
[Federal Register Volume 78, Number 76 (Friday, April 19, 2013)]
[Notices]
[Pages 23611-23616]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-09191]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69376; File No. SR-NASDAQ-2013-063]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Amend Rules 7014 and 7018

April 15, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on April 1, 2013, The NASDAQ Stock Market LLC (``NASDAQ'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    NASDAQ is proposing changes to its schedule of fees and rebates for 
execution of orders for securities priced at $1 or more under Rule 
7018, as well as changes to its Qualified Market Maker (``QMM'') and 
NBBO Setter Incentive Programs under Rule 7014. The changes pursuant to 
this proposal are effective upon filing, and the Exchange will 
implement the proposed rule changes on April 1, 2013.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
Designated Retail Orders
    In March 2013,\3\ NASDAQ introduced new liquidity provider credit 
tiers for orders designated by a member as Designated Retail Orders. 
The change was part of an ongoing effort by NASDAQ to use financial 
incentives to encourage greater participation in NASDAQ by members that 
represent retail customers.\4\ For purposes of the new tiers and 
credits, a Designated Retail Order is defined as an agency or riskless 
principal \5\ order that originates from a natural person and is 
submitted to NASDAQ by a member that designates it pursuant to Rule 
7018, provided that no change is made to the terms of the order with 
respect to price or side of market and the order does not originate 
from a trading algorithm or any other computerized methodology. As 
originally adopted, if a member enters Designated Retail Orders through 
a market participant identifier (``MPID'') through which (i) at least 
90% of the shares of liquidity provided during the month are provided 
through Designated Retail Orders, and (ii) the member accesses, 
provides, or routes shares of liquidity that represent at least 0.10% 
of Consolidated Volume \6\ during the month, the member would receive a 
credit of $0.0034 per share executed for Designated Retail Orders that 
provide liquidity if they are displayed orders. NASDAQ is proposing to 
modify the criteria for this tier in two respects. First, NASDAQ is 
removing the 0.10% of Consolidated Volume requirement, such that any 
member that satisfies the requirement to provide 90% of the shares of 
liquidity provided through a particular MPID using Designated Retail 
Orders will be eligible for the $0.0034 per share executed rate. In 
addition, NASDAQ is proposing an additional means by which a member may 
receive the $0.0034 per share executed rate. If the member provides 
shares of liquidity through Designated Retail Orders that represent at 
least 0.30% of Consolidated Volume, and the member also qualifies for 
the Penny Pilot Tier 4 Customer and Professional Rebate to Add 
Liquidity under Chapter XV, Section 2 of the NASDAQ Options Market 
(``NOM'') rules during the month through one or more of its NOM MPIDs, 
it will also qualify for the $0.0034 rate. Under a proposed rule change 
for NOM being filed contemporaneously,\7\ a NOM Participant qualifies 
for the Tier 4 Customer and Professional Rebate if it adds a number of 
contracts of Customer and Professional \8\ liquidity that equals or 
exceeds 0.5% of total industry customer equity and ETF option average 
daily volume (``ADV'') during the month.
---------------------------------------------------------------------------

