
[Federal Register Volume 80, Number 3 (Tuesday, January 6, 2015)]
[Notices]
[Pages 594-597]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-30903]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73967; File No. SR-NASDAQ-2014-128]


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

December 30, 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 December 19, 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.

[[Page 595]]

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 is proposing to lower access fees in order to attract more 
investor orders to the public markets. In response to claims that 
public markets are too expensive, NASDAQ is proposing to amend Rule 
7018(a) to lower execution fees for a select group of securities where 
access fees may be discouraging the use of public markets. NASDAQ 
believes that the data generated by this experimental approach will 
contribute to the on-going debate on the structure of U.S. markets. 
NASDAQ is also making clarifying changes to Rule 7014.
    While the changes proposed herein are effective upon filing, the 
Exchange has designated that the amendments be operative on February 2, 
2015. 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
    Hundreds of exchange-listed securities trade more volume on off-
exchange markets than on exchange markets. Off-exchange orders do not 
generate quotes on public markets, do not interact with orders on 
public markets and consequently do not promote or contribute to price 
discovery to the same extent as do orders posted and executed on 
exchanges.\3\ Economic studies from markets spanning the world conclude 
that as more orders migrate away from exchanges, the price discovery 
process weakens, trading spreads widen, and overall investor trading 
costs increase.\4\ NASDAQ has been an advocate for improvements to the 
market structure regulations that have enabled--and even exacerbated--
this shift by failing to evolve as technological advances have 
transformed trading over the last decade. In the absence of market-wide 
regulatory changes, NASDAQ OMX, through its subsidiary exchanges 
including NASDAQ, has attempted multiple times and in multiple ways to 
improve market structure to the extent possible by a single player in 
an interconnected, multi-player ecosystem. While these programs have 
met mixed success, NASDAQ believes that each one makes an important 
contribution to the continued evolution of U.S. market structure by 
showing regulators and market participants potential paths to positive 
change.
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    \3\ NASDAQ notes that a displayed order at the NBBO of an 
exchange, and the subsequent execution thereof, contributes 
significantly to price discovery because both the displayed order 
prior to execution, and the execution itself, provide a reference 
price to the market. Further, a non-displayed order on an exchange 
contributes to price discovery as it is part of the continuous 
auction on a market with publicly displayed orders and quotes--
albeit the contribution of a non-displayed order on an exchange is 
less than the contribution of a displayed order on the exchange. A 
non-displayed order on an off-exchange venue contributes less to 
price discovery because it is resting in a less transparent trading 
venue that is not part of the continuous auction of a ``lit'' 
exchange.
    \4\ See, e.g., Australian Securities and Investments Commission, 
Report 331 ``Dark Liquidity and High-Frequency Trading'' (March 
2013) (available at: http://download.asic.gov.au/media/1344182/rep331-published-18-March-2013.pdf); see also International 
Organization of Securities Commissions, Technical Committee, Final 
Report ``Principals for Dark Liquidity'' (May 2011) (available at: 
http://www.iosco.org/library/pubdocs/pdf/IOSCOPD353.pdf).
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    Now, in response to assertions that the shift in trading away from 
public markets is caused by high exchange access fees, NASDAQ is 
proposing another market structure experiment: To significantly reduce 
access fees, and related credits in a select set of securities. As 
discussed below, NASDAQ believes that proposed changes may improve 
price discovery in the select securities. Perhaps more importantly, the 
experimental fee reduction will generate much-needed data about the 
impact of access fees on the level of off-exchange trading and, 
potentially, on price discovery, trading costs, displayed liquidity and 
execution quality as well. NASDAQ further believes that a data driven, 
empirically-based review of the impacts of fees and rebates on market 
quality is the sound and prudent method to drive the equity markets to 
the right conclusion. NASDAQ believes the proposal is a means to that 
end.
    Specifically, NASDAQ is proposing to amend NASDAQ Rule 7018(a) by 
reducing the fee assessed for accessing liquidity, and also reducing 
the credits provided for adding liquidity, on NASDAQ in certain 
securities. The proposed reduced fees and credits will be provided in 
lieu of other fees and credits under the fee schedule.\5\ Currently, 
NASDAQ assesses fees and provides credits under Rule 7018(a) in 
securities that trade at $1 or more based on the market on which it is 
listed.\6\ Under each section of the rule, NASDAQ provides various 
tiers of fees and rebates based on a member's trading activity. NASDAQ 
is proposing to modify the fees and credits applicable to trading 
activity in fourteen equity securities, denoted in the proposed rule by 
their ticker symbols (``Select Symbols'').\7\ NASDAQ is also amending 
Rule 7014 to make clear that the fees and credits described in Rule 
7014 do not apply to Select Symbols. The proposed change is a part of 
NASDAQ's continuing efforts to improve market quality.
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    \5\ For example, through the Investor Support Program and 
Qualified Market Maker Program NASDAQ provides certain credits and 
reduced fees for member firms that improve the market significantly. 
See Rule 7014. NASDAQ notes that although the proposed new fees and 
credits are in lieu of other fees and credits, the trading activity 
in these securities will be accounted for in calculations of 
measures used to qualify for fees and credits under Rule 7018(a) 
applied to securities not in the proposed program (for example, 
Consolidated Volume as defined under Rule 7018(a)).
    \6\ Namely, NASDAQ, The New York Stock Exchange, or other 
exchanges.
    \7\ Each of the Select Symbol securities trade in excess of $1. 
NASDAQ notes that the proposed fees and credits applicable to the 
Select Symbols do not apply to participation in the NASDAQ Opening, 
Closing, and Halt Crosses.
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    Rule 610 of Regulation NMS generally limits the fees that any 
trading center \8\ can charge for accessing the best bid and offer of 
an exchange to no more than $0.0030 per share; however, there is no 
limit on how low an access fee may be under the regulation. Most 
national securities exchanges operate what is commonly known as a 
``maker-taker'' model of pricing, whereby a liquidity maker is provided 
with a rebate if its order is executed and a liquidity taker is 
assessed a fee for removing that liquidity. By using the maker-taker 
model, exchanges are able to provide an

