[Federal Register Volume 84, Number 246 (Monday, December 23, 2019)]
[Notices]
[Pages 70590-70598]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-27593]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87778; File No. SR-NASDAQ-2019-098]
Self-Regulatory Organizations; The Nasdaq Stock Market, LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Relocate Rules From Its Current Rulebook Into Its New Rulebook Shell
December 17, 2019.
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 December 6, 2019, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') 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 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 relocate rules from its current Rulebook
into its new Rulebook shell.
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 purpose of this rule change is to relocate Nasdaq rules,
including The Nasdaq Stock Market LLC (``NOM''), into the new Rulebook
shell with some amendments to the shell.\3\ Nasdaq ISE, LLC (``ISE''),
Nasdaq GEMX, LLC (``GEMX'') and Nasdaq MRX, LLC (``MRX'') recently
relocated their rules.\4\ NOM proposes to relocate its rules to align
with the ISE, GEMX, MRX and BX Rulebooks. Phlx will also relocate its
Rulebook in order to harmonize its rule structure, where applicable,
across Nasdaq markets. The relocation and harmonization of the Nasdaq
Rule structure is part of the Exchange's continued effort to promote
efficiency and structural conformity of its rules with those of its
Affiliated Exchanges. The Exchange believes that the placement of the
Nasdaq Rules into their new location in the shell will facilitate the
use of the Rulebook by Members and Members of Affiliated Exchanges.
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\3\ Previously, the Exchange added a shell structure to its
Rulebook with the purpose of improving efficiency and readability
and to align its rules closer to those of its five sister exchanges,
The Nasdaq Stock Market LLC; Nasdaq PHLX LLC; Nasdaq ISE, LLC
(``ISE''); Nasdaq GEMX, LLC; and Nasdaq MRX, LLC (``Affiliated
Exchanges''). The shell structure currently contains eight (8)
General sections which, once complete, will apply a common set of
rules to the Affiliated Exchanges. The shell structure currently
contains eight (8) Chapters which, once complete, will apply a
common set of rules to the Affiliated Exchanges. See Securities
Exchange Act Release No. 82174 (November 29, 2017), 82 FR 57492
(December 5, 2017) (SR-NOM-2017-054).
\4\ See Securities Exchange Act Release Nos. 86138 (June 24,
2019), 84 FR 29567 (June 18, 2019) (SR-ISE-2019-17); 86346 (July 10,
2019) 84 FR 33999 (July 16, 2019) (SR-GEMX-2019-08); and 86424 (July
22, 2019), 84 FR 36134 (July 22, 2019) (SR-MRX-2019-15). SR-BX-2019-
36 was filed on October 1, 2019.
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The Exchange notes that the entire Rulebook is not being relocated
at this time. Specifically, the Equity Rules are not being relocated.
The Exchange proposes to update all cross-references within the
Rule to the new relocated rule cites and also proposes to correct
certain citations. The Exchange proposes to replace internal rule
references to simply state ``this Rule'' where the rule is citing
itself without a more specific cite included in the Rule. For example,
if NOM Chapter VI, Section 3 refers currently to
[[Page 70591]]
``Chapter VI, Section 3'' the Exchange will amend the phrase to simply
``this Rule.'' The Exchange proposes to conform numbering and lettering
in certain rules to the remainder of the Rulebook. The Exchange
proposes to reflect the use of the General Equity and Options Rules in
place of Equity Rules, where applicable. Finally, the Exchange proposes
to delete any current Rules that are reserved in the Rulebook.
General 1
The Exchange proposes to relocate and alphabetize rule text from
Rule 0111, ``Adoption of Rules'', Rule 0112, ``Effective Date'', Rule
0113 ``Interpretation'', Rule 0120 ``Definitions,'' and certain
definitions from Rule 0121, ``Definitions in Nasdaq By-Laws'' into
General 1. The Exchange proposes to relocate certain definitions from
Chapter VI, Section 1 into General 1.\5\ The Exchange proposes to
delete certain definitions which are repetitive.\6\ The Exchange will
also alphabetize the definitions within General 1 and conform the text
where applicable. Definitions related to the equities rules \7\ will be
relocated into Equity 1. The Exchange is conforming the format of all
definitions. Finally, the Exchange notes that the description of
``MarketWatch'' was amended to remove the phrase ``a unit of Nasdaq
Regulation.''
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\5\ See note 14 below.
\6\ The Exchange proposes to delete the term ``Exchange Act''
and ``SEC'' or ``Commission.''
\7\ The terms ``Customer'' and ``Security'' are being relocated
into Equity 1 of the Rulebook as these terms are specific to the
equity market. Further, the following definitions are being
relocated from Chapter I, Section 1 and Chapter VI, Section 1 into
General 1, Section: ``associated person,'' ``Board,'' ``Exchange,''
``Exchange Act,'' ``he,'' ``him,'' or ``his,'' ``MarketWatch,''
``Nasdaq Rules,'' ``Nasdaq Regulation,'' ``primary market,'' and
``SEC'' or ``Commission.''
