[Federal Register Volume 77, Number 112 (Monday, June 11, 2012)]
[Notices]
[Pages 34453-34455]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-14060]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67122; File No. SR-NASDAQ-2012-067]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Update the NASDAQ Options Market Message Traffic Mitigation Rule

June 5, 2012.
    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 May 29, 2012, The NASDAQ Stock Market LLC (``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 NASDAQ. 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

    NASDAQ is filing with the Commission a proposal for the NASDAQ 
Options Market (``NOM'' or ``Exchange'') to update its quote mitigation 
rule. Specifically, NASDAQ proposes to amend Chapter VI, Section 17, 
Message Traffic Mitigation, by deleting paragraph (c) and renumbering 
paragraphs (d) and (e).
    The text of the proposed rule change is available from NASDAQ's Web 
site at http://nasdaq.cchwallstreet.com/Filings, 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, 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 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
    The purpose of the proposed rule change is to update NOM rules to 
eliminate a message traffic mitigation provision that NASDAQ no longer 
intends to implement. Currently, Chapter VI, Section 17 provides that 
for the purpose of message traffic mitigation, based on NOM's traffic 
with respect to target traffic levels and in accordance with NOM's 
overall objective of reducing both peak and overall traffic, certain 
strategies may be implemented, which are listed in paragraphs (a)-(d). 
Of course, because NOM is a newer options market, launching in 2008 
with a certain suite of products and participants, NOM did not 
immediately face message traffic concerns requiring mitigation under 
this rule. Accordingly, NOM has not employed all of these features to 
date. Specifically, paragraph (c) has never been employed.
    At this time, NASDAQ proposes to eliminate one aspect of its 
traffic mitigation rule that provides that NOM will prioritize price 
update messages and send out price updates before sending size update 
messages; the rule further provides that this functionality will be 
applied to all options series listed on NOM and in conjunction with the 
previously described replace on queue functionality \3\ will ensure 
that NOM quote update messages are the most current and relevant 
available.\4\ NASDAQ believes that the concept in paragraph (c) of 
``prioritizing'' messages is not necessary because the replace on queue 
functionality in paragraph (b) accomplishes the same goal of 
mitigation.
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    \3\ The replace on queue functionality is a process by which an 
outbound quote message that has not been sent, but is about to be 
sent, will not be sent if a more current quote message for the same 
series is available for sending. See Chapter VI, Section 17(b).
    \4\ See Chapter VI, Section 17(c).
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    Specifically, NASDAQ proposes to remove paragraph (c), because if 
the replace on queue functionality in paragraph (b) is operating, 
paragraph (c) cannot operate to prioritize price update messages over 
size update messages. The latest update message would have already been 
sent due to the replacement on queue functionality, which replaces the 
updated size message for the original message. For example, if the 
following three quotes in an options series are outbound as follows:

First message--$1.00 bid for 10 contracts
Second message--$1.01 bid for 5 contracts
Third message--$1.01 bid for 6 contracts

In this situation, the operation of paragraph (b) would result in only 
the third message being sent, as it replaced both the first and second 
messages. In contrast, the operation of paragraph (c) would result in 
the second message being sent, because it is a price update; the third 
message would also be sent, because the prioritizing concept in 
paragraph (c) only prevents size changes from being sent if they are 
followed by a price change. Thus, two messages rather than one are sent 
if paragraph (c) is operating.

    Similarly, if the fourth message was $1.05 bid for 6 contracts, the 
operation of paragraph (b) would still result in

[[Page 34454]]

only the last (fourth) message being sent, as it replaced the first, 
second and third messages. The operation of paragraph (c) would again 
result in more messages being sent, because the second, third and 
fourth messages would be sent.
    Because paragraph (b) operated to only send the last message, there 
is no point to then applying paragraph (c). Paragraph (b) has already 
caused only the most recent message to be sent, leaving no messages to 
prioritize. In fact, NASDAQ believes that not only does paragraph (b) 
result in fewer messages being sent, it results in the most relevant 
message being sent--the most recent. Accordingly, NASDAQ believes that 
deleting paragraph (c) will not result in any additional message 
traffic and that NOM's message mitigation program is sufficient without 
paragraph (c). Furthermore, paragraph (b) covers what paragraph (c) 
would mitigate, such that paragraph (c) is duplicative and, thus, in 
deleting it, the ultimate effect of the message traffic mitigation rule 
remains the same. No more messages will be sent by deleting paragraph 
(c). In fact, the same number of messages will be sent even if 
paragraph (c) is deleted.
    NASDAQ believes that the operation of the other provisions in the 
rule should provide sufficient methods of message traffic mitigation 
should the need arise going forward. Specifically, delisting pursuant 
to paragraph (a), the replace on queue functionality in paragraph (b), 
and the size update restriction in paragraph (d) are different types of 
mitigation focused on different types of message traffic, which form a 
strong traffic mitigation program. When paragraph (c) is deleted, NOM's 
mitigation program will be equally solid, because paragraph (b) will 
accomplish more traffic mitigation than what paragraph (c) can 
accomplish, as explained above. Moreover, no additional quotes will go 
out with paragraph (c) deleted; the same number of messages will be 
sent.
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 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 Exchange is not required 
to make this particular mitigation strategy available and has instead, 
other types of mitigation strategies available in Chapter VI, Section 
17, as described above. These other mitigation strategies, together, 
protect investors and the public interest, and promote just and 
equitable principles of trade by addressing any message traffic issues 
that may arise while deleting a duplicative provision that has no 
effect on message traffic mitigation.
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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.

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 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 \7\ and Rule 19b-4(f)(6) \8\ 
thereunder.
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \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. 17 CFR 240.19b-4(f)(6).
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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. 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-2012-067 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-2012-067. 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, 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; 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-2012-067 and should 
be submitted on or before July 2, 2012.


[[Page 34455]]


    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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-14060 Filed 6-8-12; 8:45 am]
BILLING CODE 8011-01-P