July 23, 2008
There is no potential conflict of interest with respec to a Directed ISO because for such orders the market participant is instructing NASDAQ to route an ISO to a specific market center. This is done only to comply with the Commission's Reg NMS ISO exemption. Accordingly, Directed ISOs to the Philadelphia Stock Exchange and the Boston Stock Exchange should be allowed.
However, if the Commission does not allow NASDAQ to route Directed ISOs to the Philadelphia Stock Exchange or the Boston Stock Exchange, then MOPP orders must also be eliminiated.
In that regard, it appears that the filing is materially inaccurate in that it states:
"Under existing rules, directed orders are the only types of orders that could be routed by NES to BSE or PHLX without checking the NASDAQ book prior to routing. As described above, Rule 4758 already establishes all the restrictions stipulated in the BSE Filing and the PHLX Filing with respect to NASDAQs order routing strategies. In order to implement the restrictions with respect to Directed Orders, as defined in NASDAQ Rule 4751, NASDAQ is amending that rule to provide that Directed Orders may not be directed to a facility of an exchange that is an affiliate of NASDAQ.
However, we understand that the NASDAQ order type "MOPP" does in fact route orders to BSE or PHLX without checking the NASDAQ book prior to routing. Either the MOPP order type should be eliminated, or directed orders should be allowed.