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General 2
General 2 would be comprised of the following rules:
------------------------------------------------------------------------
Proposed new rule No. Current rule No.
------------------------------------------------------------------------
Section 1........................ Reserved.
Section 2........................ Chapter VI, Section 16, Fees, Dues
and Other Charges.
Section 3........................ Reserved.
Section 4........................ 2130, Nasdaq Ownership Restriction
(re-title as Limitation on
Affiliation between the Exchange and
Members).
Section 5........................ 0130, Regulation of the Exchange and
Its Members.
Section 6........................ 0115, Applicability.
Section 7........................ 0150, Regulatory Independence.
Section 8........................ Reserved.
Section 9........................ 1130, Reliance on Current Membership
List.
Section 10....................... 1150, Executive Representative.
Section 11....................... 1160. Contact Information
Requirements.
Section 12....................... 1170, Nasdaq's Business Continuity
and Disaster Recovery Plan Testing
Requirements for Members and Options
Participants Pursuant to Regulation
SCI (re-title as ``Business
Continuity and Disaster Recovery'').
Section 13....................... 0140, Fingerprint-Based Background
Checks of Employees and Independent
Contractors.
Section 14....................... 2160, Restrictions on Affiliation.
Section 15....................... 3510, Business Continuity Plans.
Section 16....................... 3520, Emergency Contact Information.
------------------------------------------------------------------------
The Exchange is reserving Sections 1 and 3 at this time. The
Exchange is reserving Sections 1 and 3 at this time. The Exchange
proposes to relocate Chapter VI, Section 16, Fees, Dues and Other
Charges, into the General section because this rule applies to both the
equity and options products. This rule describes the power of Nasdaq's
Board of Directors. The Exchange notes that the Board of Directors of
Nasdaq has the power to set fees for the Nasdaq market, which includes
fees for both options and equities.\8\ The Exchange notes that Section
7, Regulatory Independence, was amended to remove the placeholder for a
date. Finally Rule 2170, Disruptive Quoting and Trading Activity
Prohibited, is not being relocated as this rule applies to equities.
There is a similar rule within Chapter III, Section 16 related to
options, which is being relocated to Options 9, Section 4. As noted
above, the equity rules are not being relocated at this time.
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\8\ See NOM By-Law Article XII, Section 12.4 which provides the
Board authority to set fees. In addition, the Exchange proposes to
amend the word ``Participant'' in this rule to ``member'' to clearly
indicate all members are subject to the Rule.
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General 4
The Exchange proposes to rename General 4 from ``Regulation'' to
``Registration Requirements.''
General 5
The Exchange proposes to relocate Nasdaq Series 8000 and 9000 into
General 5 Discipline and not change the rule numbers. The Exchange is
proposing to delete reserved sections.
General 9
The Exchange proposes to adopt a new General 9, titled
``Regulation.'' The Exchange proposes to relocate the following rules
into General 9:
------------------------------------------------------------------------
Proposed new rule No. Current rule No.
------------------------------------------------------------------------
Section 1........................ 2010A, Standards of Commercial Honor
and Principles of Trade; 5320A,
Prohibition Against Trading Ahead of
Customer Orders; IM-2110-4, Trading
Ahead of Research Reports; IM-2110-
5, Anti-Intimidation/Coordination;
IM-2110-6, Confirmation of Callable
Common Stock; 2120, Use of
Manipulative, Deceptive or Other
Fraudulent Devices; and 2140,
Interfering With the Transfer of
Customer Accounts in the Context of
Employment Disputes.
Section 2........................ 2150, Customers' Securities or Funds;
and IM-2150, Segregation of
Customers' Securities.
Section 3........................ 2210, Communications with the Public;
IM-2210-1. Guidelines to Ensure That
Communications With the Public Are
Not Misleading; and IM-2210-4,
Limitations on Use of the Exchange's
Name.
Section 4........................ 2211, Institutional Sales Material
and Correspondence.
[[Page 70592]]
Section 5........................ 2212, Telemarketing.
Section 6........................ 2251, Forwarding of Proxy and Other
Issuer-Related Materials.
Section 7........................ 2261, Disclosure of Financial
Condition; 2262, Disclosure of
Control Relationship with Issuer;
and 2269, Disclosure of
Participation or Interest in Primary
or Secondary Distribution (re-title
as ``Disclosure of Financial
Condition, Control Relationship with
Issuer and Participation or Interest
in Primary or Secondary
Distribution'').
Section 8........................ 2266, SIPC Information.
Section 9........................ 2290, Fairness Opinions.
Section 10....................... 2090A, Know Your Customer, 2111A.
Suitability (re-title
``Recommendations to Customers
(Suitability)'').
Section 11....................... 5310A, Best Execution and
Interpositioning.
Section 12....................... 2340, Customer Account Statements.
Section 13....................... 2341, Margin Disclosure Statement.
