
[Federal Register Volume 76, Number 45 (Tuesday, March 8, 2011)]
[Notices]
[Pages 12784-12786]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-5137]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64003; File No. SR-NASDAQ-2011-028]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Modify Fees for Members Using the NASDAQ Market Center

March 2, 2011.
    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 February 22, 2011, The NASDAQ Stock Market LLC (the 
``Exchange'' or ``NASDAQ'') filed with the Securities and Exchange 
Commission (the ``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 proposes to modify pricing for NASDAQ members using the 
NASDAQ Market Center. NASDAQ will implement the proposed change on 
March 1, 2011. The text of the proposed rule change is available 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    NASDAQ is amending Rule 7018 to make modifications to its pricing 
schedule for execution of orders through the NASDAQ Market Center. 
NASDAQ offers a credit to liquidity providers, with the size of the 
credit varying based on overall monthly volumes of liquidity provision. 
Currently, the highest credit is $0.00295 per share executed for 
displayed liquidity and $0.0015 per share executed for non-displayed 
liquidity. The availability of this credit level is based on volume of 
liquidity provision during a month, with the required volume adjusted 
each month in accordance with a sliding scale that takes account of 
overall market volumes during the month. Specifically, a member 
qualifies for the highest credit if it has an average daily volume 
through the NASDAQ Market Center in all securities during the month of: 
(i) More than 95 million shares of liquidity provided, if average total 
consolidated volume reported to all consolidated transaction reporting 
plans by all exchanges and trade reporting facilities is more than 10 
billion shares per day during the month; (ii) more than 85 million 
shares of liquidity provided, if average total consolidated volume is 
between 9,000,000,001 and 10 billion shares per day during the month; 
(iii) more than 75 million shares of liquidity provided, if average 
total consolidated volume is between 8,000,000,001 and 9 billion shares 
per day during the month; and (iv) more than 65 million shares of 
liquidity provided, if average total consolidated volume is 8 billion 
or fewer shares per day during the month.
    Effective March 1, 2011, NASDAQ will modify the conditions for 
qualifying for this rebate tier by stipulating that a member must 
achieve the requisite volume levels through a single market participant 
identifier (``MPIDs'').\3\ An MPID is a four-letter code used by a 
member to categorize its trading activity for a specific purpose. All 
members have at least one MPID, but a member may request the assignment 
of additional MPIDs. For example, a member may conduct market making 
activity through one MPID, while using a second MPID for trading on 
behalf of institutional customers. In addition, certain members 
aggregate the trading activity of several firms under their own 
membership rubric, for the purposes of obtaining more favorable 
pricing, but will generally acquire a separate MPID for each firm that 
they aggregate, so as to distinguish the trading activity of one firm 
from another. NASDAQ has concluded that its most favorable rebate tier 
should be paid to those firms that do the most to enhance NASDAQ's 
market quality through unified management of a high volume of quotes/
orders. NASDAQ also wishes to ensure that its fee schedule does not 
provide excessive encouragement to members to aggregate the activity of 
several firms (some of whom may not themselves be members of the 
exchange) for the sole purpose of earning a higher rebate. Thus, a 
member or a sponsored non-member that is not able to achieve the 
requisite level of liquidity provision will not be able to meet the 
threshold by coordinating and consolidating with the trading activity 
of other firms using multiple MPIDs.
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    \3\ A member achieving the requisite level through one MPID 
would be eligible to receive the higher credit with respect to 
trading activity through its other MPIDs as well.
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    NASDAQ notes, however, that the impact of the change on firms that 
currently qualify for the most favorable rebate rate but that are not 
able to achieve the required volume thresholds through a single MPID is 
mitigated by the fact that qualification for other rebate tiers may 
continue to be achieved through one or more MPIDs. Notably, members 
that provide a daily average of more than 35 million shares of 
liquidity during the month through one or more MPIDs are eligible to 
receive a rebate of $0.0029 per share executed for displayed liquidity 
and $0.0015 per share executed for non-displayed liquidity (versus the 
top rebate of $0.00295 per share executed for displayed liquidity and 
$0.0015 per share executed for non-displayed liquidity).
    Separately, NASDAQ currently offers a rebate of $0.0029 per share 
executed for displayed liquidity and $0.0015 per share executed for 
non-displayed in circumstances where a market participant achieves 
certain specified levels of activity in both the NASDAQ Market Center 
and the NASDAQ Options Market. Currently, the required levels of 
monthly activity are an average daily volume of more than 25 million 
shares of liquidity provided through the NASDAQ Market Center and an 
average daily volume of more than 200,000

