
[Federal Register Volume 76, Number 94 (Monday, May 16, 2011)]
[Notices]
[Pages 28252-28256]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-11860]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64453; File No. SR-NASDAQ-2011-062]


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

May 10, 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 April 29, 2011, The NASDAQ Stock Market LLC (``NASDAQ'') filed with 
the Securities and Exchange Commission (``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 the 
Substance of the Proposed Rule Change

    NASDAQ proposes to modify pricing for NASDAQ members using the 
NASDAQ Market Center. NASDAQ has

[[Page 28253]]

designated this change to be operative on May 2, 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    NASDAQ is amending Rule 7018 to make modifications to its pricing 
schedule for execution of quotes/orders through the NASDAQ Market 
Center of securities priced at $1 or more. Under the pricing schedule, 
NASDAQ offers a credit to liquidity providers, with the size of the 
credit varying based on a range of parameters specified in the fee 
schedule. The lowest liquidity provider rebate is $0.0020 per share 
executed for displayed quotes/orders and $0.0010 per share executed for 
non-displayed quotes/orders. Under the proposed change, NASDAQ will 
modify the parameters under which members may qualify for higher 
liquidity provider rebates. In general, the changes will broaden the 
circumstances under which members may qualify for a higher rebate, 
although in some circumstances the changes may reduce a particular 
member's rebate.
    First, NASDAQ is simplifying the method of determining whether a 
member qualifies for its highest rebate tier of $0.0015 per share 
executed for non-displayed quotes/orders and $0.00295 per share 
executed for displayed quotes/orders. Currently, a member's eligibility 
for this tier is based on its achieving certain levels of liquidity 
provision that vary depending on overall trading volumes during the 
month. Thus, 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. The liquidity must be provided through a single market 
participant identifier (``MPID'') of the member. Under this approach, 
depending on the volume during a month, a member may be required to 
provide liquidity that represents varying percentages of the total 
consolidated volume in order to achieve the tier. In order to adopt a 
requirement that is consistent from month to month, NASDAQ is modifying 
the requirement so that it is directly tied to a member's percentage of 
total consolidated volume during the month, with any member providing 
liquidity through a single MPID that represents more than 0.90% of the 
total becoming eligible for the rebate tier. NASDAQ believes that this 
change will make the amount of liquidity provision required to achieve 
the highest rebate tier more predictable and less prone to month-to-
month changes than under the current approach. For example, under the 
current approach, in a month with 9 billion shares of average total 
consolidated volume per day, a member would be required to provide a 
daily average of 75 million shares of liquidity, or approximately 0.83% 
of the total, while in a month with slightly over 9 billion shares of 
average total consolidated volume per day, the requirement would rise 
to 85 million shares of liquidity, or about 0.94% of the total. Under 
the changed approach, the member would be required to provide 0.90% of 
the total, regardless of the volume during that month. The change will 
ensure that a member providing that level of liquidity will 
consistently receive the highest rebate, whereas a member providing 
that level of liquidity under the current schedule might receive the 
highest rebate in some months but not in others as overall market 
volumes fluctuated. For example, during the first three months of 2011, 
as well as the month of April 2011,\3\ average daily trading volumes 
were 8.158 billion, 7.804 billion, 7.870 billion, and 6.970 billion 
shares, respectively. Thus, a member seeking to receive this rebate 
tier during January 2011 was required to provide a daily average of 
more than 75 million shares of liquidity per day during January 2011, 
and a daily average of more than 65 million shares during each of 
February, March, and April. However, in each of these months, the 
required volumes represented 0.919%, 0.833%, 0.826%, and 0.933%, 
respectively, of the total. Thus, a member providing the new required 
threshold of 0.90% would have received the highest rebate in only two 
of the four months under the current approach. Moreover, to the extent 
that trading volumes remain at or near April 2011 levels, the new 
approach will make it consistently easier for members to reach the 
volume levels required for the highest tier.
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    \3\ Based on volume data through April 26, 2011.
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    Second, NASDAQ currently offers a rebate tier of $0.0015 per share 
executed for quotes/orders that are not displayed and $0.0029 per share 
executed for quotes/orders that are displayed to members providing a 
daily average of more than 35 million shares of liquidity during the 
month, through one or more of its MPIDs. This tier is currently not 
tied to overall market volumes, and therefore may be more difficult for 
a member to achieve in a low volume month. NASDAQ is modifying the tier 
to make it available to a member providing liquidity through one or 
more of its MPIDs that represents more than 0.45% of total consolidated 
trading volume. As a result, the required threshold will be lowered for 
any month with an average trading volume lower than 7,777,777,778 
shares per day, but raised for months with higher trading volumes. To 
the extent that trading volumes remain at or near April 2011 levels, 
the new approach will make it consistently easier for members to reach 
the volume levels required for the highest tier.
    Third, in order to retain a favorable rebate tier for members that 
provide a specified minimum level of liquidity without regard to 
overall market trading volumes, NASDAQ is also introducing a new rebate 
tier for members that provide a daily average of more than 25 million 
shares of liquidity during a month, through one or more MPIDs. Such 
members will receive a credit of $0.0010 per share executed for non-
displayed quotes/orders, and $0.0027 per share executed for displayed 
quotes/orders. In addition, NASDAQ is retaining a tier for members 
providing a