Section 14....................... 2360, Approval Procedures for Day-
Trading Accounts; and 2361, Day-
Trading Risk Disclosure Statement
(re-title as ``Approval Procedures
for Day-Trading Accounts'').
Section 15....................... 2370, Borrowing From or Lending to
Customers.
Section 16....................... 2430, Charges for Services Performed.
Section 17....................... 2441, Net Transactions with
Customers.
Section 18....................... 2460, Payments for Market Making.
Section 19....................... 2510, Discretionary Accounts.
Section 20....................... 3010, Supervision; IM-3010-1,
Standards for Reasonable Review; and
IM-3010-2, Guidance on Heightened
Supervision Requirements (re-title
as ``Supervision'').
Section 21....................... 3012, Supervisory Control System.
Section 22....................... 3013, Annual Certification of
Compliance and Supervisory
Processes; and IM-3013. Annual
Compliance and Supervision
Certification (re-title as ``Annual
Certification of Compliance and
Supervisory Processes'').
Section 23....................... 3030, Outside Business Activities of
an Associated Person.
Section 24....................... 3040, Private Securities Transactions
of an Associated Person.
Section 25....................... 3050, Transactions for or by
Associated Persons.
Section 26....................... 3220A, Influencing or Rewarding
Employees of Others.
Section 27....................... 3070, Reporting Requirements.
Section 28....................... 3080, Arbitration Disclosure to
Associated Persons When Signing Form
U4 (re-titled ``Disclosure to
Associated Persons When Signing Form
U4'').
Section 29....................... 2070A, Transactions Involving Nasdaq
Employees.
Section 30....................... 3110A, Books and Records.
Section 31....................... 3120, Use of Information Obtained in
Fiduciary Capacity.
Section 32....................... 3140, Approval of Change in Exempt
Status Under SEC Rule 15c3-3.
Section 33....................... 3150, Reporting Requirements for
Clearing Firms and IM-3150,
Exemptive Relief.
Section 34....................... 3160, Extensions of Time Under
Regulation T and SEC Rule 15c3-3.
Section 35....................... 2040, Nonregistered Foreign Finders.
Section 36....................... IM-2460-1, Market Quality Program.
Section 37....................... 3011, Anti-Money Laundering
Compliance Program.
Section 38....................... 2520, Margin Requirements.
Section 39....................... 3020, Fidelity Bonds.
Section 40....................... 4110A, Capital Compliance.
Section 41....................... 4120A, Regulatory Notification and
Business Curtailment.
Section 42....................... 4140A, Audit.
Section 43....................... 4511A, General Requirements.
Section 44....................... 4513A, Records of Written Customer
Complaints.
Section 45....................... 4512A, Customer Account Information.
Section 46....................... 4514A, Authorization Records for
Negotiable Instruments Drawn From a
Customer's Account.
Section 47....................... 4515A, Approval and Documentation of
Changes in Account Name or
Designation.
Section 48....................... 4521A, Notifications, Questionnaires
and Reports.
Section 49....................... 5230A, Payments Involving
Publications that Influence the
Market Price of a Security.
Section 50....................... 1090, Foreign Member.
Section 51....................... 1050, Research Analysts.
------------------------------------------------------------------------
The word ``FINRA'' is being added in certain places for greater
clarity. The Exchange is amending Rule 2212, Telemarketing, to update
the Rule reference to NASD Rule 2212 to FINRA Rule 3230 in light of a
FINRA rule change.\9\ The Exchange is amending Rule 3010, Supervision,
as well as IM-3010-1, Standards for Reasonable Review, to update the
Rule reference to NASD Rule 3010 to FINRA Rule 3170 and 3110,
respectively, in light of a FINRA rule change.\10\ The Exchange
proposes to amend NASD Rule 3070 references within Rule 3070, Reporting
Requirements, to FINRA Rule 4530 pursuant to a FINRA rule change.\11\
The Exchange proposes to amend NASD Rule 3110A, Books and Records, to
amend the rule references to FINRA Rule 4511 pursuant to a FINRA rule
change.\12\
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\9\ See Securities Exchange Act Release No. 66279 (January 30,
2012), 77 FR 5611 (February 3, 2012) (SR-FINRA-2011-059).
\10\ See Securities Exchange Act Release No. 71179 (December 23,
2013), 78 FR 79542 (December 30, 2013) (SR-FINRA-2013-025).
\11\ See Securities Exchange Act Release No. 63260 (November 5,
2010), 75 FR 69508 (November 12, 2010) (SR-FINRA-2010-034).
\12\ See Securities Exchange Act Release No. 63784 (January 27,
2011), 76 FR 5850 (February 2, 2011) (SR-FINRA-2010-052).
