
[Federal Register Volume 77, Number 129 (Thursday, July 5, 2012)]
[Notices]
[Pages 39773-39774]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-16372]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67292; File No. SR-NASDAQ-2012-073]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Modify Its Excess Order Fee

June 28, 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 June 25, 2012, The NASDAQ Stock Market LLC (``NASDAQ'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a 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

    NASDAQ proposes to institute an excess order fee. [sic] NASDAQ will 
implement the proposed change on July 2, 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 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 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 recently submitted a proposed rule change to introduce an 
Excess Order Fee,\3\ aimed at reducing inefficient order entry 
practices of certain market participants that place excessive burdens 
on the systems of NASDAQ and its members and that may negatively impact 
the usefulness and life cycle cost of market data. The fee is scheduled 
to be implemented on July 2, 2012. In general, the determination of 
whether to impose the fee on a particular market participant identifier 
(``MPID'') is made by calculating the ratio between (i) entered orders, 
weighted by the distance of the order from the national best bid or 
offer (``NBBO''), and (ii) orders that execute in whole or in part. The 
fee is imposed on MPIDs that have an ``Order Entry Ratio'' of more than 
100.
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    \3\ Securities Exchange Act Release No. 66951 (May 9, 2012), 77 
FR 28647 (May 15, 2012) (SR-NASDAQ-2012-055).
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    Through this proposed rule change, the Exchange is modifying the 
parameters of the fee slightly to provide that all calculations under 
the rule establishing the fee will be based on orders received by 
NASDAQ during regular market hours (generally, 9:30 a.m. to 4:00 p.m.) 
\4\ and will exclude orders received at other times, even if they 
execute during regular market hours. NASDAQ is making the change 
because the concerns about inefficient order entry practices that have 
prompted the fee are generally not present with regard to trading 
activity outside of regular market hours, when volumes are light. 
NASDAQ is also concerned that lower execution rates outside of regular 
market hours may skew calculations under the rule, such that an MPID 
that is considered acceptably efficient during regular market hours 
would be required to pay a fee under the rule due to its activity 
outside of regular market hours.
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    \4\ Regular market hours may be different in some circumstances, 
such as on the day after Thanksgiving, when regular market hours on 
all exchanges traditionally end at 1:00 p.m.
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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,\5\ in general, and with 
Sections 6(b)(4) and 6(b)(5) of the Act,\6\ 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.
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    \5\ 15 U.S.C. 78f.
    \6\ 15 U.S.C. 78f(b)(4) and (5).
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    As originally proposed and as modified by this proposed rule 
change, NASDAQ believes that the Order Entry Fee is reasonable because 
it is designed to achieve improvements in the quality of displayed 
liquidity and market data that will benefit all market participants. In 
addition, although the level of the fee may theoretically be very high, 
the fee is reasonable because market participants may readily avoid the 
fee by making improvements in their order entry practices that reduce 
the number of orders they enter, bring the prices of their orders 
closer to the NBBO, and/or increase the percentage of their orders that 
execute. The proposed change to the fee is reasonable because it will 
reduce the likelihood of the fee being imposed on an MPID that is 
considered acceptably efficient during regular market hours, when the 
impact of

[[Page 39774]]

inefficient trading on NASDAQ and other market participants is highest.
    For similar reasons, the fee is consistent with an equitable 
allocation of fees, because although the fee may apply to only a small 
number of market participants, the fee would be applied to them in 
order to encourage better order entry practices that will benefit all 
market participants. Ideally, the fee will be applied to no one, 
because market participants will adjust their behavior in order to 
avoid the fee. The proposed change will increase the likelihood that 
the fee will not be imposed in unwarranted circumstances. Finally, 
NASDAQ believes that the fee is not unfairly discriminatory. Although 
the fee may apply to only a small number of market participants, it 
will be imposed because of the negative externalities that such market 
participants impose on others through inefficient order entry 
practices. The proposed modification to the fee is not unfairly 
discriminatory because although it will lessen the potential impact of 
the fee on MPIDs that are active outside of regular market hours, this 
change is rationally related to the fee's purpose of promoting 
efficient trading practices in conditions where inefficiency may 
negatively impact NASDAQ and other market participants.

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. Specifically, 
NASDAQ believes that the fee will constrain market participants from 
pursuing certain inefficient and potentially abusive trading 
strategies. To the extent that this change may be construed as a burden 
on competition, NASDAQ believes that it is appropriate in order to 
further the purposes of Section 6(b)(5) of the Act.\7\ The proposed 
change will lessen any burden on competition by removing from 
consideration orders entered outside of regular market hours, when 
concerns about the impact of inefficient trading on NASDAQ and other 
market participants are diminished.
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    \7\ 15 U.S.C. 78f(b)(5).
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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.\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 whether the proposed rule should be 
approved or disapproved.
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    \8\ 15 U.S.C. 78s(b)(3)(a)(ii). [sic]
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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-2012-073 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-2012-073. 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 the 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-2012-073, and should be submitted on or before 
July 26, 2012.

    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. 2012-16372 Filed 7-3-12; 8:45 am]
BILLING CODE 8011-01-P


