[Federal Register: February 5, 2009 (Volume 74, Number 23)]
[Notices]
[Page 6183-6186]
[DOCID:fr05fe09-63]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59323; File No. SR-BX-2009-002]

Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Adopt a
Policy Relating to Its Treatment of Trade Reports That It Determines To
Be Inconsistent With the Prevailing Market

January 30, 2009.
    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 January 14, 2009, NASDAQ OMX BX, Inc. (the ``Exchange'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described in Items I and II below, which Items have been
prepared by the Exchange. The Exchange has designated this proposal as
eligible for immediate effectiveness pursuant to Exchange Act Rule 19b-
4(f)(6). The Commission is publishing this notice and order 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 a policy relating to its treatment
of trade reports that it determines to be inconsistent with the
prevailing market and for this policy to be in effect concurrent with
the launch of cash equities trading by NASDAQ OMX BX, Inc. The Exchange
does not expect that the proposed rule change will have any direct
effect, or significant indirect effect, on any other Exchange rule in
effect at the time of this filing.

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. The
text of these statements may be examined at the places specified in
Item III below, and is set forth in Sections A, B, and C below.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Trades in listed securities occasionally occur at prices that
deviate from prevailing market prices and those trades sometimes
establish a high, low or last sale price for a security that does not
reflect the true market for the security. This filing, which is
substantially similar to the New York Stock Exchange's (``NYSE'') and
The NASDAQ Stock Market LLC's (``Nasdaq'') recent filings, seek to
address such instances of ``aberrant'' trades.\3\
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    \3\ See Securities Exchange Act Release No. 58736 (October 6,
2008), 73 FR 60380 (October 10, 2008) (SR-NYSE-2008-91). See
Securities Exchange Act Release No. 59151 (December 23, 2008), 74 FR
158 (January 2, 2009) (SR-NASDAQ-2008-100). The Exchange notes that
these proposed policies relating to the Exchange's treatment of
trade reports that it determines to be inconsistent with the
prevailing market are substantially similar to the NYSE's and
Nasdaq's proposed policies.
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    The Exchange proposes that its policy in this regard shall be to
contact the listing exchange (if the Exchange is not the listing
exchange) and other markets (in the case of executions that take place
across multiple markets) to determine if any erroneous trade reports
were filed. If not, or in the case of non-unlisted trading privilege
trades, if the Exchange determines the trade price is inconsistent with
the prevailing market for the security after considering the factors
outlined herein, the Exchange may make the determination to append an
indicator (an ``Aberrant Report Indicator'') to the trade.
    The Exchange will not initially list stocks on its own market, but
will trade on an unlisted trading privilege (``UTP'') basis securities
listed on other markets. Nasdaq operates the securities information
processor (``SIP''), which processes trade and quote information for
the Nasdaq UTP Plan (``Nasdaq SIP''). The Securities Industry
Automation Corporation (``SIAC'') serves as the securities information
processor for the CTA Plan and processes trade and quote information.
The Nasdaq SIP and the Consolidated Tape Association (``CTA'') offer
each participant in the Nasdaq SIP and CTA Plan the discretion to
append to the Aberrant Report Indicator to a trade report to indicate
that the market believes that the trade price in a trade executed on
that market does not accurately reflect the prevailing market for the
security.\4\
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    \4\ The CTA recommends that data recipients should exclude the
price of any trade to which the Aberrant Report Indicator has been
appended from any calculation of the high, low and last sale prices
for the security.
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    During the course of surveillance by the Exchange or as a result of
notification by another market, listed company or market participant,
the Exchange may become aware of trade prices that do not accurately
reflect the prevailing market for a security. In such a case, the
Exchange proposes to adopt as policies that it:
    i. May determine to append an Aberrant Report Indicator to any
trade report with respect to any trade executed on the Exchange that
the Exchange determines to be inconsistent with the prevailing market;
and
    ii. Shall discourage vendors and other data recipients from using
prices to which the Exchange has appended the Aberrant Report Indicator
in any calculation of the high, low or last sale price of a security.
    The Exchange will urge vendors to disclose the exclusion from high,
low or last sale price data of any trades with an Aberrant Report
Indicator and exclude them from high, low or last sale price
information they disseminate and to provide to data users an
explanation of the parameters used in the Exchange's aberrant trade
policy.
    While SIAC, on behalf of the CTA Plan, and the Nasdaq SIP, on
behalf of the Nasdaq UTP Plan, disseminate their own calculations of
high, low and last sale prices, vendors and other data recipients--and
not the Exchange--frequently determine their own methodology by which
they wish to calculate high, low and last sale prices. Therefore, the
Exchange shall endeavor to explain to those vendors and other data
recipients the deleterious effects that can result from including in
the calculations a trade to which the Aberrant Report Indicator has
been appended.
    In making the determination to append the Aberrant Report
Indicator, the Exchange shall consider all factors related to a trade,
including, but not limited to, the following:
     Material news released for the security;
     Suspicious trading activity;
     System malfunctions or disruptions;
     Locked or crossed markets;
     A recent trading halt or resumption of trading in the
security;
     Whether the security is in its initial public offering;
     Volume and volatility for the security;
     Whether the trade price represents a 52-week high or low
for the security;
     Whether the trade price deviates significantly from recent
trading patterns in the security;
     Whether the trade price reflects a stock-split,
reorganization or other corporate action;
     The validity of consolidated tape trades and quotes in
comparison to national best bids and offers; and
     The general volatility of market conditions.
    In determining whether trade prices are inconsistent with the
prevailing market, the Exchange proposes that its policy shall be to
follow the following general guidelines: The Exchange will review
whether a trade price does not reflect the prevailing market for a
security if the trade occurs during regular trading hours (i.e., 9:30
a.m. to 4 p.m.) and occurs at a price that deviates from the
``Reference Price'' by an amount that meets or exceeds the following
thresholds:

------------------------------------------------------------------------
                                                              Numerical
                        Trade price                           threshold
                                                              (percent)
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Between $0 and $15.00......................................            7
Between $15.01 and $50.00..................................            5
In excess of $50.00........................................            3
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    The ``Reference Price'' refers to (a) if the primary market for the
security is open at the time of the trade, the national best bid or
offer for the security, or (b) if the primary market for the security
is not open at the time of

the trade, the first executable quote or print for the security on the
primary market after execution of the trade in question. However, if
the circumstances suggest that a different Reference Price would be
more appropriate, the Exchange will use the different Reference Price.
For instance, if the national best bid and offer for the security are
so wide apart as to fail to reflect the market for the security, the
Exchange might use as the Reference Price a trade price or best bid or
offer that was available prior to the trade in question.
    If the Exchange determines that a trade price does not reflect the
prevailing market for a security and the trade represented the last
sale of the security on the Exchange during a trading session, the
Exchange may also determine to remove that trade's designation as the
last sale and the preceding last sale eligible trade would become the
new last sale. The Exchange may do so either on the day of the trade or
at a later date, so as to provide reasonable time for the Exchange to
conduct due diligence regarding the trade, including the consideration
of input from markets and other market participants.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section
6(b) of the Act,\5\ in general, and Section 6(b)(5) of the Act,\6\ in
particular, in that it is designed 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.
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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 Aberrant Report Indicator is consistent with the
protection of investors and the public interest in that the Exchange
will seek to ensure a proper understanding of the Aberrant Report
Indicator among securities market participants by: (i) Urging vendors
to disclose the exclusion from high, low or last sale price data of any
aberrant trades excluded from high, low or last sale price information
they disseminate and to provide to data users an explanation of the
parameters used in the Exchange's aberrant trade policy; (ii) if the
Exchange determines to list securities in the future, informing the
affected listed company each time the Exchange or another market
appends the Aberrant Report Indicator to a trade in an Exchange-listed
stock; and (iii) reminding the users of the information that these are
still valid trades in that they were executed and not unwound as in the
case of a clearly erroneous trade.

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 that is 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

    Pursuant to Section 19(b)(3)(A) of the Act \7\ and Rule 19b-4(f)(6)
thereunder,\8\ the Exchange has designated this proposal as one that
effects a change that: (A) Does not significantly affect the protection
of investors or the public interest; (B) does not impose any
significant burden on competition; and (C) by its terms, does not
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate if consistent with the
protection of investors and the public interest.
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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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    A proposed rule change filed under 19b-4(f)(6) normally may not
become operative for 30 days after the date of filing.\9\ However, Rule
19b-4(f)(6)(iii) \10\ 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 and designate the proposed rule change
to become operative upon filing.
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    \9\ 17 CFR 240.19b-4(f)(6)(iii). 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 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.
    \10\ Id.
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    The Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest
because the proposal is substantially similar to a proposal previously
approved by the Commission.\11\ The Commission believes that the
Exchange's proposal to append an Aberrant Report Indicator to certain
trade reports is a reasonable means to alert investors and others that
the Exchange believes that the trade price for a trade executed in its
market does not accurately reflect the prevailing market for the
security. In addition, the Commission notes that the Exchange will use
objective numerical thresholds in determining whether a trade report is
eligible to have an Aberrant Trade Indicator appended to it. The
Commission further notes that the Exchange's appending the Aberrant
Trade Indicator to a trade report has no effect on the validity of the
underlying trade. Finally, waiving the 30-day operative delay will
allow the Exchange to apply the proposed change to aberrant trades
immediately.\12\ Based on the above, the Commission designates the
proposal to become operative upon filing.
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    \11\ See Securities Exchange Act Release No. 58736 (October 6,
2008), 73 FR 60380 (October 10, 2008) (SR-NYSE-2008-91). See also
Securities Exchange Act Release No. 59151 (December 23, 2008), 74 FR
158 (January 2, 2009) (SR-NASDAQ-2008-100).
    \12\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the impact of the proposed rule on
efficiency, competition, and capital formation. 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 may summarily abrogate 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 the furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to<EMAIL_ADDRESS>Please include
File Number SR-BX-2009-002 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-BX-2009-002. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/
sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for inspection and
copying in the Commission's Public Reference Room on official business
days between the hours of 10 a.m. and 3 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-BX-
2009-002 and should be submitted on or before February 26, 2009.
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    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-2428 Filed 2-4-09; 8:45 am]

BILLING CODE 8011-01-P