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Equity Rules
The Exchange proposes some changes to the Equity Rules to re-title
certain chapters in the new Rulebook. The Exchange proposes to relocate
certain definitions currently within Rule 0121 ``Definitions in the By-
Laws of the
[[Page 70593]]
Exchange'' into Equity 1.\13\ The Exchange proposes to re-title Equity
2 from ``Equity Trading Rules'' to ``Equity Market Participants.'' The
Exchange proposes to re-title Equity 3 from ``Equity Market
Participants'' to ``Equity Trading Rules.'' The Exchange proposes to
title Equity 4, which is currently reserved, as ``Limit Up-Limit
Down.'' The Exchange proposes to reserve Equity 6, which is currently
titled ``Limit Up-Limit Down.'' The Exchange proposes to reserve Equity
10, which is titled ``Qualification, Listing and Delisting of
Companies.'' Finally, the Exchange proposes to remove Equity 11, which
is currently reserved.
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\13\ See note 5 above. The term ``Nasdaq Manual'' is being
eliminated.
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Options 1
The Exchange proposes to rename current Options 1 from ``Options
Definitions'' to ``General Provisions.'' The Exchange proposes to
relocate and alphabetize certain definitions from Chapter I, Section 1
into proposed General 1, Section 1. The Exchange also proposes to
relocate definitions from Chapter VI, Section 1(a)-(c) and (h) into
General 1, Section 1. Certain definitions within Chapter 1, Section 1
and Chapter VI, Section 1 apply to both equities and options. These
definitions \14\ will be relocated to General 1, Section 1 from Chapter
I, Section 1 and Chapter VI, Section 1. The Exchange proposes to
conform the definitions by adding ``the term'' where necessary. The
Exchange proposes to amend the term ``System'' from Chapter VI, Section
1 and apply that term to both ``System'' and ``Trading System'' and
remove the separate definition for ``Trading System'' in Chapter I,
Section I(a)(61) which creates a circular reference to the term
``System.'' The Exchange also proposes to eliminate the defined term
``Participant'' from Chapter VI, Section 1. The Exchange defines an
``Options Participant'' or ``Participant'' within its rules today. The
separate defined term ``Participant'' is confusing and unnecessary. The
terms ``Nasdaq Regulation'' and ``Nasdaq Rules'' are redundant of the
same terms that was already being relocated to General 1 from the
Equity Rules. The Exchange proposes to delete the terms ``Nasdaq
Regulation'' ``Nasdaq Rules'' in this rule. The term ``Exchange'' is
redundant of the same terms that was already being relocated to General
1 from the Equity Rules. The Exchange proposes to delete the terms
``Exchange'' and ``Order Entry Firms'' in this rule because they are
duplicative.
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\14\ The following definitions are being relocated from Chapter
I, Section 1 and Chapter VI, Section 1 into General 1, Section 1:
``associated person,'' ``Board,'' ``Exchange,'' ``Exchange Act,''
``he,'' ``him,'' or ``his,'' ``MarketWatch,'' ``Nasdaq Rules,''
``Nasdaq Regulation,'' ``primary market,'' and ``SEC'' or
Commission.''
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In addition the Exchange proposes to relocate the following rules
into Options 1:
------------------------------------------------------------------------
Proposed new rule No. Current rule No.
------------------------------------------------------------------------
Section 1........................ Chapter I, Section 1, Definitions and
Chapter VI, Section 1(a)-(c) and
(h).
Section 2........................ Chapter I, Section 2, Applicability.
Section 3........................ Chapter I, Section 3, Regulation of
Nasdaq and its Members.
------------------------------------------------------------------------
The Exchange proposes to relocate Chapter V, Section 2,
MarketWatch, to the end of the defined term within Options 1, Section
1, which is currently within Chapter I, Options 1, Section 1 and is
being relocated to General 1 as that term applies to both options and
equities. The sentence is merely descriptive and adds to the already
defined term. The Exchange proposes to relocate Chapter VII, Section 1,
Customer Orders and Order Entry Firms, into a definition for Order
Entry Firms within Options 1, Section 1.
Options 2
The Exchange proposes to rename Options 2 from ``Options Trading
Rules'' to ``Options Market Participants'' and relocate the following
rules into this chapter:
------------------------------------------------------------------------
Proposed new rule No. Current rule No.
------------------------------------------------------------------------
Section 1........................ Chapter VII, Section 2, Market Maker
Registration; and Section 3
Continuing Market Maker Registration
(re-title as Registration of Market
Makers).
Section 2........................ Reserved.
Section 3........................ Reserved.
Section 4........................ Chapter VII, Section 5, Obligations
of Market Makers.
Section 5........................ Chapter VII, Section 6, Market Maker
Quotations.
Section 6........................ Reserved.
Section 7........................ Chapter VII, Section 7, Securities
Accounts and Orders of Market
Makers.
Section 8........................ Chapter VII, Section 9, Financial
Requirements for Market Makers.
Section 9........................ Chapter VII, Section 4, Good Standing
for Market Makers.
Section 10....................... Reserved.
