
[Federal Register Volume 77, Number 27 (Thursday, February 9, 2012)]
[Notices]
[Pages 6831-6833]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-3000]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66322; File No. SR-NASDAQ-2012-020]


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 Rules 
7014 and 7018

February 3, 2012.
    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 January 27, 2012, The NASDAQ Stock Market LLC (``NASDAQ'' or 
``Exchange''), 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 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 Substance 
of the Proposed Rule Change

    NASDAQ is proposing to modify NASDAQ's transaction execution fee 
and credit schedule in Rules 7014 and 7018. NASDAQ will implement the 
proposed change on February 1, 2012. 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, the Exchange 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. The Exchange 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 its fee and credit schedule for transaction 
executions in Rules 7014 and 7018. First, NASDAQ is amending the rebate 
associated with its recently introduced ``Pre-Market Investor Program'' 
(the ``PMI Program''). The goal of the PMI Program is to encourage the 
development of a deeper, more liquid trading book during pre-market 
hours, while also recognizing the correlation observed by NASDAQ 
between levels of liquidity provided during pre-market hours and levels 
provided during regular trading hours. Under the program, a member is 
required to designate one or more market participant identifiers 
(``MPIDs'') for use under the program. The member will then qualify for 
an extra rebate with respect to all displayed liquidity provided 
through a designated MPID that executes at a price of $1 or more during 
the month if the following conditions are met:
    (1) The MPID's ``PMI Execution Ratio'' for the month is less than 
10. The PMI Execution Ratio is defined as the ratio of (A) the total 
number of liquidity-providing orders entered by a member through a PMI-
designated MPID during the specified time period to (B) the number of 
liquidity-providing orders entered by such member through such PMI-
designated MPID and executed (in full or partially) in the Nasdaq 
Market Center during such time period; provided that: (i) No order 
shall be counted as executed more than once; and (ii) no Pegged Orders, 
odd-lot orders, or MIOC or SIOC \3\ orders shall be included in the 
tabulation. Thus, the requirement stipulates that a high proportion of 
potentially liquidity-providing orders entered through the MPID 
actually execute and provide liquidity. This requirement is designed to 
focus the availability of the program on members representing retail 
and institutional customers.
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    \3\ ``Market Hours Immediate-or-Cancel'' or ``System Hours 
Immediate-or-Cancel'' orders.
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    (2) The member provides an average daily volume of 2 million or 
more shares of liquidity during the month using orders that are 
executed prior to NASDAQ's Opening Cross. NASDAQ has observed that 
members that provide higher volumes of liquidity-providing orders 
during the pre-market hours generally do so throughout the rest of the 
trading day. Accordingly, the PMI pays a credit with respect to all 
liquidity-providing orders, but only in the event that comparatively 
large volumes of such orders execute in pre-market hours.
    (3) The ratio between shares of liquidity provided through the MPID 
and total shares accessed, provided, or routed through the MPID during 
the month is at least 0.80. This requirement reflects the PMI's goal of 
encouraging members that provide high levels of liquidity in pre-market 
hours to also do so during the rest of the trading day.
    Under the proposed change, NASDAQ is raising the extra rebate under 
the program from $0.0001 per share executed to $0.0002 per share 
executed. As is currently the case, the rebate is paid with respect to 
all displayed liquidity provided through a designated MPID that 
executes at a price of $1 or more during the month. NASDAQ is making 
the change to encourage more market participants to join the program.

[[Page 6832]]