    \3\ Securities Exchange Act Release No. 69133 (March 14, 2013), 
78 FR 17272 (March 20, 2013) (SR-NASDAQ-2013-042).
    \4\ The Commission has expressed concern that a significant 
percentage of the orders of individual investors are executed in 
over-the-counter markets, that is, at off-exchange markets. 
Securities Exchange Act Release No. 61358 (January 14, 2010), 75 FR 
3594 (January 21, 2010) (Concept Release on Equity Market Structure, 
``Concept Release''). In the Concept Release, the Commission 
recognized the strong policy preference under the Act in favor of 
price transparency and displayed markets. See also Mary L. Schapiro, 
Strengthening Our Equity Market Structure (Speech at the Economic 
Club of New York, Sept. 7, 2010) (``Schapiro Speech,'' available on 
the Commission Web site) (comments of former Commission Chairman on 
what she viewed as a troubling trend of reduced participation in the 
equity markets by individual investors, and that a significant 
percentage of volume in U.S.-listed equities is executed in venues 
that do not display their liquidity or make it generally available 
to the public).
    \5\ To qualify as a Designated Retail Order, a riskless 
principal order must satisfy the criteria set forth in FINRA Rule 
5320.03. These criteria include that that the member maintain 
supervisory systems to reconstruct, in a time[hyphen]sequenced 
manner, all orders that are entered on a riskless principal basis; 
and the member submits a report, contemporaneously with the 
execution of the facilitated order, that identifies the trade as 
riskless principal.
    \6\ ``Consolidated Volume'' is defined as the total consolidated 
volume reported to all consolidated transaction plans by all 
exchanges and trade reporting facilities.
    \7\ SR-NASDAQ-2013-062 (April 1, 2013).
    \8\ The term ``Customer'' applies to any transaction that is 
identified by a Participant for clearing in the Customer range at 
The Options Clearing Corporation (``OCC'') which is not for the 
account of a broker or dealer or for the account of a Professional. 
The term ``Professional'' means any person or entity that (i) is not 
a broker or dealer in securities, and (ii) places more than 390 
orders in listed options per day on average during a calendar month 
for its own beneficial account(s) pursuant to Chapter I, Section 
1(a)(48) of the NOM Rules.
---------------------------------------------------------------------------

    As is currently the case, Designated Retail Orders not qualifying 
for the

[[Page 23612]]

$0.0034 per share executed tier will receive a credit of $0.0033 per 
share executed if they are displayed, and will receive NASDAQ's 
existing credits for midpoint pegged and midpoint peg post-only orders 
(``midpoint orders'') and other forms of non-displayed orders if they 
are not displayed.\9\
---------------------------------------------------------------------------

    \9\ Specifically, NASDAQ provides a credit of $0.0017 per share 
executed for midpoint orders if the member provides an average daily 
volume of more than 3 million shares through midpoint orders during 
the month, $0.0015 per share executed for midpoint orders if the 
member provides an average daily volume of 3 million or fewer shares 
through midpoint orders during the month, and $0.0010 per share 
executed for other orders that are not displayed.
---------------------------------------------------------------------------

New Tiers for Members Active in the NASDAQ Market Center and the NASDAQ 
Options Market
    In March 2013,\10\ NASDAQ adopted a new liquidity provider credit 
tier for members that are active in both the Nasdaq Market Center and 
NOM. Under that tier, NASDAQ provides a credit of $0.0030 per share 
executed for displayed orders that provide liquidity if a member (i) 
has shares of liquidity provided in all securities during the month 
representing at least 0.45% of Consolidated Volume during the month, 
through one or more of its Nasdaq Market Center MPIDs, and (ii) 
qualifies for the Penny Pilot Tier 8 \11\ Customer and Professional 
Rebate to Add Liquidity under Chapter XV, Section 2 of the NOM rules 
during the month through one or more of its NOM MPIDs. A NOM 
Participant may qualify for the Tier 8 Customer and Professional Rebate 
if it (i) has Total Volume \12\ of 325,000 or more contracts per day in 
a month, (2) adds Customer and Professional liquidity of 1.00% or more 
of national customer volume in multiply-listed equity and ETF options 
classes in a month, or (iii) adds Customer and Professional liquidity 
of 60,000 or more contracts per day in a month and NOM Market Maker 
liquidity of 40,000 (formerly 30,000) or more contracts per day per 
month.
---------------------------------------------------------------------------

