80 FR 70045 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt Business Continuity and Disaster Recovery Plans Testing Requirements

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 218 (November 12, 2015)

[Federal Register Volume 80, Number 218 (Thursday, November 12, 2015)]
[Notices]
[Pages 70045-70047]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-28697]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76368; File No. SR-NASDAQ-2015-134]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Adopt Business Continuity and Disaster Recovery Plans Testing 
Requirements

November 5, 2015.
    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 November 2, 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 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 adopt business continuity and disaster 
recovery plans (``BC/DR Plans'') testing requirements applicable to 
Exchange Members \3\ and Options Participants \4\ in connection with 
Regulation Systems Compliance and Integrity (``Regulation SCI'').\5\
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    \3\ The term ``Member'' is defined as ``any registered broker or 
dealer that has been admitted to membership in Nasdaq.'' See 
Exchange Rule 0120(i).
    \4\ The term ``Options Participant'' is defined as a category of 
Nasdaq Member that is authorized to ``transact business on NOM via 
the Trading System. Options Participants may trade options for their 
own proprietary accounts or, if authorized to do so under applicable 
law, and consistent with these NOM Rules and with applicable law and 
SEC rules and regulations, may conduct business on behalf of 
Customers.'' See NOM Option Rules, Chapter II, Section 1(a).
    \5\ See Securities Exchange Act Release No. 73639 (November 19, 
2014), 79 FR 72252 (December 5, 2014) (``SCI Adopting Release'').
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    The text of the proposed rule change is available on the Exchange's 
Web site 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
    Nasdaq is proposing to adopt new Rule 1170 to implement the BC/DR 
Plans requirements of Rule 1004 of Regulation SCI. As adopted by the 
Commission, Regulation SCI applies to certain self-regulatory 
organizations (including the Exchange), alternative trading systems 
(``ATSs''), plan processors, and exempt clearing agencies 
(collectively, ``SCI entities''), and will require these SCI entities 
to comply with requirements with respect to the automated systems 
central to the performance of their regulated activities. Among the 
requirements of Regulation SCI is Rule 1001(a)(2)(v), which requires 
the Exchange and other SCI entities to maintain ``[b]usiness continuity 
and disaster recovery plans that include maintaining backup and 
recovery capabilities sufficiently resilient and geographically diverse 
and that are reasonably designed to achieve next business day 
resumption of trading and two-hour resumption of critical SCI systems 
following a wide-scale disruption.'' \6\ The Exchange has put extensive 
time and resources toward planning for system failures and already 
maintains robust BC/DR Plans consistent with the Rule. As set forth 
below, in connection with Regulation SCI, the Exchange is proposing to 
require certain Members to participate in testing of the operation of 
the Exchange's BC/DR Plans.
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    \6\ 17 CFR 242.1001(a)(2)(v).
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    With respect to an SCI entity's BC/DR Plans, including its backup 
systems, paragraph (a) of Rule 1004 of Regulation SCI requires each SCI 
entity to: ``[e]stablish standards for the designation of those members 
or participants that the SCI entity reasonably determines are, taken as 
a whole, the minimum necessary for the maintenance of fair and orderly 
markets in the event of the activation of such plans.'' \7\ Paragraph 
(b) of Rule 1004 of Regulation SCI further requires each SCI entity to 
``[d]esignate members or participants pursuant to the standards 
established in paragraph (a) of [Rule 1004] and require participation 
by such designated members or participants in scheduled functional and 
performance testing of the operation of such plans, in the manner and 
frequency specified by the SCI entity, provided that such frequency 
shall not be less than once every 12 months.'' \8\ In order to comply 
with Rule 1004 of Regulation SCI, the Exchange proposes to adopt new 
Rule 1170, which incorporates the requirements of Rule 1004 of 
Regulation SCI as part of the Exchange's rules, and sets forth the 
notice, selection criteria and obligations of Members and Participants 
with respect to BC/DR Plans testing. Nasdaq proposes to adopt Rule 
1170(a), which will set forth the Exchange's obligations with respect 
to the selection of Members and Participants for testing. Specifically, 
the rule will require Nasdaq to ``[e]stablish standards for the 
designation of those Members and Options Participants that Nasdaq 
reasonably determines are, taken as a whole, the minimum necessary for 
the maintenance of fair and orderly markets in the event of the 
activation of such plans.'' The proposed new rule further provides that 
``[s]uch standards may include volume-based and/or market share-based 
criteria, and may be adjusted from time to time by Nasdaq.'' Lastly, 
the proposed new rule will require Nasdaq to provide public notice of 
the standards that it adopts.
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    \7\ 17 CFR 242.1004(a).
    \8\ 17 CFR 242.1004(b).
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    Nasdaq is proposing to adopt Rule 1170(b), which will set forth the 
obligations of Nasdaq and its Members

