Current Regulatory Initiatives

On November 3, 2010, the SEC adopted Rule 15c3-5, "Risk Management Controls for Brokers or Dealers with Market Access" ("Market Access Rule" or "Rule"). The Market Access Rule requires broker-dealers to establish, document and maintain a system of risk management controls and supervisory procedures that are reasonably designed to systematically limit the financial exposure of the broker-dealer that could arise as a result of market access and ensure compliance with all regulatory requirements that are applicable in connection with market access.

The Rule became effective on July 14, 2011, subject to certain extensions of the effective date that were approved by the Commission. The full rule became effective on November 30, 2011.

• SEC Release No. 34-64748
• SEC Release 2010-210
• SEC Rule 15c3-5
• Addendum to the U.S. Services Agreement
• MAR FAQ

On April 5, 2011, national securities exchanges and FINRA filed a proposal to establish a new "limit up-limit down" mechanism to address extraordinary market volatility in U.S. equity markets. Under the proposal, the mechanism would prevent trades in listed equity securities from occurring outside of a specified price band, which would be set at a percentage level above and below the average price of the security over the immediately preceding five-minute period. To accommodate more fundamental price moves, there would be a five-minute trading pause - similar to the pause triggered by the current circuit breakers - if trading is unable to occur within the price band for more than 15 seconds. The Limit Up-Limit Down plan is designed to replace the existing single stock circuit breakers in phases.

On May 31, 2012, the SEC approved, as part of a one-year pilot, the Limit up-Limit Down plan to be implemented in two phases. Phase I includes Tier 1 stocks those securities part of the S&P 500, Russell 1000 and select ETPs. Phase 1 securities were fully rolled out over five weeks starting April 8, 2013 and completed the week of May 6th, 2013. Phase II, includes all NMS stocks not already part of Phase 1 and will commence implementation on August 5th 2013 and be completed no later than September 30, 2013. Phase 2 will also apply limit band protections for all NMS stocks from 9:30 a.m. - 4:00 p.m.

• ETP Tier 1 List
• LULD Phase 1 Symbol Rollout List
• SEC Final Rule Approval
• ERA #2012-7
• ERA #2013-1
• UTP Vendor Alert #2012-3
• Response to Comments on Limit Up/Limit Down Proposal
• SEC Release 2011-84
• LULD FAQs

On February 18, 2011, the Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues released a summary report titled "Recommendations Regarding Regulatory Responses to the Market Events of May 6, 2010."

• Summary Report

The SEC adopted amendments to Regulation SHO with a compliance date of February 28, 2011. Among the rule changes, the SEC introduced a short sale-related circuit breaker that, when triggered, imposes a restriction on prices at which securities may be sold short. The SEC also issued guidance for broker-dealers wishing to mark certain qualifying orders "short exempt."

• SEC Release 34-61595
• Reg SHO FAQs
• Equity Technical Update #2010-13
• UTP Vendor Alert #2010-13
• SEC FAQs
• SEC Release 2010-215

On July 11, 2012, the SEC voted to require that national securities exchanges and FINRA to establish a market-wide consolidated audit trail. The new rule requires the exchanges and FINRA to jointly submit a comprehensive plan detailing how they would develop, implement and maintain a consolidated audit trail that must collect and accurately identify every order, cancellation, modification and trade execution for all exchange-listed equities and equity options across all U.S. markets.

The Rule became effective on August 1, 2012 after it was published in the Federal Register. In March 2013 the SEC granted the SROs a temporary exemption from the deadline for filing the NMS Plan contained in Rule 613(a)(1) until December 6, 2013. Once the NMS Plan is submitted and the Commission approves , the SROs are required to report the required data to the central repository within one year, and members of the SROs are required to report within two years. Certain small broker-dealers will have up to three years to report the data.

• SEC Final Rule
• Nov 18, 2011 NASDAQ's Supplemental Comment Letter to the SEC
• Comments
• CAT NMS Plan Webpage
• FAQs

On April 14, 2010, the SEC proposed new Rule 13h-1 and a corresponding Form 13H to establish a new large trader reporting system. The system would require large traders to self-identify and file reports with the SEC. Additionally, the rule places recordkeeping, reporting and monitoring responsibilities on broker-dealers with respect to large traders maintaining accounts with them.

On July, 27th, 2011, the SEC approved the Large Trader Reporting filing with a rule effective date of October 3, 2011 and an initial compliance date for the requirement on larger traders to identify to the SEC as December 1, 2011. On April 23, 2012, the SEC issued an order temporarily exempting broker-dealers from recordkeeping, reporting and monitoring requirements that was scheduled to go into effect on April 30, 2012. The order also granted permanent exemption from the definition from the term "transaction" for certain capital market transactions.

For broker-dealers that are (1) large traders or (2) have large trader customers that are either broker-dealers or that trade through a "sponsored access" arrangement must be in compliance by November 30, 2012. For all other registered broker-dealers the compliance date is May 1, 2013. The order also exempts all registered broker-dealers from the requirement to monitor their customers' accounts for unidentified large traders until May 1, 2013.

• SEC Large Trader Reporting Delay Announcement
• SEC Large Trader Reporting FAQs
• FTEN Large Trader Resource Page
• SEC Approval
• Federal Register
• SEC Release 34-61908

NASDAQ OMX modified its rules surrounding "stub" quotes within The NASDAQ Stock Market's Market-Maker and Select Market-Maker programs. For each NMS security in which a NASDAQ member is registered as market maker, the member is required to maintain a continuous two-sided trading interest during regular market hours at prices within certain parameters expressed as a percentage reference from the National Best Bid or Offer (NBBO) as applicable (the "Designated Percentage").