    \10\ Securities Exchange Act Release No. 69133 (March 14, 2013), 
78 FR 17272 (March 20, 2013) (SR-NASDAQ-2013-042).
    \11\ Formerly Tier 7, but redesignated as Tier 8 in SR-NASDAQ-
2013-062 (April 1, 2013). SR-NASDAQ-2013-062 also increases the 
Tier's requirement for NOM Market Maker liquidity from 30,000 to 
40,000 contracts per day during the month.
    \12\ ``Total Volume'' is defined as Customer, Professional, 
Firm, Broker-Dealer, Non-NOM Market Maker and NOM Market Maker 
volume in Penny Pilot Options and Non-Penny Pilot Options that 
either adds or removes liquidity on NOM. The term ``Non-NOM Market 
Maker'' means a registered market maker on another options exchange 
that is not a NOM Market Maker. The term ``NOM Market Maker'' means 
a Participant that has registered as a Market Maker on NOM pursuant 
to Chapter VII, Section 2 of the NOM Rules, and must also remain in 
good standing pursuant to Chapter VII, Section 4 of the NOM Rules. 
The term ``Firm'' applies to any transaction that is identified by a 
Participant for clearing in the Firm range at OCC. The term 
``Broker-Dealer'' applies to any transaction that is not subject to 
any of the other transaction fees applicable within a particular 
category.
---------------------------------------------------------------------------

    In this proposed rule change, NASDAQ is proposing two additional 
tiers with similar criteria. Specifically, NASDAQ will provide a credit 
of $0.0029 per share executed for displayed orders that provide 
liquidity if a member (i) has shares of liquidity provided in all 
securities during the month representing at least 0.10% of Consolidated 
Volume during the month, through one or more of its Nasdaq Market 
Center MPIDs, and (ii) qualifies for the Penny Pilot Tier 4 NOM Market 
Maker Rebate to Add Liquidity under Chapter XV, Section 2 of the NOM 
rules during the month through one or more of its NOM MPIDs. Similarly, 
NASDAQ will provide a credit of $0.0027 per share executed for 
displayed orders that provide liquidity if a member (i) has shares of 
liquidity provided in all securities during the month representing at 
least 0.05% of Consolidated Volume during the month, through one or 
more of its Nasdaq Market Center MPIDs, and (ii) qualifies for the 
Penny Pilot Tier 4 NOM Market Maker Rebate to Add Liquidity under 
Chapter XV, Section 2 of the NOM rules during the month through one or 
more of its NOM MPIDs. Under a contemporaneous NOM proposed rule 
change,\13\ a NOM Participant will qualify for the Tier 4 NOM Market 
Maker Rebate if it adds Market Maker liquidity in Penny Pilot Options 
of 110,000 or more contracts per day in a month.
---------------------------------------------------------------------------

    \13\ SR-NASDAQ-2013-062 (April 1, 2013).
---------------------------------------------------------------------------

    As with existing tiers that require participation in both the 
Nasdaq Market Center and NOM, the criteria for these new tiers, as well 
as the new tier for Designated Retail Orders, establish volume 
thresholds that must be met on both markets in order to receive a 
higher rebate. In doing so, the pricing incentives recognize the 
prevalence of trading in which members simultaneously trade different 
asset classes within the same strategy. Because cash equities and 
options markets are linked, with liquidity and trading patterns on one 
market affecting those on the other, NASDAQ believes that pricing 
incentives that encourage market participant activity in NOM also 
support price discovery and liquidity provision in the Nasdaq Market 
Center.
QMM and NBBO Setter Incentive Programs
    In November 2012,\14\ NASDAQ introduced two new pricing programs 
designed to create incentives for members to improve market quality. 
The programs are in effect on a pilot basis from November 1, 2012 until 
April 30, 2013, and NASDAQ expects to file a proposed rule change next 
month to remove the pilot limitation on the programs.\15\ In this 
proposed rule change, NASDAQ is making several changes to the pilot 
programs as currently in effect.
---------------------------------------------------------------------------

    \14\ Securities Exchange Act Release No. 68209 (November 9, 
2012), 77 FR 69519 (November 19, 2012) (SR-NASDAQ-2012-126).
    \15\ As noted in the original filing to establish the programs, 
NASDAQ will report to the Commission on the effects of the programs 
on bid-ask spreads, depth of liquidity at the inside, and such other 
factors as may be deemed relevant.
---------------------------------------------------------------------------