[[Page 596]]

incentive to liquidity makers to expose their orders, supported by the 
fee paid by the liquidity taker.
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    \8\ ``Trading Center'' is defined by Regulation NMS as a 
national securities exchange or national securities association that 
operates an SRO trading facility, an alternative trading system, an 
exchange market maker, an OTC market maker, or any other broker or 
dealer that executes orders internally by trading as principal or 
crossing orders as agent. See 17 CFR 242.600(b)(78).
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    Under Rule 7018(a), NASDAQ currently assesses a fee of $0.0030 per 
share executed for accessing liquidity on NASDAQ, and provides various 
credits under the rule for providing liquidity. NASDAQ is proposing to 
reduce the fees assessed for accessing liquidity on the Exchange in the 
Select Symbols in an effort to attract more liquidity to the Exchange 
in those securities and thereby improve the quality of the market in 
them on NASDAQ. In terms of the fee assessed for accessing all 
liquidity on NASDAQ, the Exchange proposes to lower the fee from 
$0.0030 to $0.0005 for the fourteen Select Symbols, which are comprised 
of securities listed on either NASDAQ or the New York Stock Exchange 
(``NYSE''). NASDAQ is proposing to reduce the access fee regardless of 
whether the liquidity removed is displayed or not.
    Concurrent with lowering the fee assessed for removing liquidity 
from NASDAQ in the Select Symbols, NASDAQ is also proposing to reduce 
the credits provided for adding liquidity in them. Currently, NASDAQ 
provides various credits to member firms that provide displayed 
liquidity \9\ based on various measures of the nature and consistency 
of the member firm's beneficial market activity.\10\ The credits NASDAQ 
provides for displayed liquidity range from $0.0015 to $0.00305 per 
share executed. NASDAQ is proposing to reduce the credit provided to a 
member firm that provides displayed liquidity in the select securities 
to $0.0004 per share executed.
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    \9\ Other than Supplemental Orders and Designated Retail Orders, 
which have separate credits and eligibility requirements.
    \10\ For example, NASDAQ provides a credit of $0.00305 per share 
executed to member firms that have (i) shares of liquidity provided 
in all securities through one of its Nasdaq Market Center MPIDs that 
represent 1.60% or more of Consolidated Volume during the month, or 
(ii) shares of liquidity provided in all securities through one or 
more of its Nasdaq Market Center MPIDs that represent 1.60% or more 
of Consolidated Volume during the month, and shares of liquidity 
provided in all securities through one of its Nasdaq Market Center 
MPIDs that represent 0.75% or more of Consolidated Volume during the 
month. Consolidated Volume is defined under the rule as the total 
consolidated volume reported to all consolidated transaction 
reporting plans by all exchanges and trade reporting facilities 
during a month in equity securities, excluding executed orders with 
a size of less than one round lot. As such, to qualify for the 
credit a member firm must consistently contribute significantly 
toward improving price discovery.
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    The Exchange also provides a credit to member firms that contribute 
non-displayed mid-point liquidity to NASDAQ. Like the credits provided 
for displayed liquidity, NASDAQ provides several credits to member 
firms that provide non-displayed midpoint liquidity based on the nature 
and consistency of the member firm's beneficial contribution to market 
quality. These credits NASDAQ provides for non-displayed midpoint 
liquidity range from $0.0010 to a credit of $0.0025 per share executed. 
NASDAQ notes that, while displayed liquidity provides the greatest 
contribution to market quality, non-displayed mid-point liquidity often 
provides liquidity takers with significant price improvement. 
Accordingly, NASDAQ provides an incentive to market participants to 
provide non-displayed midpoint liquidity, albeit at a level generally 
lower than what is provided for displayed liquidity. NASDAQ is 
proposing to provide a credit to a member firm that provides non-
displayed midpoint liquidity in the select securities of $0.0002 per 
share executed.
    Lastly, NASDAQ provides credits that range from $0.0018 to $0.0000 
per share executed for certain other non-displayed orders, including 
Supplemental Orders,\11\ if that member firm contributes a significant 
level of non-displayed liquidity during the month. Under the proposal, 
NASDAQ will not provide a credit for other non-displayed orders in the 
Select Symbols.
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    \11\ As defined by Rule 4751(f)(14).
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    NASDAQ notes that it may, from time to time, alter the securities 
that are included in the list of Select Symbols and will file the 
appropriate rule filing if such a chance [sic] is proposed. NASDAQ will 
consider the impact the pricing has had on market quality and off-
exchange volume of existing Select Symbols, and will also consider 
similar factors when selecting securities to be added as Select 
Symbols.
2. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\12\ in general, and with 
Sections 6(b)(4) and 6(b)(5) of the Act,\13\ 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 designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest; and is not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers.
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    \12\ 15 U.S.C. 78f.
    \13\ 15 U.S.C. 78f(b)(4) and (5).
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    NASDAQ believes that the proposed fee and credits for trading in 
the Select Symbols are reasonable and equitably allocated because they 
are designed to improve market quality in securities that currently 
trade significantly off-exchange. NASDAQ notes that the proposed access 
fee is significantly lower than the access fee assessed by NASDAQ for 
all equity securities trading above $1. Although access fees have been 
debated before Regulation NMS was adopted, these fees and related 
credits have recently been the subject of intense debate and part of 
the larger discussion on U.S. market structure. Many commenters have 
noted that the exchange's fee and rebate structures have become too 
complex, which has resulted in a significant number of market 
participants to [sic] direct order flow to venues other than exchanges. 
NASDAQ believes that orders interacting on ``lit'' exchanges provide 
the greatest contribution to price competition and transparency. 
Accordingly, NASDAQ is proposing to reduce the access fee significantly 
in certain securities that have greater than average off-exchange 
transactions, which it believes may attract order flow that is 
currently directed to off-exchange trading venues. As a consequence of 
the access fee reduction in these securities, NASDAQ is also generally 
reducing the credit provided to liquidity makers for providing 
liquidity in the Select Symbols. As noted above, exchanges using the 
maker-taker model use, in part, the access fee assessed the liquidity 
taker to cover the credit provided to the liquidity maker. As such, 
NASDAQ believes that it reasonable to reduce the credits provided to 
liquidity makers in the Select Symbols given the reduction in the fee 
assessed liquidity takers. The Exchange notes that the credits provided 
for adding liquidity in the Select Symbols are tiered to provide the 
greatest credit to liquidity makers that provide the most beneficial 
liquidity. NASDAQ believes that providing such tiered credits is 
reasonable and an equitable allocation of the credit because doing so 
is consistent with the current structure under the rule,