On August 2, 2012, the SEC approved for use a new order type called the Market Maker Peg Order (MMPO). MPPO is designed to assist Market Makers meet their quoting obligations under Rule 4613(a). This order type will replace the AQR Tool by providing similar functionality while also meeting Reg SHO and MAR obligations. The MMPO went into effect for use October 9, 2012. AQR will be phased out by the end of 2012.

On June 14, 2012, NASDAQ OMX filed a proposed rule change to adopt a new Market Maker Peg Order that is designed to provide similar functionality available via the AQR tool. However, the new Marker Maker Peg Order is designed to also assist market makers in meeting obligations under the Market Access Rule and Reg SHO.

• SEC Approval of Market Peg Order
• NASDAQ Market Making Rule 4613
• Market Maker Peg Order Type FAQs
• Market Maker Peg Order Fact Sheet

On June 14, 2010, in coordination with other U.S. equity exchanges, NASDAQ OMX introduced a new market-wide single stock circuit breaker functionality in S&P 500 securities. On September 14, 2010, the functionality was expanded to include Russell 1000 securities and select Exchange-Traded Products.

On June 23, 2011, the SEC approved rules to expand the functionality to the remaining Reg NMS securities and establish wider percentage price moves before a trading pause is triggered for the newly added securities (Phase III securities). The SEC also approved new market maker quoting obligations for the newly added securities. For Phase III securities, the price move required to trigger a trading pause will be 30% or more for securities priced at $1 or higher and 50% or more for securities priced less than $1. The new market maker quoting obligation for Phase III securities trading at or above $1 will be 28% away from the NBBO. The quoting obligation for Phase III securities trading below $1 will remain unchanged.

The new Limit up-Limit Down Plan will replace the existing Single Stock Circuit Breakers in phases as it rolls out.

• ERA #2011-9
• FAQs
• ERA #2010-14
• File No. SR-NASDAQ-2010-061
• File No. SR-BX-2010-037
• SEC Release No. 34-63098
• SEC Release No. 34-62884

In conjunction with the SEC and other US equity exchanges, NASDAQ OMX has filed with the SEC new rules intended to improve the transparency of the Clearly Erroneous process following larger market-wide events and trading pauses. The current trade break thresholds will remain the same for single stock issues when there are fewer than 20 erroneous filings under review, except in the event of a trading pause.

In February 2013, the SEC approved the extension of the Clearly Erroneous Pilot Program until September 30, 2013 and to adopt a new paragraph in connection with operation of this rule along with Limit Up-Limit Down Plan.

• Clearly Erroneous filing information
• Extension of Pilot & New LULD Language

After collecting valuable insight and feedback from buy-side and sell-side firms, NASDAQ OMX submitted a comment letter to the SEC regarding the U.S. Equity Market Structure Concept Release.

• NASDAQ OMX Comment Letter
• SEC Market Structure Concept Release

On May 31, 2012, the SEC approved, on a one-year pilot basis, the national securities exchanges' and FINRA's proposal to revise the existing market-wide circuit breakers to be implemented on April 8th, 2013. The result will be a reduction in the market decline percentages, a shortened duration of the halts and a replacement of the existing DJIA with the broader S&P 500 Index as the pricing reference to measure the market declines. In summary, the proposal would revise the existing market-wide circuit breakers by:

• Reducing the market decline percentage thresholds necessary to trigger a circuit from 10, 20, and 30 percent to 7, 13, and 20 percent from the previous day's closing price.
• Shortening the duration of the resulting trading halts that do not close the market for the day from 30, 60, or 120 minutes to 15 minutes.
• Simplifying the structure from six to two relevant trigger time periods - those before 3:25 p.m. and those that occur on or after 3:25 p.m.
• Using the broader S&P 500 Index as the pricing reference to measure the market decline, rather than the DJIA.
• Providing that the trigger thresholds are to be recalculated daily rather than quarterly.

• SEC Final Rule Approval
• ERA #2012-6
• ERA #2013-1
• SEC Notice of Intent to Publish for Public Comment
• SEC Filing
• Existing Circuit Breakers
• MWCB FAQs

On February 5, 2013, the SEC held a roundtable to evaluate the impact of tick sizes on securities markets. The roundtable consisted of three panels. The first examined the impact of tick sizes on small and mid-size companies, the economic consequences of increasing or decreasing the minimum tick sizes, and whether better policy alternatives might be better to address the concerns highlighted in the JOBS Act.

The second panel looked at the impact of tick sizes on the securities market in general, including what benefits may have been achieved, and what if any, negative effects resulted. The final panel addressed potential methods of analysis, including how to conduct a pilot for alternative minimum tock sizes.

• Notice of SEC Roundtable
• Press Release
• Comments

On March 8, 2013, the Securities and Exchange Commission (SEC) proposed Regulation Systems Compliance and Integrity (“Regulation SCI”) and amendments to Regulation ATS under the Securities and Exchange Act of 1934 (“Exchange Act”).

As proposed, Regulation SCI would require “SCI entities” (e.g., certain self-regulatory organizations (SROs), alternative trading systems (ATSs), plan processors and exempt clearing agencies) to comply with capacity, integrity, security and testing requirements with respect to their automated systems that support their regulated activities.

According to the SEC, the Regulation and related amendments are needed to formalize current SEC inspection programs (ARP) and standardize industry efforts in this area. To address the increased use of technology in securities trading and routing and the resulting complexities in the markets, and help prevent systems related issues that can harm the fair and orderly operation of the markets.

• SEC Rule Proposal - SCI
• SEC Press Release

Any questions relating to the contents of this page or other market structure initiatives please contact Burke Cook at +1 212 231 5333 or contact Transaction Services U.S. Market Sales at +1 800 846 0477.