    Under the QMM Program, a member may be designated as a QMM with 
respect to one or more of its MPIDs if:
     The member is not assessed any ``Excess Order Fee'' under 
Rule 7018 during the month; \16\ and
---------------------------------------------------------------------------

    \16\ Rule 7018(m). Last year, NASDAQ introduced an Excess Order 
Fee, 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. In general, the determination of 
whether to impose the fee on a particular MPID is made by 
calculating the ratio between (i) entered orders, weighted by the 
distance of the order from the 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.
---------------------------------------------------------------------------

     through such MPID the member quotes at the national best 
bid or best offer (``NBBO'') at least 25% of the time during regular 
market hours \17\ in an average of at least 1,000 securities during the 
month.\18\
---------------------------------------------------------------------------

    \17\ Defined as 9:30 a.m. through 4:00 p.m., or such shorter 
period as may be designated by NASDAQ on a day when the securities 
markets close early (such as the day after Thanksgiving).
    \18\ A member MPID is considered to be quoting at the NBBO if it 
has a displayed order at either the national best bid or the 
national best offer or both the national best bid and offer. On a 
daily basis, NASDAQ will determine the number of securities in which 
the member satisfied the 25% NBBO requirement. To qualify for QMM 
designation, the MPID must meet the requirement for an average of 
1,000 securities per day over the course of the month. Thus, if a 
member MPID satisfied the 25% NBBO requirement in 900 securities for 
half the days in the month, and satisfied the requirement for 1,100 
securities for the other days in the month, it would meet the 
requirement for an average of 1,000 securities.
---------------------------------------------------------------------------

    Currently, a member that is a QMM with respect to a particular MPID 
(a ``QMM MPID'') is eligible to receive certain financial benefits. 
These benefits, and proposed modifications to them, are described 
below:
     The QMM may receive an NBBO Setter Incentive credit of 
$0.0005 with

[[Page 23613]]

respect to orders that qualify for the NBBO Setter Incentive Program 
(i.e., displayed orders with a size of at least one round lot that set 
the NBBO or join another trading center at the NBBO) \19\ and that are 
entered through the QMM MPID. Beginning April 1, 2013, in order to 
receive an NBBO Setter Incentive credit at the $0.0005 rate, the QMM 
must also have a volume of liquidity provided through the QMM MPID (as 
a percentage of Consolidated Volume) that exceeds the lesser of the 
volume of liquidity provided through such QMM MPID during the first 
month in which the MPID qualified as a QMM MPID (as a percentage of 
Consolidated Volume) or 1.0% of Consolidated Volume.\20\ If a QMM does 
not satisfy these volume requirements, it will receive an NBBO Setter 
Incentive credit of $0.0002 per share executed with respect to orders 
that qualify for the NBBO Setter Incentive Program.\21\
---------------------------------------------------------------------------

    \19\ The NBBO Setter Incentive program is described in more 
detail below.
    \20\ The QMM will also receive the $0.0005 per share rate during 
the first month in which an MPID becomes a QMM MPID.
    \21\ Beginning April 1, 2013, Designated Retail Orders will not 
be eligible to receive an NBBO Setter Incentive credit.
---------------------------------------------------------------------------

     Currently, the QMM receives a credit of $0.0001 per share 
executed with respect to all other displayed orders in securities 
priced at $1 or more per share that provide liquidity and that are 
entered through a QMM MPID (in addition to any credit payable under 
Rule 7018).\22\ This aspect of the program is being changed only to 
stipulate that Designated Retail Orders are not eligible to receive 
this additional credit.
---------------------------------------------------------------------------

    \22\ If the QMM also participates in NASDAQ Investor Support 
Program (the ``ISP'') NASDAQ will pay the greater of any applicable 
credit under the ISP or the QMM program, but not a credit under both 
programs.
---------------------------------------------------------------------------