------------------------------------------------------------------------
The Exchange proposes to reserve certain rules. The Exchange
proposes to relocate Chapter VII, Section 8, Letters of Guarantee, to
Options 6, Section 4. The Exchange proposes to relocate Chapter VII,
Sections 11, Mass Cancellation of Trading Interest to Options 3,
Section 19, and Section 12, Order Exposure Requirements, to Options 3,
Section 22. Chapter VII, Section 1 was relocated to the definitions as
described herein.
Options 2A
The Exchange proposes a new Options Section 2A titled ``Options
Participation'' and proposes to relocate the following rules into this
chapter:
------------------------------------------------------------------------
Proposed new rule No. Current rule No.
------------------------------------------------------------------------
Section 1........................ Chapter II, Section 1, Options
Participation.
Section 2........................ Chapter II, Section 2, Requirements
for Options Participation.
Section 3........................ Chapter II, Section 3, Persons
Associated with Options
Participants.
[[Page 70594]]
Section 4........................ Chapter II, Section 4, Good Standing
for Options Participants.
------------------------------------------------------------------------
The Exchange proposes to reserve Sections 5-7.
Options 3
The Exchange proposes to rename Options 3 from ``Options Market
Participants'' to ``Options Trading Rules'' and relocate the following
rules into this chapter:
------------------------------------------------------------------------
Proposed new rule No. Current rule No.
------------------------------------------------------------------------
Section 1........................ Chapter VI, Section 2, Days and Hours
of Business.
Section 2........................ Chapter VI, Section 3, Units of
Trading; and Section 4, Meaning of
Premium Quotes and Orders (combined
into one rule and retitle as ``Units
of Trading and Meaning of Premium
Quotes and Orders'').
Section 3........................ Chapter VI, Section 5, Minimum
Increments.
Section 4........................ Chapter VI, Section 6, Entry and
Display of Quotes.
Section 5........................ Chapter VI, Section 7, Entry and
Display of Orders.
Section 6........................ Chapter V, Section 5, Unusual Market
Conditions.
Section 7........................ Chapter VI, Section 1(d)-(g),
Definitions; and Chapter VI, Section
21, Order and Quote Protocols (re-
title as ``Types of Orders and Quote
Protocols'').
Section 8........................ Chapter VI, Section 8, Nasdaq Opening
and Halt Cross (re-title as
``Opening and Halt Cross'').
Section 9........................ Chapter V, Section 3, Trading Halts;
and Section 4, Resumption of Trading
After a Halt (re-title as ``Trading
Halts'').
Section 10....................... Chapter VI, Section 10, Book
Processing (re-title as ``Order Book
Allocation'').
Section 11....................... Reserved.
Section 12....................... Reserved.
Section 13....................... Reserved.
Section 14....................... Reserved.
Section 15....................... Chapter VI, Section 18, Risk
Protections.
Section 16....................... Reserved.
Section 17....................... Chapter VI, Section 22, Kill Switch.
Section 18....................... Chapter VI, Section 23, Detection of
Loss of Communication.
Section 19....................... Chapter VII, Section 11, Mass
Cancellation of Trading Interest.
Section 20....................... Chapter V, Section 6, Nullification
and Adjustment of Options
Transactions including Obvious
Errors.
Section 21....................... Chapter V, Section 1, Access to and
Conduct on the NOM Market; and
Chapter VI, Section 20, Exchange
Sharing of Participant-Designated
Risk Settings (re-title as ``Access
to and Conduct on NOM'').
Section 22....................... Chapter VII, Section 12, Limitations
on Order Entry.
Section 23....................... Chapter VI, Section 19, Data Feeds
and Trade Information.
Section 24....................... Chapter VI, Section 13, Transaction
Price Binding
Section 25....................... Chapter VI, Section 12, Anonymity.
Section 26....................... Chapter VI, Section 17, Message
Traffic Mitigation.
Section 27....................... Chapter V, Section 9, Limitation of
Liability.
Section 28....................... Reserved.
------------------------------------------------------------------------
The Exchange proposes to combine the NOM Rules and retitle them as
indicated herein. The Exchange proposes to reserve certain rules.
Chapter VI, Section 16, Fees, Dues and Other Charges, was relocated to
General 2 and Chapter VI, Sections 14, Authorization to Give Up and
Section 15, Submission for Clearance, were relocated to Options 6. The
Exchange amended Options 3, Section 21(b)(8) to refer to Section 22
with describes the limitation on orders on NOM.
Options 4
The Exchange proposes to amend Options 4, Options Listing Rules, to
remove Section 5, which is reserved, and renumber Section 6, Series of
Options Contracts Open for Trading, as Section 5.\15\ The Exchange also
proposes to reserve Section 6 and reserve a new Section 10.
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\15\ The corresponding rule numbers are changing for removals of
certain sections.
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Options 4A
The Exchange proposes to relocate rules within new proposed Options
4A, which is proposed to be titled ``Options Index Rules'' as follows:
------------------------------------------------------------------------
Proposed new rule No. Current rule No.
