that principals who supervise proprietary traders 
and proprietary trading are, and will continue to be, properly trained 
and qualified to perform their functions, because the new Proprietary 
Trader Principal category is limited and tailored to persons 
supervising proprietary trading functions.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78(c)(3)(B) [sic].
    \8\ 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.

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

    Pursuant to Section 19(b)(3)(A) of the Act\9\ and Rule 19b-4(f)(6) 
\10\ thereunder, the Exchange has designated this proposal as one that 
effects a change that: (i) Does not significantly affect the protection 
of investors or the public interest; (ii) does not impose any 
significant burden on competition; and (iii) by its terms, does not 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest. Rule 19b-4(f)(6) \11\ 
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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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ Id.
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    Under Rule 19b-4(f)(6) of the Act,\12\ a proposal does not become 
operative for 30 days after the date of its filing, or such shorter 
time as the Commission may designate if consistent with the protection 
of investors and the public interest. NASDAQ requests a waiver of the 
30-day operative delay in order to make the new registration available 
near the same time as other exchanges. The Commission is waiving the 
30-day operative period for this filing so that it

[[Page 50283]]

will become operative upon filing.\13\ The Commission believes waiving 
the 30-day operative delay is consistent with the protection of 
investors and the public interest as the waiver will allow the Exchange 
to make the new registration category available near the same time as 
other exchanges. The Commission, therefore, designates the proposed 
rule change to be operative upon filing with the Commission.
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    \12\ Id.
    \13\ For purposes only of waiving the operative delay of this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f). See also 17 CFR 200.30-3(a)(59).
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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 e-mail to [email protected]. Please include 
File Number SR-NASDAQ-2011-106 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-2011-106. 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 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 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-2011-106 and 
should be submitted on or before September 2, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-20579 Filed 8-11-11; 8:45 am]
BILLING CODE 8011-01-P