[[Page 12785]]

options contracts accessed through the NASDAQ Options Market. NASDAQ 
has determined that broadening the availability of this tier to 
encourage and reward active participation in both of its markets has 
the potential to enhance market quality and will recognize the increase 
[sic] prevalence of members that are active on both markets. 
Accordingly, NASDAQ is reducing the required level of activity on the 
NASDAQ Market Center to an average daily volume of more than 10 million 
shares of liquidity provided, while setting the required volume of 
activity on the NASDAQ Options Market at more than 130,000 options 
contracts accessed or provided through the NASDAQ Options Market.
    NASDAQ is also making several non-substantive amendments to Rule 
7018 to clarify where required volume levels may continue to be 
achieved through one or more MPIDs, and is also making several minor 
formatting changes to the rule text.
2. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\4\ in general, and with Section 
6(b)(4) of the Act,\5\ in particular, in that it provides for the 
equitable allocation of reasonable dues, fees and other charges among 
members and issuers and other persons using any facility or system 
which NASDAQ operates or controls. First, all similarly situated 
members will be subject to the same fee structure, and access to NASDAQ 
is offered on fair and non-discriminatory terms. Moreover, NASDAQ 
believes that it is reasonable and equitable to stipulate that members 
qualifying for NASDAQ's most favorable liquidity rebate tier must 
achieve requisite volume thresholds through a single MPID, thereby 
enhancing market quality through unified management of the member's 
quotes and orders and discouraging aggregation arrangements that exist 
solely for pricing reasons. Specifically, liquidity provider rebate 
tiers exist to enhance market quality by encouraging participants to 
post large numbers of quotes/orders on a particular venue and thereby 
allow the exchange to serve a robust price discovery function and 
absorb larger volumes of incoming orders at a given price. NASDAQ 
believes that it is reasonable and equitable to offer its highest 
rebate tier to firms that provide volume through a single MPID, because 
NASDAQ believes that such firms are most likely to provide consistent 
liquidity during periods of market stress and to manage their quotes/
orders in a coordinated manner that promotes price discovery and market 
stability.
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    \4\ 15 U.S.C. 78f.
    \5\ 15 U.S.C. 78f(b)(4).
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    NASDAQ further believes that it is less equitable to pay a high 
rebate to a member that aggregates the activity of multiple smaller 
firms, since the higher rebate is not being paid with respect to the 
active quote/order management of a particular market maker or active 
liquidity provider, but rather simply due to the member's willingness 
to allow other members and sponsored participants to channel low 
volumes of quote/order activity through another member. Accordingly, 
NASDAQ believes that the proposal is not unreasonably discriminatory 
because it is consistent with the overall goals of enhancing market 
quality that undergird the liquidity provider rebate. Finally, NASDAQ 
notes that firms no longer eligible for the highest rebate tier would 
remain eligible for a rebate tier that is identical with respect to 
non-displayed liquidity and only $0.00005 per share executed lower with 
respect to displayed liquidity.
    NASDAQ further notes that it operates in a highly competitive 
market in which market participants can readily favor competing venues 
if they deem fee levels at a particular venue to be excessive. In 
particular, because many other trading venues do not stipulate that 
volume thresholds must be achieved through a single MPID, market 
participants that currently receive the highest rebate but that will be 
unable to do so in the future may readily favor competing venues in an 
effort to receive more favorable pricing.
    With respect to its pricing change for members active on both the 
NASDAQ Market Center and the NASDAQ Options Market, NASDAQ noted in its 
prior filing to establish a rebate tier focused on such members that 
the tier is responsive to the convergence of trading in which members 
simultaneously trade different asset classes within a single 
strategy.\6\ Thus, to the extent that a member decreases volume in cash 
equities while trading higher volumes of options, the tier recognizes 
that the member nevertheless remains an active member of the NASDAQ 
Stock Market and should remain eligible for pricing discounts that 
recognize the overall volume of its activity. NASDAQ also notes that 
cash equities and options markets are linked, with liquidity and 
trading patterns on one market affecting those on the other. 
Accordingly, the tier recognizes that activity in the options markets 
also supports price discovery and liquidity provision in the NASDAQ 
Market Center.
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    \6\ Securities Exchange Act Release No. 59879 (May 6, 2009), 74 
FR 22619 (May 13, 2009) (SR-NASDAQ-2009-041).
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    After over one year of experience with the existing pricing tier, 
however, NASDAQ has concluded that the level of the activity required 
to qualify for the tier was not low enough to provide the benefit to an 
appropriately wide range of members that are active in both the NASDAQ 
Market Center and the NASDAQ Options Market. Accordingly, NASDAQ has 
decided to lower the required thresholds so as to make the associated 
discount more widely available.
    NASDAQ further notes, however, that the tier is one of several 
means of qualifying for the rebate levels associated with the tier, and 
that the other means do not require any activity on the NASDAQ Options 
Market. Accordingly, NASDAQ believes that the tier and the proposed 
change in required levels of activity are not unreasonably 
discriminatory.

B. Self-Regulatory Organization's Statement on Burden on Competition

    NASDAQ 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. Because the market 
for order execution and routing is extremely competitive, members may 
readily opt to disfavor NASDAQ's execution services if they believe 
that alternatives offer them better value. Accordingly, NASDAQ does not 
believe that the proposed changes will impair the ability of members or 
competing order execution venues to maintain their competitive standing 
in the financial markets.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\7\ 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

[[Page 12786]]

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.
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    \7\ 15 U.S.C. 78s(b)(3)(a)(ii).
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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 rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2011-028 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-NASDAQ-2011-028. 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 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 a.m. and 3 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-2011-028 and should be submitted on or before March 29, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-5137 Filed 3-7-11; 8:45 am]
BILLING CODE 8011-01-P


