
[Federal Register Volume 79, Number 72 (Tuesday, April 15, 2014)]
[Notices]
[Pages 21328-21331]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-08527]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71925; File No. SR-NASDAQ-2014-031]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to 
the Qualified Market Maker Incentive Program Under Rule 7014, and the 
Schedule of Fees and Rebates Under Rule 7018

April 10, 2014.
    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 April 2, 2014 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 Substance 
of the Proposed Rule Change

    NASDAQ is proposing to make changes to the Qualified Market Maker 
(``QMM'') Incentive Program under Rule 7014, and the schedule of fees 
and rebates for execution and routing of orders under Rule 7018. The 
changes will be implemented effective April 2, 2014.
    The text of the proposed rule change is available at 
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, NASDAQ 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 IV 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 proposing several changes to the QMM Incentive Program 
under Rule 7014 and to the schedule of fees and credits applicable to 
execution and routing of orders under Rule 7018, which are described in 
detail below.
QMM Incentive Program
    NASDAQ is adding a new QMM eligibility requirement to the QMM 
Incentive Program under Rule 7014(d). A QMM is a member that makes a 
significant contribution to market quality by providing liquidity at 
the National Best Bid or Offer (``NBBO'') in a large number of stocks 
for a significant portion of the day. In addition, the member must 
avoid imposing the burdens on NASDAQ and its market participants that 
may be associated with excessive rates of entry of orders away from the 
inside and/or order cancellation. The designation reflects the QMM's 
commitment to provide meaningful and consistent support to

[[Page 21329]]

market quality and price discovery by extensive quoting at the NBBO in 
a large number of securities. In return for its contributions, certain 
financial benefits are provided to a QMM with respect to a particular 
MPID (a ``QMM MPID''), as described under Rule 7014(e). Currently, 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, and through such MPID the member quotes at the 
NBBO at least 25% of the time during regular market hours in an average 
of at least 1,000 securities per day during the month.\3\ NASDAQ is 
proposing to now require a member to also execute at least 0.30% of 
Consolidated Volume \4\ in an MPID in a month to qualify as a QMM, in 
addition to the existing QMM eligibility requirements under Rule 
7014(d). Adding the 0.30% Consolidated Volume requirement furthers the 
goals of the program to promote price discovery and market quality by 
requiring the member to not only add to the quality of the markets in 
the price of its orders relative to the NBBO, but also to add a certain 
level of liquidity as well. A liquidity provider that executes 
substantive volume demonstrates its willingness to stand ready to buy 
or sell securities (i.e., to provide liquidity) by consummating 
transactions. The requirement outlined above is intended to ensure that 
QMMs remain bona fide liquidity providers, in addition to participants 
that actively quote at the NBBO.
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    \3\ Rule 7014(d).
    \4\ Consolidated Volume is defined as: The total consolidated 
volume reported to all consolidated transaction reporting plans by 
all exchanges and trade reporting facilities during a month, 
excluding executed orders with a size of less than one round lot. 
For purposes of calculating Consolidated Volume and the extent of a 
member's trading activity, expressed as a percentage of or ratio to 
Consolidated Volume, the date of the annual reconstitution of the 
Russell Investments Indexes shall be excluded from both total 
Consolidated Volume and the member's trading activity. See Rule 
7014(h)(5).
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Amended Fees for Execution and Routing of Securities Listed on NASDAQ 
(Tape C)
    NASDAQ is proposing to reduce the credits provided to members that 
enter orders that provide non-displayed liquidity (other than 
Supplemental Orders) in NASDAQ-listed securities. Currently, NASDAQ 
provides a credit of $0.0017 per share executed for midpoint orders if 
the member provides an average daily volume of 5 million or more shares 
through midpoint orders during the month, and a credit of $0.0014 per 
share executed for midpoint orders if the member provides an average 
daily volume of less than 5 million shares through midpoint orders 
during the month. For other non-displayed orders, NASDAQ provides a 
credit of $0.0010 per share executed if the member provides an average 
daily volume of 1 million or more shares per day through midpoint 
orders or other non-displayed orders during the month, and a credit of 
$0.0005 per share executed for other non-displayed orders. NASDAQ is 
proposing to reduce the credit to a member that provides an average 
daily volume of 1 million or more shares per day through midpoint 
orders or other non-displayed orders during the month from $0.0010 per 
share executed to $0.0005 per share executed. NASDAQ is also proposing 
to eliminate the $0.0005 per share executed credit currently provided 
for other non-displayed orders and to provide no credit or fee for such 
orders. NASDAQ recognizes the special role that it plays as the listing 
market for securities listed on the NASDAQ stock market and seeks to 
encourage displayed quotation as much as possible for these securities. 
By reducing the financial incentive to provide non-displayed liquidity, 
NASDAQ believes it may increase the incentive to provide displayed 
liquidity, thereby increasing the pool of available liquidity. This has 
various beneficial effects, not least of which is improved price 
stability.
Fees for Execution in the Opening Cross
    NASDAQ is proposing to add a new eligibility requirement to the fee 
cap on Opening Cross executions under Rule 7018(e). Currently, members 
that participate in the Opening Cross are assessed fees for their 
executions in the cross up to a maximum of $20,000. The fee cap is 
designed to balance the need to assess fees for executions, yet also 
promote liquidity in the Opening Cross. NASDAQ is proposing to require 
that, to be eligible for the $20,000 fee cap, a member must add at 
least one million shares of liquidity to the market, on average, per 
month. NASDAQ believes that the primary impact of this change will be 
to encourage firms that currently have a relatively large presence in 
the opening cross, but a disproportionately small presence during the 
continuous market, to increase their participation in the continuous 
market in order to continue to receive the benefit afforded by the cap. 
The improvement in available liquidity will, in turn, benefit all 
market participants.
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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    The proposed new eligibility requirement under the QMM Incentive 
Program is reasonable because it furthers the goal of the program, 
namely, to promote price discovery and market quality by adding a 
requirement that a member provide a certain level of Consolidated 
Volume through its MPIDs. The new Consolidated Volume requirement 
promotes market liquidity, which NASDAQ believes is an appropriate 
application of the program and the favorable pricing it provides to 
liquidity providers that qualify for the program. The proposed new 
eligibility requirement is consistent with an equitable allocation of 
fees and is not unfairly discriminatory because the pricing applies 
equally to all NASDAQ members that are QMMs. Moreover, the favorable 
pricing of the incentive program is designed to encourage meaningful 
improvement to the market by ensuring liquidity providers are active 
and providing order activity that promotes price discovery and market 
stability. As a consequence, although some members may no longer 
qualify for the program due to the new requirement, NASDAQ believes 
that the new requirement is not unfairly discriminatory because such 
liquidity providers may elect to direct increased order flow to NASDAQ 
to meet the Consolidated Volume requirement.
    The proposed reduction in the credits to members that enter orders 
that provide non-displayed liquidity (other than Supplemental Orders) 
in NASDAQ-listed securities is reasonable because NASDAQ is merely 
reducing the credit provided for such executions, and in the case of 
non-displayed liquidity that does not otherwise qualify for the other 
credits of the rule, is providing no credit. NASDAQ notes that the 
credits provided by the rule are given in lieu of assessing normal 
fees, and accordingly provide incentive to market participants to enter 
such orders. The proposed change balances the Exchange's desire to 
provide certain incentives to market participants with the costs the 
Exchange incurs in providing such incentives, which