     Currently, the QMM may receive a 25% discount on fees for 
ports used for entering orders for that MPID, up to a total discount of 
$10,000 per MPID per month.\23\ As provided in Rule 7015, the specific 
fees subject to this discount are: (i) all ports using the NASDAQ 
Information Exchange (``QIX'') protocol,\24\ (ii) Financial Information 
Exchange (``FIX'') trading ports,\25\ and (iii) ports using other 
trading telecommunications protocols.\26\ Beginning April 1, 2013, the 
discount will be equal to the lesser of the QMM's total fees for such 
ports or $5,000.
---------------------------------------------------------------------------

    \23\ The ports subject to the discount are not used for receipt 
of market data.
    \24\ The applicable undiscounted fees are $1,200 per month for a 
port pair or ECN direct connection port pair, and $1,000 per month 
for an unsolicited message port. See Rule 7015(a).
    \25\ The applicable undiscounted fee is $500 per port per month. 
See Rule 7015(b).
    \26\ The applicable undiscounted fee is $500 per port pair per 
month. See Rule 7015(g).
---------------------------------------------------------------------------

     Currently, the QMM may receive a credit of $0.0020 per 
share executed for all midpoint orders in securities priced at $1 or 
more per share entered through a QMM MPID (in lieu of any credit 
payable under Rule 7018). Effective April 1, 2013, NASDAQ will 
eliminate this provision, such that the applicable credit will be the 
credit payable under Rule 7018.
     Currently, for a number of shares not to exceed the number 
of shares of liquidity provided through a QMM MPID (the ``Numerical 
Cap''), NASDAQ charges a fee of $0.0028 per share executed for orders 
in securities priced at $1 or more per share that access liquidity on 
the NASDAQ Market Center and that are entered through the same QMM 
MPID; provided, however, that orders that would otherwise be charged 
$0.0028 per share executed under Rule 7018 do not count toward the 
Numerical Cap. For shares above the Numerical Cap, NASDAQ charges the 
rate otherwise applicable under Rule 7018. Beginning on April 1, 2013, 
the Numerical Cap will be the lower of the number of shares of 
liquidity provided through a QMM MPID or 20 million shares per trading 
day. Moreover, in order to be charged the execution rate of $0.0028 per 
share executed, the QMM's volume of liquidity added, provided, and/or 
routed through the QMM MPID during the month (as a percentage of 
Consolidated Volume) must be not less than 0.05% lower than the volume 
of liquidity added, provided, and/or routed through such QMM MPID 
during the first month in which the MPID qualified as a QMM MPID (as a 
percentage of Consolidated Volume).\27\
---------------------------------------------------------------------------

    \27\ This limitation will not apply during the first month in 
which an MPID becomes a QMM MPID.
---------------------------------------------------------------------------

    Under the NBBO Setter Incentive program, NASDAQ provides an 
enhanced liquidity provider rebate with respect to displayed liquidity-
providing orders that set the NBBO or join another trading center with 
a protected quotation at the NBBO. The NBBO Setter Incentive credit is 
paid on a monthly basis, and the amount is determined by multiplying 
the applicable rate by the number of shares of displayed liquidity 
provided to which a particular rate applies.\28\ Currently, a member 
receives an NBBO Setter Incentive credit at the $0.0002 rate with 
respect to all shares of displayed liquidity that are executed at a 
price of $1 or more in the Nasdaq Market Center during a given month if 
posted through an order that:
---------------------------------------------------------------------------

    \28\ Beginning April 1, 2013, a member will not be eligible to 
receive an NBBO Setter Incentive credit with respect to a Designated 
Retail Order.
---------------------------------------------------------------------------

     Displayed a quantity of at least one round lot at the time 
of execution; and
     either established the NBBO or was the first order posted 
on NASDAQ that had the same price as an order posted at another trading 
center with a protected quotation that established the NBBO.