[[Page 70046]]

and Participants with respect to testing. Specifically, the rule will 
require Nasdaq to ``designate Members and Options Participants pursuant 
to the standards established in paragraph (a) of this rule and require 
participation by such designated Members and Options Participants in 
scheduled functional and performance testing of the operation of such 
plans, in the manner and frequency specified by Nasdaq, provided that 
such frequency shall not be less than once every 12 months.'' Moreover, 
the rule will require Nasdaq to provide at least six months prior 
notice to Members and Participants that are designated for mandatory 
testing. Lastly, the rule will provide notice that participation in 
testing is a condition of membership for Members and Participants that 
are designated for testing.
    The Exchange encourages all Members and Participants to connect to 
the Exchange's backup systems and to participate in testing of such 
systems; \9\ however, certain Members and Participants will be 
obligated to participate in BC/DR Plans testing. In adopting new Rule 
1170, the Exchange will require mandatory participation in BC/DR Plans 
testing by those Members and Participants that the Exchange reasonably 
determines are, taken as a whole, the minimum necessary for the 
maintenance of fair and orderly markets in the event of the activation 
of such plans on the Exchange and NOM, respectively. The Exchange 
believes that using overall participation on its markets (by volume 
and/or market share) as a measure to select Members and Participants 
for mandatory participation in BC/DR Plans testing is a reasonable 
means by which it can determine which Members and Participants are 
necessary for the maintenance of fair and orderly markets in the event 
of the activation of such plans.\10\ For each BC/DR Plans test cycle, 
Nasdaq will select the top ten Members on the Exchange and the top five 
Participants on NOM based on Nasdaq's measure of overall participation 
on each of those markets. The Exchange will provide notice of a 
Members' and Participants' selection at least six months prior to the 
next BC/DR Plans test date. All notices concerning BC/DR Plans testing 
will be posted on Nasdaq's Web site.
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    \9\ In this regard, Nasdaq will allow any Member or Participant 
to participate in the testing of the Exchange's BC/DR Plans, which 
is consistent with the Plan. See SCI Adopting Release, supra note 5 
at 72350. Nasdaq will provide instructions on how a Member and 
Participant must inform Nasdaq of its interest in participating in 
an upcoming BC/DR Plans test via the announcement of the test date. 
A Member or Participant must provide Nasdaq notice of its interest 
to participate at least a week prior to the test date and must have 
the appropriate connection for testing in place.
    \10\ Nasdaq will provide notice of the specific selection 
criteria and measurement period in a notice to Members and 
Participants. The initial selection criteria and measurement period 
will be announced no later than November 3, 2015.
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    The Exchange is proposing to initially select Members and 
Participants with the highest levels of trading volume on Nasdaq and 
NOM over four calendar months (``Measurement Period'') as mandatory 
testing Members and Participants, respectively.\11\ Specifically, the 
Measurement Period will be the four calendar months of trading 
immediately prior to Nasdaq's announcement of the next BC/DR Plans test 
date. The Measurement Period will always begin at a point after Nasdaq 
announces the criteria to be used in the next BC/DR Plans test. By way 
of example, if on October 6, 2017 Nasdaq announced the BC/DR Plans test 
selection criteria and on March 2, 2018 Nasdaq announced a BC/DR Plans 
test date of September 8, 2018, the Measurement Period used to select 
Members and Participants subject to mandatory testing would be November 
2017 through February 2018. Members and Participants not obligated to 
participate that wish to participate in this test must inform Nasdaq no 
later than September 1, 2018.\12\
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    \11\ Nasdaq may change the total number of Members selected from 
time to time.
    \12\ See note 9.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act,\13\ in general, and further the objectives 
of Section 6(b)(5) of the Act,\14\ 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 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; and are not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. The proposal will ensure that the Members and 
Participants necessary to ensure the maintenance of fair and orderly 
markets are properly designated consistent with Rule 1004 of Regulation 
SCI. Specifically, the proposal will adopt clear and objective criteria 
with respect to the designation of Members and Participants that are 
required to participate in the testing of the Exchange's BC/DR Plans, 
as well as appropriate notification regarding such designation. As set 
forth in the SCI Adopting Release, ``SROs have the authority, and legal 
responsibility, under Section 6 of the Exchange Act, to adopt and 
enforce rules (including rules to comply with Regulation SCI's 
requirements relating to BC/DR testing) applicable to their members or 
participants that are designed to, among other things, 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.'' \15\ The Exchange believes that this proposal is consistent 
with such authority and legal responsibility.
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    \13\ 15 U.S.C. 78f.
    \14\ 15 U.S.C. 78f(b)(5).
    \15\ See SCI Adopting Release, supra note 5 at 72350.
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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 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. To 
the contrary, the proposal is not a competitive proposal but rather is 
necessary for the Exchange's compliance with Regulation SCI.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \16\ and Rule 19b-4(f)(6)(iii) thereunder.\17\ 
Because the 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 prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of

[[Page 70047]]

investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.\18\ A proposed rule change filed under Rule 
19b-4(f)(6)(iii) \19\ normally does not become operative prior to 30 
days after the date of the filing. However, pursuant to Rule 19b-
4(f)(6)(iii),\20\ the Commission may designate a shorter time if such 
action is consistent with the protection of investors and the public 
interest.
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    \16\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ 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.
    \19\ 17 CFR 240.19b-4(f)(6).
    \20\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Commission believes that waiving the 30-day operative delay 
is consistent with the protection of investors and the public interest 
as it will allow the Exchange to incorporate changes required under 
Regulation SCI, such as establishing standards for designating BC/DR 
participants, prior to the November 3, 2015 compliance date. 
Accordingly, the Commission designates the proposed rule change to be 
operative upon filing.\21\
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    \21\ For purposes only of waiving the 30-day operative delay, 
the Commission has also 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 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-2015-134 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-2015-134. 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-2015-134 and should 
be submitted on or before December 3, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-28697 Filed 11-10-15; 8:45 am]
BILLING CODE 8011-01-P