------------------------------------------------------------------------
Section 1........................ Chapter XIV, Section 1, Application
of Index Rules.
Section 2........................ Chapter XIV, Section 2, Definitions.
Section 3........................ Chapter XIV, Section 3, Designation
of a Broad-Based Index.
Section 4........................ Chapter XIV, Section 6, Designation
of Narrow-Based and Micro-Narrow-
Based Index Options.
Section 5........................ Chapter XIV, Section 4, Dissemination
of Information.
Section 6........................ Chapter XIV, Section 5, Position
Limits for Broad-Based Index
Options.
Section 7........................ Chapter XIV, Section 7, Position
Limits for Industry and Micro-Narrow
Based Index Options.
Section 8........................ Reserved.
Section 9........................ Chapter XIV, Section 8, Exemptions
from Position Limits.
Section 10....................... Chapter XIV, Section 9, Exercise
Limits
Section 11....................... Chapter XIV, Section 10, Trading
Sessions.
Section 12....................... Chapter XIV, Section 11, Terms of
Index Options Contracts.
[[Page 70595]]
Section 13....................... Chapter XIV, Section 12, Debit Put
Spread Cash Account Transactions.
Section 14....................... Chapter XIV, Section 13, Disclaimers.
Section 15....................... Chapter XIV, Section 14, Exercise of
American-Style Index Options.
Section 16....................... Reserved.
------------------------------------------------------------------------
Options 5
The Exchange proposes to rename Options 5 from ``Options Trade
Administration'' to ``Order Protection and Locked and Crossed
Markets.'' The current rules \16\ within Options 5 are being relocated
into Options 6B.
The Exchange proposes to relocate the following rules within
Options 5 as follows:
------------------------------------------------------------------------
Proposed new rule No. Current rule No.
------------------------------------------------------------------------
Section 1........................ Chapter XII, Section 1, Definitions.
Section 2........................ Chapter XII, Section 2, Order
Protection.
Section 3........................ Chapter XII, Section 3, Locked and
Crossed Markets.
Section 4........................ Chapter VI, Section 11(a), Order
Routing.
Section 5........................ Chapter VI, Section 11(b) to be
titled ``Cancellation of Orders and
Error Account''.
------------------------------------------------------------------------
The definitions of ``Exchange Act'' and ``SEC are being removed
from Chapter XII, Section 1, ``Definitions'' as these terms are
repetitive of definitions within General 1.
Options 6
The Exchange proposes to rename Options 6 from ``Order Protection
and Locked and Cross Markets'' to ``Options Trade Administration'' and
relocate rules within Options 6 as follows:
------------------------------------------------------------------------
Proposed new rule No. Current rule No.
------------------------------------------------------------------------
Section 1........................ Chapter VI, Section 14, Authorization
to Give Up.
Section 2........................ Chapter VI, Section 15, Submission
for Clearance.
Section 3........................ Reserved.
Section 4........................ Chapter VII, Section 8, Letters of
Guarantee.
------------------------------------------------------------------------
Options 6A
The Exchange proposes to relocate rules within new proposed Options
6A titled ``Closing Transactions'' as follows:
------------------------------------------------------------------------
Proposed new rule No. Current rule No.
------------------------------------------------------------------------
Section 1........................ Chapter X, Section 6, Contracts of
Suspended Participants.
Section 2........................ Chapter V, Section 8, Failure to Pay
Premium.
------------------------------------------------------------------------
Options 6B
The Exchange proposes to relocate rules within new proposed Options
6B titled ``Exercises and Deliveries'' as follows:
------------------------------------------------------------------------
Proposed new rule No. Current rule No.
------------------------------------------------------------------------
Section 1........................ Options 5, Section 101, Exercise of
Options Contracts.
Section 2........................ Options 5, Section 102, Allocation of
Exercise Notices.
Section 3........................ Options 5, Section 103, Delivery and
Payment.
------------------------------------------------------------------------
Options 6C
The Exchange proposes to relocate rules within new proposed Options
6C titled ``Exercises and Deliveries'' as follows:
---------------------------------------------------------------------------
\16\ Options 5 currently includes the following rules: Section
101 Exercise of Options Contracts, Section 102 Allocation of
Exercise Notices, and Section 103, Delivery and Payment.
[[Page 70596]]
------------------------------------------------------------------------
Proposed new rule No. Current rule No.
------------------------------------------------------------------------
Section 1........................ Chapter XIII, Section 1, General
Rule.
Section 2........................ Chapter XIII, Section 2, Time Margin
Must Be Obtained.
Section 3........................ Chapter XIII, Section 3, Margin
Requirements.
Section 4........................ Reserved.
Section 5........................ Chapter XIII, Section 4, Margin
Required Is Minimum.
Section 6........................ Reserved.
------------------------------------------------------------------------
Chapter XIII, Section 5, Joint Back Office Participants, is being
relocated to Options 6D.