[[Page 21330]]

ultimately affect the ability to sustain them. The proposed changes to 
the credits provided to members that enter orders that provide non-
displayed liquidity (other than Supplemental Orders) in NASDAQ-listed 
securities is consistent with an equitable allocation of fees and is 
not unfairly discriminatory because the pricing, which is the same for 
all NASDAQ participants, applies solely to members that opt to enter 
such non-displayed orders in NASDAQ-listed securities. Moreover, 
reducing the credits provided for such orders, yet providing greater 
incentives for identical orders in non-NASDAQ listed securities is not 
unfairly discriminatory because it is consistent with need to balance 
the credits provided by the Exchange with the order activity of the 
market.
    The proposed new eligibility requirement for the $20,000 Opening 
Cross fee cap is reasonable because it requires participants in the 
Opening Cross to provide a certain level of liquidity to the market, 
thus providing incentive to such participants to improve the market 
throughout the trading day in order to gain the benefit of the fee cap. 
As such, the proposed change is consistent with NASDAQ's ongoing 
efforts to use pricing incentives to attract orders that NASDAQ 
believes will improve market quality. The proposed new eligibility 
requirement for the $20,000 Opening Cross fee cap is consistent with an 
equitable allocation of fees and is not unfairly discriminatory because 
the fee cap is available to all market participants that participate in 
the Opening Cross and ties the benefit of the fee cap to market 
activity that benefits 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 is designed to ensure 
that the charges and credits for participation on NASDAQ reflect 
changes in the cost of such participation to NASDAQ, and its desire to 
attract order flow that improves the market for all 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.\7\ The proposed 
changes to fees are reflective of NASDAQ's efforts to use reduced fees 
and credits to improve market quality and attract order flow. 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 and credits 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 the change 
to the eligibility requirement of the QMM program may limit the 
benefits of the program in NASDAQ-listed securities to the extent 
market makers no longer qualify, the incentive program remains in place 
and with a qualification requirement that is reasonable and which 
promotes improvement of market quality. Similarly, the changes to the 
credits provided for certain non-displayed orders in NASDAQ-listed 
securities and the eligibility for the Opening Cross fee cap do not 
impose a burden on competition because the benefit provided in the form 
of reduced fees are tied to reasonable requirements that are designed 
to improve market quality. Moreover, reducing the credit provided for 
certain non-displayed orders in NASDAQ-listed securities is consistent 
with the Exchange's need to balance the costs of such pricing with the 
benefit provided to the market. In sum, if the changes proposed herein 
are unattractive to market participants, it is likely that NASDAQ will 
lose market share as a result. 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.
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    \7\ 15 U.S.C. 78f(b)(8).
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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\
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    \8\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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.

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-2014-031 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2014-031. 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

[[Page 21331]]

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 
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-2014-031, and 
should be submitted on or before May 6, 2014.

    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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2014-08527 Filed 4-14-14; 8:45 am]
BILLING CODE 8011-01-P


