
[Federal Register Volume 78, Number 70 (Thursday, April 11, 2013)]
[Notices]
[Pages 21663-21665]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-08425]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69308; File No. SR-NASDAQ-2013-057]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Amend Rule 7018 To Establish Fees and Rebates in Connection With 
NASDAQ's Retail Price Improvement (``RPI'') Program

April 4, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on March 27, 2013, The NASDAQ Stock Market LLC (``Exchange'' or 
``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 the self-regulatory 
organization. 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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[[Page 21664]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASDAQ is proposing changes to amend NASDAQ Rule 7018 to establish 
fees and rebates in connection with NASDAQ's Retail Price Improvement 
(``RPI'') Program. NASDAQ proposes to implement the proposed rule 
change on March 28, 2013, contemporaneously with the launch of the RPI 
Program.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.nasdaq.cchwallstreet.com, 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 Exchange included statements 
concerning the purpose of and basis for 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this proposal is to amend NASDAQ Rule 7018 to 
establish fees and rebates for execution of orders under NASDAQ's 
recently approved RPI Program.\3\ Under the RPI Program, a member (or a 
division thereof) approved by the Exchange to participate in the 
program (a ``Retail Member Organization'' or ``RMO'') may submit 
designated ``Retail Orders'' \4\ for the purpose of seeking price 
improvement. All NASDAQ members may enter retail price improvement 
orders (``RPI Orders''),\5\ a form of non-displayed orders that are 
priced more aggressively than the Protected National Best Bid or Offer 
(``NBBO'') by at least $0.001 per share, for the purpose of offering 
such price improvement. RMOs may use two types of Retail Order. A Type 
1 Retail Order is eligible to execute only against RPI Orders and other 
orders (such as midpoint pegged orders) that will provide price 
improvement. Type 2 Retail Orders interact first with available RPI 
Orders and other price improving orders, and then are eligible to 
access non-price improving liquidity on the NASDAQ book and to route to 
other trading venues if so designated.
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    \3\ Securities Exchange Act Release No. 68937 (February 15, 
2013), 78 FR 12397 (February 22, 2013) (SR-NASDAQ-2012-129) 
(approving RPI program and granting exemption from SEC Rule 612 
under Regulation NMS, 17 CFR 242.612, in connection therewith).
    \4\ A Retail Order is defined in NASDAQ Rule 4780(a)(2), in 
part, as ``an agency or riskless principal order that originates 
from a natural person and is submitted to Nasdaq by a Retail Member 
Organization, provided that no change is made to the terms of the 
order with respect to price (except in the case that a market order 
is changed to a marketable limit order) or side of market and the 
order does not originate from a trading algorithm or any other 
computerized methodology.''
    \5\ A Retail Price Improvement Order is defined in NASDAQ Rule 
4780(a)(3), in part, as consisting of ``non-displayed liquidity on 
NASDAQ that is priced better than the Protected NBBO by at least 
$0.001 and that is identified as such.''
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    NASDAQ proposes to offer a rebate of $0.0025 per share executed to 
RMOs with respect to Retail Orders that execute against RPI Orders or 
other orders providing price improvement with respect to the NBBO. For 
Type 2 Retail Orders that execute against non-price improving orders on 
the NASDAQ book, NASDAQ will charge the fee otherwise applicable to 
execution of orders that access liquidity (generally, $0.0030 per share 
executed). Similarly, when Type 2 Retail Orders are routed and execute 
at another trading venue, NASDAQ will charge the fee otherwise 
applicable to execution of routed orders. For RPI orders that provide 
liquidity, NASDAQ will charge a fee of $0.0020 per share executed. 
Other orders that provide liquidity to Retail Orders will receive the 
credit or pay the fee otherwise applicable to orders that provide 
liquidity.
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 
Sections 6(b)(4) and 6(b)(5) 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, and is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(4) and (5).
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    The proposed fees with respect to the RPI program are reflective of 
NASDAQ's ongoing efforts to use pricing incentive programs to attract 
orders of retail customers to NASDAQ and improve market quality. The 
goal of this program and similar pricing incentives is to provide 
meaningful incentives for members that represent the orders of retail 
customers to increase their participation on NASDAQ. The proposed 
credit of $0.0025 per share executed with respect to Retail Orders that 
access liquidity offering price improvement is reasonable because it 
will result in a significant reduction of fees with respect to such 
orders, thereby reducing the costs of members that represent retail 
customers and that take advantage of the program, and potentially also 
reducing costs to the customers themselves. The change is consistent 
with an equitable allocation of fees because NASDAQ believes that it is 
reasonable to use fee reductions as a means to encourage greater retail 
participation in NASDAQ. Because retail orders are likely to reflect 
long-term investment intentions, they promote price discovery and 
dampen volatility. Accordingly, their presence in the NASDAQ market has 
the potential to benefit all market participants. For this reason, 
NASDAQ believes that it is equitable to provide significant financial 
incentives to encourage greater retail participation in the market. 
NASDAQ further believes that the proposed program is not unreasonably 
discriminatory because it is offered to firms representing retail 
customers without regard to the firm's trading volumes, and is 
therefore complementary to existing programs, such as the Routable 
Order Program (the ``ROP'') that already aim to encourage greater 
retail participation but that have minimum volume requirements 
associated with them. The proposed fees and credits with respect to 
Type 2 Retail Orders that execute outside of the RPI program by 
accessing non-price improving liquidity or by routing to other trading 
venues are reasonable, equitably allocated, and not unreasonably 
discriminatory because they do not reflect a change from the fees and 
credits currently in effect with respect to orders that access 
liquidity on NASDAQ or route.
    The proposed fee with respect to a Retail Price Improvement Order 
that provides liquidity is reasonable because, as previously recognized 
by the Commission, it reflects the fact that markets often seek to 
distinguish between orders of individual retail investors and orders of 
professional traders.\8\ In this instance, the RPI seeks to balance the 
consideration that ``retail investors may on average be less informed 
about short-term price movements * * * [than] professional

