80 FR 50898 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Verifiable Disruption or Malfunction of Exchange Systems

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 162 (August 21, 2015)

[Federal Register Volume 80, Number 162 (Friday, August 21, 2015)]
[Notices]
[Pages 50898-50900]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-20656]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75715; File No. SR-NASDAQ-2015-100]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to Verifiable Disruption or Malfunction of Exchange Systems

 August 17, 2015.
    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 13, 2015, 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, II, and III, 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 to amend chapter V, 
section 6 (Nullification and Adjustment of Options Transactions 
including Obvious Errors) of the rules of the NASDAQ Options Market 
(``NOM'') related to a verifiable disruption or malfunction of Exchange 
systems.
    The text of the amended Exchange rule is set forth immediately 
below.
    Proposed new language is italicized and proposed deleted language 
is [bracketed].

NASDAQ Stock Market Rules

Options Rules
* * * * *
Chapter V Regulation of Trading on NOM
* * * * *
Sec. 6 Nullification and Adjustment of Options Transactions Including 
Obvious Errors

    The Exchange may nullify a transaction or adjust the execution 
price of a transaction in accordance with this Rule. However, the 
determination as to whether a trade was executed at an erroneous price 
may be made by mutual agreement of the affected parties to a particular 
transaction. A trade may be nullified or adjusted on the terms that all 
parties to a particular transaction agree, provided, however, that such 
agreement to nullify or adjust must be conveyed to the Exchange in a 
manner prescribed by the Exchange prior to 8:30 a.m. Eastern Time on 
the first trading day following the execution. It is considered conduct 
inconsistent with just and equitable principles of trade for any 
Participant to use the mutual adjustment process to circumvent any 
applicable Exchange rule, the Act or any of the rules and regulations 
thereunder.
    (a)-(j) No Change.
    (k) Verifiable Disruption or Malfunction of Exchange Systems. 
Parties to a trade may have a trade nullified or its price adjusted if 
it resulted from a verifiable disruption or malfunction of Exchange 
execution, dissemination, or communication systems that caused a quote/
order to trade in excess of its disseminated size (e.g. a quote/order 
that is frozen, because of an Exchange system error, and repeatedly 
traded). Parties to a trade may have a trade nullified or its price 
adjusted if it resulted from a verifiable disruption or malfunction of 
an Exchange dissemination or communication system that prevented a 
member from updating or canceling a quote/order for which the member is 
responsible where there is Exchange documentation providing that the 
member sought to update or cancel the quote/order.
    ([k]l) Appeals. A party to a transaction affected by a decision 
made under this section may appeal that decision to the Nasdaq Review 
Council. An appeal must be made in writing, and must be

[[Page 50899]]

received by Nasdaq within thirty (30) minutes after the person making 
the appeal is given the notification of the determination being 
appealed. The Nasdaq Review Council may review any decision appealed, 
including whether a complaint was timely, whether an Obvious Error or 
Catastrophic Error occurred, whether the correct Theoretical Price was 
used, and whether an adjustment was made at the correct price.
* * * * *
    The text of the proposed rule change is available from NASDAQ's Web 
site 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, 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 Exchange is seeking to amend its rules related to obvious 
errors. Specifically, the Exchange is seeking to amend NOM chapter V, 
section 6 to add new section 6(k) and provide the Exchange the ability 
to nullify or adjust transactions arising out of a verifiable 
disruption or malfunction of Exchange systems.
    Similar to NASDAQ OMX PHLX LLC (``Phlx'') Rule 1092(k), proposed 
NOM chapter V, section 6(k) would indicate that parties to a trade may 
have a trade nullified or its price adjusted if it resulted from a 
verifiable disruption or malfunction of Exchange execution, 
dissemination, or communication systems that caused a quote/order to 
trade in excess of its disseminated size (e.g. a quote/order that is 
frozen, because of an Exchange system error, and repeatedly traded).\3\ 
Parties to a trade may have a trade nullified or its price adjusted if 
it resulted from a verifiable disruption or malfunction of an Exchange 
dissemination or communication system that prevented a member from 
updating or canceling a quote/order for which the member is responsible 
where there is Exchange documentation providing that the member sought 
to update or cancel the quote/order. The Exchange notes that the 
proposed NOM chapter V, section 6(k) language is identical to that of 
Phlx Rule 1092(k). Per NOM chapter V, section 6, transactions that 
qualify for price adjustment will be adjusted to Theoretical Price, as 
defined in paragraph (b) of section 6.
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    \3\ There is no reference to open outcry as NOM is all-
electronic.
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    The Exchange believes that it is appropriate to provide the 
flexibility and authority provided for in the proposed rule so as not 
to limit the Exchange's ability to plan for and respond to unforeseen 
systems problems or malfunctions. The proposed rule change would 
provide the Exchange with the same authority that Phlx and other 
exchanges have to nullify or adjust trades in the event of a 
``verifiable disruption or malfunction'' in the use or operation of its 
systems.\4\ For this reason, the Exchange believes that, in the 
interest of maintaining a fair and orderly market and for the 
protection of investors, authority to nullify or adjust trades in these 
circumstances, consistent with the authority on other exchanges, is 
warranted.
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    \4\ See, e.g., Phlx Rule 1092(k), Chicago Board Options Exchange 
(``CBOE'') Rule 6.25.05, CBOE C2 (``C2'') Rule 6.15.06, and NYSE 
Arca, Inc. (``Arca'') Rule 6.89.
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    By way of housekeeping, the Exchange proposes to renumber current 
section 6(k) of NOM chapter V to section 6(l). There are no other 
changes to section 6(l), which deals with appeals regarding decisions 
pursuant to NOM chapter V, section 6.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of section 6(b) of the 
Act.\5\ Specifically, the Exchange believes the proposed rule change is 
consistent with the section 6(b)(5) \6\ requirements that the rules of 
an exchange be 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. 
Additionally, the Exchange believes the proposed rule change is 
consistent with the section 6(b)(5) requirement that the rules of an 
exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
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    In particular, the Exchange believes that the proposed rule change 
would remove impediments to and perfect the mechanism of a free and 
open market and national market system and promote a fair and orderly 
market because it would provide authority for the Exchange to nullify 
or adjust trades that may have resulted from a verifiable systems 
disruption or malfunction. The Exchange believes that it is appropriate 
to provide the flexibility and authority provided for in the proposed 
rule so as not to limit the Exchange's ability to plan for and respond 
to unforeseen systems problems or malfunctions that may result in harm 
to the public. Allowing for the nullification or modification of 
transactions that result from verifiable disruptions and/or 
malfunctions of the Exchange's systems will offer market participants 
on NOM a level of relief presently not available. The Exchange notes 
that the proposed rule change is the same as the equivalent Phlx rule 
and substantially similar to the equivalent CBOE, C2, and Arca rules.

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. To the contrary, the Exchange 
believes that the proposed rule change is pro-competitive because it 
will align the NOM rules with the rules of other markets, including 
Phlx, CBOE, C2, and Arca. By adopting the proposed rule, the Exchange 
will be in a position to treat transactions that are a result of a 
verifiable systems issue or malfunction in a manner similar to other 
exchanges.

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

[[Page 50900]]

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) \7\ of the Act and subparagraph (f)(6) of Rule 19b-4 
thereunder.\8\
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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-2015-100 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2015-100. 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 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-2015-100, and should 
be submitted on or before September 11, 2015.

    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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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-20656 Filed 8-20-15; 8:45 am]
BILLING CODE 8011-01-P