Beginning April 1, 2013, members must also provide a daily average 
volume of at least 5 million shares of liquidity through orders that 
satisfy the foregoing criteria (i.e., that qualify for an NBBO Setter 
Incentive credit) in order to receive a credit at the $0.0002 rate. 
Members with a lower daily average volume will receive a NBBO Setter 
Incentive credit at a rate of $0.0001 per shares executed. 
Alternatively, a member may receive a credit at the $0.0002 per share 
executed rate if it is a QMM but does not satisfy new volume criteria 
to be required for a QMM to receive a credit at the $0.0005 per share 
executed rate.
    Under the current program, a member receives an NBBO Setter 
Incentive credit at the $0.0005 rate with respect to all shares of 
displayed liquidity that are executed at a price of $1 or more in the 
NASDAQ Market Center during a given month if posted through an order 
that:
     Displayed a quantity of at least one round lot at the time 
of execution;
     either established the NBBO or was the first order posted 
on Nasdaq that had the same price as an order posted at another trading 
center with a protected quotation that established the NBBO; and
     was entered through a QMM MPID.

    As discussed above, beginning April 1, 2013, in order to receive an 
NBBO Setter Incentive credit at the $0.0005 rate, the QMM must also 
have a volume of liquidity provided through the QMM MPID (as a 
percentage of Consolidated Volume) that exceeds the lesser of the 
volume of liquidity provided through such QMM MPID during the first 
month in which the MPID qualified as a QMM MPID (as a percentage of 
Consolidated Volume) or 1.0% of Consolidated Volume. If it does not 
satisfy this volume requirement, the QMM MPID will receive a credit at 
the $0.0002 per share executed rate.
Modification to Tier for Members Entering Orders in the NASDAQ Closing 
Cross
    Currently, NASDAQ charges $0.0029 per share executed for orders 
that access liquidity when entered by a member with Market-on-Close 
and/or Limit-on-Close orders executed in the NASDAQ

[[Page 23614]]

Closing Cross that represent more than 0.06% of Consolidated Volume 
during the month. NASDAQ is proposing to modify the requirements for 
this tier, such that the member must enter the required volume of 
orders through a single MPID. As with other provisions of the fee 
schedule requiring activity to be concentrated through a single MPID, 
the change is designed to avoid providing excessive encouragement to 
members aggregating the activity of several firms (some of whom may not 
themselves be members of the Exchange) for the sole purpose of earning 
a higher rebate or reducing fees.\29\
---------------------------------------------------------------------------

    \29\ See Securities Exchange Act Release No. 64003 (March 2, 
2011), 76 FR 12784 (March 8, 2011) (SR-NASDAQ-2011-028) (discussing 
introduction of fees designed to discourage aggregation for purposes 
of earning a rebate).
---------------------------------------------------------------------------

2. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\30\ in general, and with 
Sections 6(b)(4) and 6(b)(5) of the Act,\31\ 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.
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78f.
    \31\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The proposed changes to the $0.0034 per share pricing tier for 
Designated Retail Orders are reasonable because they will make it 
easier for a wider range of members to achieve this pricing tier, 
thereby resulting in a higher credit for members introducing Designated 
Retail Orders to the market. The change is consistent with an equitable 
allocation of fees because it broadens the availability of fee 
reductions used 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, and it is therefore 
equitable to provide financial incentives with respect to such orders. 
NASDAQ further believes that the change is not unreasonably 
discriminatory because it will continue to broaden the retail pricing 
incentives already provided through Designated Retail Order pricing, 
the Routable Order Program (the ``ROP'') and the ISP by offering a 
meaningful pricing incentive ($0.0034 per share executed) to all 
members that are able to concentrate Designated Retail Orders through a 
single MPID, while also continuing to offer a credit of $0.0033 per 
share executed that is available to all members that are able to attest 
that orders designated by them for participation in the program meet 
the definition of a Designated Retail Order.
    The new tiers for members active in both the NASDAQ Market Center 
and NOM are reasonable because they reflect the availability of a 
significant price reduction for members that support liquidity on both 
markets. The changes are consistent with an equitable allocation of 
fees because the pricing tiers require significant levels of liquidity 
provision, which benefits all market participants, and because activity 
in NOM also supports price discovery and liquidity provision in the 
NASDAQ Market Center due to the increasing propensity of market 
participants to be active in both markets and the influence of each 
market on the pricing of securities in the other. The new tiers are not 
unreasonably discriminatory because market participants may qualify for 
a comparable or a higher rebate through alternative means that do not 
require participation in NOM, including through existing volume-based 
NASDAQ Market Center tiers, the use of Designated Retail Orders, 
participation in the ROP, or through a combination of qualification for 
volume-based tiers and participation in the ISP.\32\
---------------------------------------------------------------------------