[[Page 28254]]

daily average of more than 20 million share of liquidity, under which 
it pays a rebate of $0.0010 per share executed for non-displayed 
liquidity and $0.0025 per share executed for displayed liquidity.\4\ 
These rebate tiers would be expected to benefit members whose order 
flow does not rise during high volume months, but that nevertheless 
provide the specified levels of liquidity, thereby contributing to the 
depth and market quality of the NASDAQ book.
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    \4\ NASDAQ is making non-substantive changes to the text that 
describes this rebate tier, however. Specifically, the text had 
contained references to levels of liquidity provision with respect 
to stocks listed on venues other than NASDAQ and the New York Stock 
Exchange that were needed to distinguish the requirements of the 
tier from the requirements of another similarly worded tier. Because 
the requirements of the other tier are being modified, the 
distinguishing language is being deleted.
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    Fourth, NASDAQ currently provides a rebate tier for members that 
provide specified quantities of liquidity in general and with respect 
to stocks listed on venues other than NASDAQ and the New York Stock 
Exchange (``Tape B stocks'') in particular. Currently, the rebate is 
available to members that provide a daily average of more than 20 
million shares of liquidity during the month, including a daily average 
of more than 8 million shares of liquidity in Tape B stocks. Such 
members receive a rebate of $0.0015 per share executed for non-
displayed quotes/orders and a rebate of $0.0029 per share executed for 
displayed quotes/orders. As with several other tiers, NASDAQ is 
modifying the tier requirements to specify percentages of total 
consolidated volume rather than share volumes. Specifically, a member 
will be eligible for this rebate tier if it provides liquidity through 
one or more MPIDs that represents more than 0.30% of total consolidated 
volume, and shares of liquidity in Tape B stocks that represent more 
than 0.10% of total consolidated volume. As a result, the required 
threshold for overall liquidity provided will be lowered in a month 
with average daily trading volumes below 6,666,666,667 shares, while 
the required threshold for Tape B liquidity would be lowered in a month 
with average daily trading volumes below 8 billion shares.
    Fifth, NASDAQ is introducing new liquidity provider rebate tiers 
that focus on the extent to which a member accesses liquidity as well 
as its level of liquidity provision. Because members accessing high 
levels of liquidity contribute to the quality of the NASDAQ market 
through the payment of fees and by encouraging members that post 
liquidity to post orders that seek to interact with incoming orders, 
NASDAQ believes that it is appropriate to offer an enhanced liquidity 
provider rebate to such members. Specifically, if a member accesses 
shares of liquidity through one or more of its MPIDs that represent 
more than 0.65% of total consolidated volume, and also provides a daily 
average of at least 2 million shares of liquidity through one or more 
MPIDs, NASDAQ will pay a rebate of $0.0015 per share executed for the 
member's non-displayed quotes/orders, and $0.0029 per share executed 
for its displayed quotes/orders. Similarly, if a member accesses shares 
of liquidity through one or more of its MPIDs that represent more than 
0.45% of total consolidated volume, and also provides a daily average 
of at least 2 million shares of liquidity through one or more MPIDs, 
NASDAQ will pay a rebate of $0.0010 per share executed for the member's 
non-displayed quotes/orders, and $0.0025 per share executed for its 
displayed quotes/orders.
    Finally, with respect to liquidity provider rebate tiers focused on 