    Second, NASDAQ is amending Rule 7018(a)(3) \4\ to introduce volume 
tiers with respect to its fees for the execution of orders that access 
liquidity in securities listed on exchanges other than NASDAQ and the 
New York Stock Exchange (``Tape B Securities''). Currently, NASDAQ 
charges $0.0030 per share executed for execution of all orders that 
access liquidity in Tape B Securities, with the exception of orders 
that are designated to use the SAVE or SOLV routing strategies but that 
execute at NASDAQ (either before or after routing), which are charged 
$0.0027 per share executed. Under the proposed change, if a member 
enters an order through a Nasdaq Market Center market participant 
identifier (``MPID'') through which the member (i) accesses shares of 
liquidity in Tape B Securities that represent more than 0.5% of 
Consolidated Volume \5\ in Tape B Securities during the month, and (ii) 
provides shares of liquidity in Tape B Securities that represent more 
than 0.25% of Consolidated Volume in Tape B Securities during the 
month, the charge will be $0.0028 per share executed with respect to 
such an order. Similarly, if a member enters an order through a NASDAQ 
Market Center MPID through which the member (i) accesses shares of 
liquidity in Tape B Securities that represent more than 1.5% of 
Consolidated Volume in Tape B Securities during the month, and (ii) 
provides shares of liquidity in Tape B Securities that represent more 
than 0.5% of Consolidated Volume in Tape B Securities during the month, 
the charge will be $0.0027 per share executed with respect to such an 
order.\6\ The change is designed to encourage greater use of NASDAQ's 
facilities for the purpose of trading Tape B Securities. In this 
regard, NASDAQ notes that NYSEArca currently charges a fee to access 
liquidity in Tape B Securities of $0.0028 per share executed, but a fee 
to access liquidity in other securities of $0.0030 per share 
executed.\7\ Accordingly, the change will enhance NASDAQ's ability to 
compete for orders in Tape B Securities. NASDAQ further notes that, as 
is the case with other portions of its fee schedule, the change is 
designed to ensure that NASDAQ's fee schedule does not provide 
excessive encouragement to members to aggregate the activity of several 
member firms under a single MPID for the sole purpose of receiving more 
favorable pricing. Accordingly, the proposed volume tiers are available 
only to the extent that a member achieves them through a single MPID. 
NASDAQ believes that this requirement promotes market quality by 
providing more favorable pricing to members that engage in unified 
management of high volumes of quotes/orders through a single MPID, 
while discouraging sponsored relationships that are established solely 
for pricing benefits.\8\
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    \4\ Rule 7018(a) applies to executions of transactions at a 
price of $1 or more. Fees for transactions at a price below $1 
remain unchanged.
    \5\ For purposes of Rule 7018, Rule 7018(a)(1) defines 
``Consolidated Volume'' as the total consolidated volume reported to 
all consolidated transaction reporting plans by all exchanges and 
trade reporting facilities.
    \6\ The change would not alter pricing with respect to SAVE and 
SOLV orders. Thus, a member qualifying for the $0.0028 tier with 
respect to orders entered through a qualifying MPID would 
nevertheless pay $0.0027 per share executed with respect to all SAVE 
and SOLV orders.
    \7\ See http://usequities.nyx.com/markets/nyse-arca-equities/trading-fees.
    \8\ See Securities Exchange Act Release No. 64003 (March 2, 
2011), 76 FR 12784 (March 8, 2011) (SR-NASDAQ-2011-028) (proposed 
rule change that first established single-MPID pricing requirements 
on NASDAQ).
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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,\9\ in general, and with 
Sections 6(b)(4) and (5) of the Act,\10\ 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, and is not 
designed to permit unfair discrimination between customers, issuers, 
brokers or dealers. 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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    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(4) and (5).
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    The proposed new tiers for members that use NASDAQ to trade 
significant amounts of Tape B Securities are reasonable because they 
will result in a fee reduction for members that qualify for the tiers, 
but will not increase the costs borne by other members or limit the 
availability of other, pre-existing pricing incentives. Moreover, the 
proposed change is consistent with an equitable allocation of fees 
because it charges lower fees for executing Tape B Securities to 
members that make significant contributions to NASDAQ market quality 
and price discovery by accessing and providing high volumes of 
liquidity in Tape B Securities. NASDAQ believes that the change is not 
unfairly discriminatory because the price reduction offered to 
qualifying members is linked to the volume of trading in the securities 
to which the discount applies. NASDAQ further believes that the program 
may encourage members to become more active in trading Tape B 
Securities through NASDAQ, thereby benefitting other market 
participants that may be able to trade larger volumes of stocks without 
affecting the price of those stocks. Finally, NASDAQ believes that it 
is reasonable, equitable, and not unfairly discriminatory to stipulate 
that members qualifying for the pricing tiers must achieve the 
requisite volume thresholds through a single MPID, thereby enhancing 
market quality through unified management of the member's quotes/orders 
and discouraging aggregation arrangements that exist solely for pricing 
reasons. NASDAQ believes that firms that engage in more unified 
management of their quotes and orders are most likely to promote price 
discovery and market stability.\11\
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    \11\ See also Securities Exchange Act Release No. 64003 (March 
8, 2011), 76 FR 12784 (March 8, 2011) (SR-NASDAQ-2011-028).
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    As described in the filing that instituted it,\12\ the PMI program 
is not unfairly discriminatory because it is intended to promote 
submission of liquidity-providing orders to NASDAQ, which benefits all 
NASDAQ members and all investors. Likewise, the PMI is consistent with 
the Act's requirement for the equitable allocation of reasonable dues, 
fees, and other charges. Members who choose to significantly increase 
the volume of PMI-eligible liquidity-providing orders that they submit 
to NASDAQ would be benefitting all investors, and therefore providing 
credits to them, as contemplated in the PMI program, is equitable. 
Moreover, NASDAQ believes that the level of the credit to be offered 
under the proposed change--$0.0002 per share, in addition to credits 
ranging from $0.0020 to $0.00295 per share under NASDAQ's regular 
transaction execution fee and rebate schedule for execution of 
displayed quotes/orders--is reasonable, in that it provides a reduction 
of fees to members qualifying for the program.
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    \12\ Securities Exchange Act Release No. 65717 (November 9, 
2011), 76 FR 70784 (November 15, 2011) (SR-NASDAQ-2011-150).
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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

[[Page 6833]]

believes that the proposed rule change reflects this competitive 
environment because it will reduce fees paid by active market 
participants, without removing any of the market's existing pricing 
incentives.

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. The proposed changes will enhance 
competition by reducing certain of NASDAQ's fees. Notably, the proposed 
pricing tiers for Tape B Securities will enhance NASDAQ's ability to 
compete with NYSEArca, which currently offers reduced fees to access 
liquidity in Tape B Securities.\13\ Similarly, the change to the PMI 
Program will enhance competition with the EDGX Exchange, which 
encourages participation in its pre-market and post-market trading 
sessions by means of favorable pricing offered to members that are 
active during pre-market and/or post-market hours.\14\
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    \13\ http://usequities.nyx.com/markets/nyse-arca-equities/trading-fees.
    \14\ http://www.directedge.com/Membership/FeeSchedule/EDGXFeeSchedule.aspx.
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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 \15\ and subparagraph (f)(2) of Rule 19b-4 
thereunder.\16\ 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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    \15\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \16\ 17 CFR 240.19b-4(f)(2).
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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-2012-020 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-2012-020. 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, 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-2012-020 and should 
be submitted on or before March 1, 2012.
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    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-3000 Filed 2-8-12; 8:45 am]
BILLING CODE 8011-01-P