[[Page 597]]

whereby member firms that provide displayed liquidity are generally 
provided the greatest credit and those that provide non-displayed 
liquidity receive the lowest.
    NASDAQ believes that the proposed changes are not unfairly 
discriminatory because they will apply uniformly to all member firms 
that trade in the Select Symbols. Moreover, applying the reduced access 
fee to the Select Symbols is not unfairly discriminatory because the 
Exchange seeks to provide incentive to member firms to direct order 
flow away from off-exchange venues and on to NASDAQ. NASDAQ notes that 
it is also reducing the credits provided to liquidity makers in the 
Select Symbols, which will offset the reduced fee received by NASDAQ 
from liquidity takers. As such, liquidity makers will continue to be 
rewarded for providing liquidity to NASDAQ, while liquidity takers will 
continue to be assessed a fee for removing liquidity. Lastly, NASDAQ is 
continuing its practice of providing greater credits to liquidity 
makers that provide liquidity that contributes most to price discovery.

B. Self-Regulatory Organization's Statement on Burden on Competition

    NASDAQ does not believe that the proposed rule changes will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.\14\ 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, NASDAQ is making a significant 
reduction in the access fee assessed for removing liquidity in the 
Select Symbols. NASDAQ's goal in doing so is to attract liquidity to 
NASDAQ in these securities, thereby improving the level of price 
discovery. NASDAQ does not believe that the proposed changes will serve 
as a burden on competition in any way, but rather may promote 
competition among exchanges in the fees assessed and credits provided 
in the Select Symbols. Moreover, the proposed changes are reflective of 
the competition that exists between exchanges and off-exchange venues 
that are subject to lesser regulatory burdens than the exchanges, 
including transparency. Lastly, the proposed changes are designed to 
benefit market quality and ultimately, price competition among market 
participants on the Exchange.
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    \14\ 15 U.S.C. 78f(b)(8).
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    In sum, if the changes proposed herein are unattractive to market 
participants, it is likely that NASDAQ will lose market share as a 
result. To the extent the proposed changes are effective at attracting 
order flow to the Exchange, the changes will promote competition among 
exchanges and other trading venues. Accordingly, NASDAQ does not 
believe that the proposed changes will unnecessarily impair the ability 
of members or other order execution venues to compete in the financial 
markets.

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 change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act \15\. 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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    \15\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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-2014-128 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2014-128. 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 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-2014-
128, and should be submitted on or before January 27, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2014-30903 Filed 1-5-15; 8:45 am]
BILLING CODE 8011-01-P