Options 6D
The Exchange proposes to relocate rules within new proposed Options
6D titled ``Net Capital Requirements'' as follows:
------------------------------------------------------------------------
Proposed new rule No. Current rule No.
------------------------------------------------------------------------
Section 1........................ Reserved.
Section 2........................ Reserved.
Section 3........................ Reserved.
Section 4........................ Chapter XIII, Section 5, Joint Back
Office Participants.
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With respect to the relocation of Joint Back Office Participants,
the Supplementary Material .01 titled was removed and the text was
retained as part of the main rule in paragraph (c) of Section 4.
Options 6E
The Exchange proposes to relocate rules within new proposed Options
6E titled ``Records, Reports and Audits'' as follows:
------------------------------------------------------------------------
Proposed new rule No. Current rule No.
------------------------------------------------------------------------
Section 1........................ Chapter IX, Section 1, Maintenance,
Retention and Furnishing of Books,
Records and Other Information.
Section 2........................ Chapter IX, Section 2, Reports of
Uncovered Short Positions.
Section 3........................ Chapter IX, Section 3, Financial
Reports and Audits.
Section 4........................ Reserved.
Section 5........................ Chapter IX, Section 4, Automated
Submission of Trade Data.
Section 6........................ Chapter IX, Section 6, Risk Analysis
of Market Maker Accounts.
Section 7........................ Chapter IX, Section 5, Regulatory
Cooperation.
Section 8........................ Reserved.
Section 9........................ Chapter V, Section 7, Audit Trail.
------------------------------------------------------------------------
The Exchange proposes to relocate Chapter IX, Section 7, Anti-Money
Laundering Compliance Program, to Options 9, Section 21.
Options 7
The Exchange is updating cross-references within Options 7 to the
introductory section of the Rule as well as Options 7, Section 4 Nasdaq
Options Market Data Distributor Fees.
Options 9
The Exchange proposes to relocate rules within new proposed Options
9, which is currently reserved, and title the chapter as ``Business
Conduct.'' The following rules will be relocated within Options 9 with
certain rules reserved:
------------------------------------------------------------------------
Proposed new rule No. Current rule No.
------------------------------------------------------------------------
Section 1.................... Reserved.
Section 2.................... Chapter III, Section 1, Adherence to Law
and Section 2 Conduct and Compliance
with the Rules.
Section 3.................... Reserved.
Section 4.................... Chapter III, Section 16, Disruptive
Quoting and Trading Activity Prohibited.
Section 5.................... Reserved.
Section 6.................... Reserved.
Section 7.................... Reserved.
Section 8.................... Chapter III, Section 3, Rumors.
Section 9.................... Chapter III, Section 4, Prevention of the
Misuse of Material Nonpublic
Information.
Section 10................... Chapter III, Section 5, Disciplinary
Action by Other Organizations.
Section 11................... Chapter III, Section 6, Other
Restrictions on Participants.
Section 12................... Chapter III, Section 15, Significant
Business Transactions of Options
Clearing Participants.
Section 13................... Chapter III, Section 7, Position Limits.
Section 14................... Chapter III, Section 8, Exemptions from
Position Limits.
Section 15................... Chapter III, Section 9, Exercise Limits.
Section 16................... Chapter III, Section 10, Reports Related
to Position Limits.
Section 17................... Chapter III, Section 11, Liquidation
Positions.
Section 18................... Chapter III, Section 14, Limit on
Outstanding Uncovered Short Positions.
Section 19................... Chapter III, Section 12, Other
Restrictions on Options Transactions and
Exercises.
Section 20................... Chapter III, Section 13, Mandatory
Systems Testing.
[[Page 70597]]
Section 21................... Chapter IX, Section 7, Anti-Money
Laundering Compliance Program.
Section 22................... Reserved.
Section 23................... Reserved.
------------------------------------------------------------------------
Options 10
The Exchange proposes to relocate rules within new proposed Options
10 titled ``Doing Business with the Public'' as follows:
------------------------------------------------------------------------
Proposed new rule No. Current rule No.
------------------------------------------------------------------------
Section 1.................... Chapter XI, Section 1, Eligibility.
Section 2.................... Chapter XI, Section 2, Registration of
Options Principals.
Section 3.................... Chapter XI, Section 3, Registration of
Representatives.
Section 4.................... Chapter XI, Section 5, Discipline,
Suspension, Expulsion of Registered
Persons.
Section 5.................... Chapter XI, Section 6, Branch Offices.
Section 6.................... Chapter XI, Section 7, Opening of
Accounts.
Section 7.................... Chapter XI, Section 8, Supervision of
Accounts.
Section 8.................... Chapter XI, Section 9, Suitability of
Recommendations.
Section 9.................... Chapter XI, Section 10, Discretionary
Accounts.
Section 10................... Chapter XI, Section 11, Confirmation to
Public Customers.
Section 11................... Chapter XI, Section 12, Statement of
Accounts to Public Customers.