    \32\ The change made by NOM with respect to the requirements for 
the Penny Pilot Tier 8 Customer and Profession Rebate to Add 
Liquidity is reasonable because it is intended to incentivize NOM 
Market Makers to post additional liquidity, an incentive that is 
strengthened by the availability of a higher rebate in the NASDAQ 
Market Center. The change is consistent with an equitable allocation 
of fees because it has the potential to increase liquidity provided 
on both markets, and is not unreasonably discriminatory because 
members have alternative means to earn a comparable rebate on NASDAQ 
that do not require use of NOM.
---------------------------------------------------------------------------

    The changes to the QMM Program and the NBBO Setter Incentive 
Program are reasonable, equitable, and not unreasonably discriminatory 
because they merely serve to limit the extent of the incentives 
associated with the programs, thereby causing the credits received by 
program participants to become more consistent with credits received by 
members that are not participants, while maintaining an incentive 
structure designed to benefit all market participants by encouraging 
quoting at or near the NBBO in a wide range of securities. NASDAQ hopes 
thereby to maintain the benefits associated with the programs while 
reducing their costs and making the programs sustainable in the longer 
term. Specifically:
     The change with respect to the availability of an NBBO 
Setter Incentive Credit of $0.0005 per share executed for QMMs is 
reasonable because it does not prevent a QMM from earning the credit at 
the specified level, but does provides an incentive for QMMs to 
increase their participation in NASDAQ above a prior benchmark level 
(or 1.0% of Consolidated Volume), thereby benefitting the Exchange and 
other market participants through high levels of liquidity provision. 
The change is consistent with an equitable allocation of fees because 
members that contribute significantly to market quality by satisfying 
the requirements of both the QMM and the NBBO Setter Incentive program 
while participating actively in the NASDAQ Market Center justifiably 
earn the higher credit of $0.0005 per share executed. The change is not 
unreasonably discriminatory because a QMM that does not achieve the 
higher requirements may still receive a credit of $0.0002 for orders 
that set the NBBO.
     Similarly, the modified requirements for the $0.0002 per 
share NBBO Setter Incentive credit to be earned by a non-QMM are 
reasonable because volume thresholds are widely used by NASDAQ and 
other exchanges as requirements for the receipt of favorable pricing, 
and NASDAQ is introducing a credit of $0.0001 per share for NBBO 
setting orders of a member that do not meet the requirement to ensure 
that financial incentives continue to be provided with respect to these 
beneficial orders. The change is consistent with an equitable 
allocation of fees in that it introduces a volume-based requirement for 
one tier of the program: such volume-based tiers are widely used by 
NASDAQ and other exchanges as a means of increasing participation or 
other desirable activity in their markets. The change is not 
unreasonably discriminatory because a credit of $0.0001 will now 
offered for NBBO setting orders that do not meet the volume 
requirement, and because comparable credits may be earned through other 
means, including participation in the ISP.
     The modification with respect to port fees is reasonable 
because it does not alter the fact that QMMs continue to be provided a 
discount as compared with other members, thereby resulting in lower 
overall fees for QMMs. The change is consistent with an equitable 
allocation of fees and not unreasonably discriminatory because the 
discount, like other QMM incentives, serves to encourage beneficial 
quoting conduct by QMMs, but the change will make the