members active in both the NASDAQ Stock Market and the NASDAQ Options 
Market, NASDAQ is modifying its existing tiers and adding a new tier. 
Currently, a member that provides a daily average of more than 10 
million shares of liquidity in the NASDAQ Stock Market, and trades a 
daily average of more than 130,000 contracts in the NASDAQ Options 
Market is eligible to receive a rebate of $0.0015 per share executed 
for its non-displayed quotes/orders and $0.0029 per share executed for 
its displayed quotes/orders. NASDAQ is reducing the required daily 
average number of options contracts to 115,000, while modifying the 
liquidity provision threshold to require shares of liquidity 
representing more than 0.15% of total consolidated volume. The required 
volume of liquidity provision would thereby be reduced in any month 
with an average daily volume of less than 6,666,666,667 shares.
    Similarly, a member that currently provides shares representing 
1.0% or more of the total consolidated volume in the NASDAQ Stock 
Market, and trades a daily average of more than 300,000 contracts in 
the NASDAQ Options Market, is eligible to receive a rebate of $0.0015 
per share executed for its non-displayed quotes/orders and $0.00295 per 
share executed for its displayed quotes/orders. NASDAQ is reducing the 
liquidity provision threshold to require shares of liquidity 
representing more than 0.90% of total consolidated volume.\5\
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    \5\ NASDAQ is also deleting the word ``average'' from the 
provision since it is superfluous: A member providing a given 
percentage of the average total consolidated volume on each day 
during the month would provide the same percentage of the total 
consolidated volume for the entire month. NASDAQ is also amending 
Rule 7018(j) to stipulate that any trading day on which the market 
is not open for the entire trading day (such as the day after 
Thanksgiving) will be excluded from the calculation of total 
consolidated volume as well as average daily volume.
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    Under the new tier for members active in both markets, a member 
will be eligible to receive $0.0010 per share executed with respect to 
non-displayed quotes/orders and $0.0025 per share executed with respect 
to displayed quotes/orders if it provides shares of liquidity 
representing more than 0.10% of the total consolidated volume for the 
month, and also trades an average daily volume of more than 115,000 
contracts on the NASDAQ Options Market during the month.
2. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\6\ in general, and with Section 
6(b)(4) of the Act,\7\ 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. All similarly situated members are 
subject to the same fee structure, and access to NASDAQ is offered on 
fair and non-discriminatory terms.
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    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(4).
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    The filing introduces many changes with respect to the liquidity 
provider rebates paid by NASDAQ, but NASDAQ believes that the overall 
effect of the changes will be to make it easier for members to receive 
higher rebates, particularly in months with lower trading volumes, 
thereby reducing prices for those members that were previously unable 
to qualify for an enhanced rebate but that are able to do so under the 
revised pricing schedule. All of the proposed rebate tiers are based 
upon a member's level of activity in the NASDAQ Stock Market and/or 
NASDAQ Options Market.
    With respect to the replacement of share thresholds with percentage 
thresholds for certain of NASDAQ's existing rebate tiers,\8\ NASDAQ 
believes that the change is reasonable, because it will result in more 
predictability from month to month with respect to the levels of 
liquidity provision required to