[[Page 21665]]

traders'' \9\ with a fee charged to liquidity providers and a program 
designed to provide retail investors with price improvement and 
favorable execution prices. NASDAQ further believes that the fee 
charged with respect to Retail Price Improvement Orders is equitable 
and not unreasonably discriminatory for this same reason, and also 
because the use of such orders by liquidity providers is voluntary. 
Firms that believe that potential advantages of interacting with Retail 
Orders outweigh the costs of price improvement and the fee charged by 
NASDAQ will employ this new order type. Those that do not are free to 
forego involvement in the program and receive a rebate under NASDAQ's 
standard price schedule when providing liquidity.
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    \8\ Securities Exchange Act Release No. 67347 (July 3, 2012), 77 
FR 40763, 40769-40680 (July 10, 2012) (SR-NYSE-2011-55; SR-NYSEAmex-
2011-84).
    \9\ Id.
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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 is designed to allow 
NASDAQ to compete with other exchanges and that offer similar price 
improvement programs for retail orders.

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. In this instance, 
the introduction of the RPI program is designed to allow NASDAQ to 
compete more effectively with the New York Stock Exchange (``NYSE'') 
and the BATS-Y Exchange, both of which offer similar programs designed 
to attract retail order flow. NASDAQ has structured its fees in a 
manner similar to these exchanges, but as a new ``entrant'' in the 
field of those exchanges offering such programs, NASDAQ has set the 
levels of its credits and fees somewhat differently in an effort to 
distinguish itself from its competitors. Specifically, NASDAQ will 
offer a higher credit to Retail Orders than NYSE, and will offer the 
credit with respect to all securities priced above $1 that it trades. 
In contrast, the BATS-Y Exchange offers a higher credit with respect to 
only certain securities. NASDAQ will, however, offset these higher 
credits for retail orders by charging a higher fee to liquidity 
providers than is the case with its competitors (with the exception of 
10 designated securities with respect to which the BATS-Y Exchange 
currently charges a higher fee). NASDAQ believes that the proposed 
higher credits with respect to Retail Orders will enhance competition 
by drawing additional retail order flow to NASDAQ and possibly 
encouraging other trading venues to make competitive pricing changes. 
On the other hand, with respect to the proposed fees for Retail Price 
Improvement Orders, because the market for order execution is extremely 
competitive, members that provide liquidity may readily opt to forego 
participation in the NASDAQ program if they believe that alternatives 
offer them better value. For these reasons 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

    No written comments were either solicited or 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) of the Act \10\ and paragraph (f) of Rule 19b-4 
thereunder.\11\ 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.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f).
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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-2013-057 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-2013-057. 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 
10:00 a.m. and 3:00 p.m. Copies of such 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 publicly available. All 
submissions should refer to File Number SR-NASDAQ-2013-057 and should 
be submitted on or before May 2, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-08425 Filed 4-10-13; 8:45 am]
BILLING CODE 8011-01-P