[[Page 23615]]

fees paid by QMMs for ports more consistent with the fees paid by 
others.
     The elimination of the QMM credit for midpoint orders is 
reasonable because QMMs, like other members, will continue to receive a 
higher credit with respect to midpoint orders, which provide price 
improvement, than with respect to other forms of non-displayed orders. 
The change is consistent with an equitable allocation of fees and not 
unreasonably discriminatory because the change will cause the credits 
paid to QMMs with respect to midpoint orders to be identical to the 
credits paid to other members with respect to the same orders.
     The change with respect to the $0.0028 per share executed 
pricing tier for QMMs is reasonable because it will maintain the 
availability of the pricing incentive in question while limiting the 
associated cost (by altering the number of shares to which the discount 
may apply) and providing an incentive for QMMs to maintain their 
participation in NASDAQ near or above a prior benchmark level. The 
change is consistent with an equitable allocation of fees because 
members that contribute significantly to market quality by satisfying 
the requirements of the QMM program while participating actively in the 
NASDAQ Market Center justifiably may be charged a lower fee with 
respect to order executions. The change is not unreasonably 
discriminatory because a QMM that does not achieve the higher 
requirements would pay a fee that is only slightly higher ($0.0029 or 
$0.0030 per share executed, depending on other aspects of its 
participation in NASDAQ).
     The change to provide that NBBO Setter Incentive credits 
and QMM credits will not be paid with respect to Designated Retail 
Orders is reasonable because Designated Retail Orders are already 
eligible to receive a high credit of $0.0034 or $0.0033 per share 
executed. The change is consistent with an equitable allocation of fees 
and is not unreasonably discriminatory because NASDAQ believes that the 
credit provided with respect to Designated Retail Orders provides 
sufficient incentive with respect to the market benefits associated 
with the orders in question, such that an additional credit is not 
warranted.
    The change with respect to the tier for members active in the 
NASDAQ Closing Cross is reasonable because it does not materially alter 
the availability of the discount in question, but merely requires a 
member receiving the discount to concentrate its activity through a 
single MPID. Accordingly, the change is consistent with an equitable 
allocation of fees and not unreasonably discriminatory because it is 
consistent with other provisions of NASDAQ's fee schedule that are 
designed to avoid providing excessive encouragement to members 
aggregating the activity of several firms (some of whom may not 
themselves be members of the Exchange) for the sole purpose of earning 
a higher rebate or paying reduced fees.\33\
---------------------------------------------------------------------------

    \33\ See Securities Exchange Act Release No. 64003 (March 2, 
2011), 76 FR 12784 (March 8, 2011) (SR-NASDAQ-2011-028) (discussing 
introduction of fees designed to discourage aggregation for purposes 
of earning a rebate).
---------------------------------------------------------------------------

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. 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, or rebate opportunities available at 
other venues to be more favorable. 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. 
Because competitors are free to modify their own fees in response, and 
because market participants may readily adjust their order routing 
practices, NASDAQ believes that the degree to which fee changes in this 
market may impose any burden on competition is extremely limited. In 
this instance, although some of the proposed changes impose conditions 
on the availability of certain previously introduced pricing 
incentives, the incentive programs in question remain in place and are 
themselves reflective of the need for exchanges to offer significant 
financial incentives to attract order flow. Moreover, if the changes 
are unattractive to market participants, it is likely that NASDAQ will 
lose market share as a result. Similarly, certain of the changes 
broaden the availability of incentive programs, thereby reducing costs 
to market participants and possibly encouraging competitive responses 
from other trading venues. Accordingly, 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 \34\ and paragraph (f) of Rule 19b-4 
thereunder.\35\ 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.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78s(b)(3)(A).
    \35\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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-2013-063 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-2013-063. 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

[[Page 23616]]

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 
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-2013-063 and should be submitted on or before May 
10, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\36\
---------------------------------------------------------------------------

    \36\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-09191 Filed 4-18-13; 8:45 am]
BILLING CODE 8011-01-P