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receive the applicable rebate levels. Although the changes will make it 
easier to achieve applicable rebate tiers in some months and more 
difficult in other months, depending on overall market volumes, NASDAQ 
believes that the levels of activity required to achieve higher tiers 
are generally consistent with existing requirements for these tiers. 
Moreover, like existing rebate tiers tied to volume levels, as in 
effect at NASDAQ and other markets, the proposed rebate tiers are 
equitable and non-discriminatory because they are open to all members 
on an equal basis and provide discounts that are reasonably related to 
the value to an exchange's market quality associated with higher 
volumes.
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    \8\ Specifically, the tiers for members providing more than 
0.90% of total consolidated volume, for members providing more than 
0.45% of total consolidated volume, and for members providing more 
than 0.30% of total consolidated volume, including 0.10% in Tape B 
stocks.
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    Similarly, the proposed new rebate tier for members providing an 
average daily volume of more than 25 million shares of liquidity will 
provide members with greater opportunities to receive a higher rebate. 
Accordingly, it is reasonable because it will reduce fees for members 
providing more than 25 million, but fewer than 35 million shares of 
liquidity per day, and is non-discriminatory and equitable because it 
is open to all members on an equal basis and provides discounts that 
are reasonably related to the value to an exchange's market quality 
associated with volumes.
    The new rebate tiers for members that access high volumes of 
liquidity and provide a daily average of at least 2 million shares of 
liquidity are reasonable because they will reduce fees for members that 
qualify for the tiers. Moreover, NASDAQ believes that they are non-
discriminatory and equitable because they are open to all members on an 
equal basis and provide discounts that are reasonably related to the 
value to an exchange's market quality associated with higher volumes. 
Although many rebate tiers focus on levels of liquidity provision, 
NASDAQ believes that is also reasonable and equitable to reduce fees 
for members that access high volumes of liquidity, because the presence 
of such members' order flow in turn attracts members that seek to post 
quotes/orders to interact with incoming order flow.
    With respect to pricing changes for members active on both the 
NASDAQ Market Center and the NASDAQ Options Market, NASDAQ has noted in 
its prior filings with regard to existing rebate tiers focused on such 
members that the tiers are responsive to the convergence of trading in 
which members simultaneously trade different asset classes within a 
single strategy.\9\ 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, pricing incentives that 
encourage market participant activity in both markets recognize that 
activity in the options markets also supports price discovery and 
liquidity provision in the NASDAQ Market Center. Moreover, NASDAQ 
believes that these changes are reasonable because they will make it 
easier for members active in both markets to qualify for an enhanced 
rebate, and are also non-discriminatory and equitable. They are open to 
all members, but are not the exclusive means by which members may 
qualify for the associated rebate levels. Accordingly, members are not 
required to trade in the NASDAQ Options Market in order to receive the 
applicable rebates.
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    \9\ Securities Exchange Act Release No. 64003 (March 2, 2011), 
76 FR 12784 (March 8, 2011) (SR-NASDAQ-2011-028); Securities 
Exchange Act Release No. 59879 (May 6, 2009), 74 FR 22619 (May 13, 
2009) (SR-NASDAQ-2009-041).
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    Finally, NASDAQ 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 such 
an environment, NASDAQ must continually adjust its fees to remain 
competitive with other exchanges and with alternative trading systems 
that have been exempted from compliance with the statutory standards 
applicable to exchanges. NASDAQ believes that the proposed rule change 
reflects this competitive environment because it will broaden the 
conditions under which members may qualify for higher liquidity 
provider rebates.

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. For this reason and the 
reasons discussed in connection with the statutory basis for the 
proposed rule change, 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.\10\ 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.
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    \10\ 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-2011-062 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-2011-062. 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

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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 on official business 
days between the hours of 10 a.m. and 3 p.m. Copies of the filing will 
also be available for inspection and copying at the principal office of 
NASDAQ. 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-2011-062, and 
should be submitted on or before June 6, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-11860 Filed 5-13-11; 8:45 am]
BILLING CODE 8011-01-P