Section 12................... Chapter XI, Section 13, Statements of
Financial Condition to Customers.
Section 13................... Chapter XI, Section 15, Delivery of
Current Options Disclosure Documents and
Prospectus.
Section 14................... Chapter XI, Section 16, Restrictions on
Pledge and Lending of Customers'
Securities.
Section 15................... Chapter XI, Section 17, Transactions of
Certain Customers.
Section 16................... Chapter XI, Section 18, Guarantees.
Section 17................... Chapter XI, Section 19, Profit Sharing.
Section 18................... Chapter XI, Section 20, Assuming Losses.
Section 19................... Chapter XI, Section 21, Transfer of
Accounts.
Section 20................... Chapter XI, Section 22, Communications
with Public Customers; and Section 14,
Addressing of Communications to Public
Customers (re-title ``Communications
with Public Customers'').
Section 21................... Chapter XI, Section 23, Fidelity Bond.
Section 22................... Chapter XI, Section 24, Public Customer
Complaints.
Section 23................... Chapter XI, Section 25, Telephone
Solicitation.
Section 24................... Chapter XI, Section 4, Other Affiliations
of Registered Persons.
Section 25................... Reserved.
------------------------------------------------------------------------
The Exchange proposes to reserve Options 10, Section 25.
Options 11
The Exchange proposes to relocate Chapter X, Section 7 titled
``Penalty for Minor Rule Violations'' to Options 11 titled ``Minor Rule
Plan Violations'' at Section 1. The Exchange proposes to relocate
Chapter X, Section 1, ``Imposition of Suspension,'' Section 2,
``Investigation Following Suspension Violations,'' Section 3,
``Reinstatement Following Suspension,'' Section 4, ``Failure to Obtain
Reinstatement,'' Section 5, ``Termination of Rights by Suspension'' and
Section 6, ``Contracts of Suspended Participants'' into Options 11,
Section 2, titled ``Suspension.''
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\17\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\18\ in particular, in that it is designed to
promote just and equitable principles of trade and to protect investors
and the public interest by bringing greater transparency to its rules
by relocating its Rules into the new Rulebook shell together with other
rules which have already been relocated. The Exchange's proposal is
consistent with the Act and will protect investors and the public
interest by harmonizing its rule structure, where applicable, across
Nasdaq markets so that Members can readily locate rules which cover
similar topics. The relocation and harmonization of the Nasdaq Rule
structure is part of the Exchange's continued effort to promote
efficiency and conformity of its processes with those of its Affiliated
Exchanges. The Exchange believes that the placement of the Nasdaq Rules
into their new location in the shell will facilitate the use of the
Rulebook by Members. Specifically, the Exchange believes that market
participants that are members of more than one Nasdaq market will
benefit from the ability to compare Rulebooks.
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\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(5).
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The Exchange is not substantively amending rule text unless noted
otherwise within this rule change. The renumbering, re-lettering,
deleting reserved rules, amending cross-references and other minor
technical changes will bring greater transparency to Nasdaq's Rule
structure. ISE, GEMX and MRX have already relocated their Rulebooks. BX
recently filed to relocate its Rulebook.\19\ Phlx will also relocate
its Rulebook in order to harmonize its rule structure, where
applicable, across Nasdaq markets. The Exchange believes its proposal
will benefit investors and the general public by increasing the
transparency of its Rulebook and promoting easy comparisons among the
various Nasdaq Rulebooks.
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\19\ SR-BX-2019-036 filed on October 1, 2019.
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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 Exchange believes that the
proposed amendments do not impose an undue
[[Page 70598]]
burden on competition because the amendments to relocate the Rules are
non-substantive. This rule change is intended to bring greater clarity
to the Exchange's Rules. Renumbering, re-lettering, deleting reserved
rules and amending cross-references will bring greater transparency to
Nasdaq's Rule structure.
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) of the Act \20\ and Rule 19b-
4(f)(6) thereunder.\21\
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\20\ 15 U.S.C. 78s(b)(3)(A).
\21\ 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, along
with a brief description and text of 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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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \22\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \23\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has requested that the Commission waive the 30-day operative delay so
that the Exchange could immediately relocate its rules. According to
the Exchange, the proposal is intended to make it easier for members to
locate the various Exchange rules, and is part of a larger effort to
reorganize the Exchange's rules and those of its Affiliated Exchanges.
For these reasons, the Commission believes that waiver of the 30-day
operative delay is consistent with the protection of investors and the
public interest. Accordingly, the Commission hereby waives the
operative delay and designates the proposed rule change operative upon
filing.\24\
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\22\ 17 CFR 240.19b-4(f)(6).
\23\ 17 CFR 240.19b-4(f)(6)(iii).
\24\ For purposes only of waiving the 30-day operative delay,
the Commission also has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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 change 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-2019-098 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-2019-098. 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-2019-098, and should be submitted
on or before January 13, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019-27593 Filed 12-20-19; 8:45 am]
BILLING CODE 8011-01-P