
[Federal Register Volume 76, Number 237 (Friday, December 9, 2011)]
[Notices]
[Pages 77032-77034]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-31631]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65878; File No. SR-NASDAQ-2011-165]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Modify NASDAQ's Transaction Execution Fee and Credit Schedule in Rule 
7018

December 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 November 30, 2011, The NASDAQ Stock Market LLC (``NASDAQ'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') proposed rule change as described in Items I, II and 
III below, which Items have been prepared by the Exchange. 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

    The Exchange is proposing to modify NASDAQ's transaction execution 
fee and credit schedule in Rule 7018. NASDAQ proposes to implement the 
proposed rule change on December 1, 2011. The text of the proposed rule 
change is available on the Exchange's Web site at http://nasdaq.cchwallstreet.com/Filings, at the principal office of the 
Exchange, 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, the self-regulatory organization 
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 those statements may be examined at 
the places specified in Item III [sic] below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts 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 its fee and credit schedule for transaction 
executions in Rule 7018(a).\3\ First, NASDAQ is expanding the criteria 
under which a member may qualify for its highest liquidity provider 
credit tier ($0.00295 per share executed for displayed quotes/orders 
and $0.0015 per share executed for non-displayed quotes/orders). 
Currently, a member qualifies for this rebate tier if either (i) the 
shares of liquidity provided in all securities through one of its 
Market Participant Identifiers (``MPIDs'') represent more than 0.90% of 
the total consolidated volume reported to all consolidated transaction 
reporting plans by all exchanges and trade reporting facilities 
(``Consolidated Volume'') \4\ during the month; or (ii) the member 
provides shares of liquidity in all securities during the month 
representing more than 1.0% of Consolidated Volume during the month 
through one or more of its NASDAQ Market Center MPIDs, and the member 
has an average daily volume during the month of more than 200,000 
contracts of liquidity accessed or provided through one or more of its 
Nasdaq Options Market MPIDs. Under the proposed change, a member may 
also qualify for this rebate tier if (i) it is a registered market 
maker, through a single MPID, in

[[Page 77033]]

at least 7,000 securities, (ii) the shares of liquidity provided in all 
securities through one of its MPIDs represent more than 0.75% of 
Consolidated Volume, and (iii) the shares of liquidity provided in all 
securities through one or more of its MPIDs represent more than 0.90% 
of Consolidated Volume. The proposal is designed to incentivize members 
to act as market makers in a large number of stocks and provide 
significant liquidity through NASDAQ, with the majority of the provided 
liquidity focused through a single MPID (likely the MPID through which 
the member is registered as a market maker). By providing financial 
incentives to market makers, NASDAQ hopes to improve its market quality 
for all market participants.
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    \3\ Rule 7018(a) applies to executions at $1 or more per share.
    \4\ In addition to the substantive changes that it is proposing, 
NASDAQ is also (i) adopting the defined term ``Consolidated Volume'' 
and introducing it where appropriate throughout Rule 7018, and (ii) 
making minor clarifying edits to the text of Rule 7018(a)(3).
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    Second, NASDAQ is introducing a liquidity provider rebate tier for 
members that provide an average daily volume of 3 million shares or 
more of liquidity through quotes/orders that are not displayed. 
Although NASDAQ believes that transparent markets should be encouraged 
wherever possible, it allows members to provide non-displayed liquidity 
to offer an alternative to trading venues that are entirely dark. For 
members qualifying for this tier, the rebate for non-displayed quotes/
orders will be $0.0015 per share executed, and the rebate for displayed 
quotes/orders will be $0.0020 per share executed (unless the member 
qualifies for a higher rebate due to other characteristics of its 
trading volume).\5\
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    \5\ The $0.0015 per share rebate for non-displayed quotes/orders 
is the same as the rebate for non-displayed quotes/orders offered to 
members qualifying for certain more favorable rebate tiers, and 
higher than the base rebate for non-displayed quotes/orders of 
$0.0010 per share executed. The rebate of $0.0020 per share executed 
for displayed quotes/orders is the same as the base rebate for 
displayed quotes/orders. In limited circumstances, a member 
qualifying for the new tier might also qualify for a tier that has a 
more favorable rebate for displayed quotes/orders but a less 
favorable rebate for non-displayed quotes/orders. In that case, the 
member qualifying for both tiers would receive the higher rebate for 
both types of quotes/orders.
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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 proposed rebate tier for members that make markets in 
significant numbers of stocks is reasonable because it will result in a 
fee reduction for members that qualify for the tier, but will not 
increase the costs borne by other members or limit the availability of 
other, pre-existing rebate tiers. Moreover, the proposed program is 
consistent with an equitable allocation of fees because it allocates a 
higher rebate to members that make significant contributions to NASDAQ 
market quality by making markets in a large number of stocks and that 
contribute to price discovery by providing high volumes of liquidity. 
NASDAQ believes that the program may encourage market makers to become 
active in more stocks and provide more liquidity, thereby benefitting 
other market participants that may be able to trade larger volumes of 
stocks without affecting the price of those stocks.
    The addition of a new, volume-based pricing tier for provision of 
non-displayed liquidity will provide members with an additional means 
to obtain a favorable rate of $0.0015 per share executed for non-
displayed liquidity, in addition to the volume-based tiers already in 
effect. By offering a rebate tier focused on non-displayed liquidity, 
NASDAQ hopes to attract more liquidity to its market that might 
otherwise be traded in ``dark pool'' alternative trading systems that 
have been exempted from compliance with the statutory standards 
applicable to exchanges. NASDAQ believes that the tier is reasonable 
because it will provide a fee reduction for members that qualify for 
the tier, but will not increase the costs borne by other members or 
limit the availability of other, pre-existing rebate tiers. Moreover, 
the proposed tier is consistent with an equitable allocation of fees 
because it is designed to reward members that contribute to market 
quality by providing liquidity. Although the rebate in question is 
focused on non-displayed liquidity, NASDAQ believes that the incentive 
may nevertheless contribute to its market quality by attracting orders 
that might otherwise be posted in dark pools. Although non-displayed 
orders contribute less to price discovery than displayed orders, they 
nevertheless provide liquidity to support the execution of incoming 
orders. Accordingly, NASDAQ believes that the proposal is a reasonable 
and equitable means of attracting further liquidity to the market, 
which has the potential to benefit all market participants.
    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 increase the 
conditions under which higher liquidity provider rebates may be paid to 
active market participants, without altering any of the market's 
existing rebate tiers.

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 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.\8\ 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

[[Page 77034]]

whether the proposed rule should be approved or disapproved.
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    \8\ 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 email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2011-165 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-2011-165. This 
file number should be included on the subject line if email 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 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 offices 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-2011-165, and should be submitted on or before 
December 30, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-31631 Filed 12-8-11; 8:45 am]
BILLING CODE 8011-01-P


