
[Federal Register Volume 80, Number 61 (Tuesday, March 31, 2015)]
[Notices]
[Pages 17126-17129]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-07260]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74580; File No. SR-NASDAQ-2015-025]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Rule 5950

March 25, 2015.
    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 March 19, 2015, 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.
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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 proposes to amend the Market Quality Program (``MQP'' or 
``Program'') fee (``MQP Fee'') in Rule 5950, entitled Market Quality 
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 and 
discussed any comments it received on 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 the MQP Fee in section 
(b)(2) of Rule 5950. No other changes to the MQP are proposed.
    The MQP enables market makers that voluntarily commit to and do in 
fact enhance the market quality, in terms of quoted spreads and 
liquidity, of certain securities listed on the Exchange to qualify for 
a fee credit. These market makers are eligible for a fee credit only to 
the extent that they maintain stringent quoting and liquidity standards 
set forth in the Program. The MQP is a one year pilot, during which 
time the Exchange will periodically provide information to the 
Commission about market quality in respect of the MQP. NASDAQ believes 
that the MQP will be beneficial to issuers, investors and other market 
participants, and to the economy in general by significantly enhancing 
the quality of the market and trading in listed securities.
    The Commission approved the MQP as a pilot program.\3\ The pilot 
program has not commenced. At this time, there are no MQP Companies \4\ 
or MQP Market Makers \5\ in the Program.\6\ During this interim period, 
the Exchange is proposing to reduce the MQP Fee to enhance the 
competitive nature of the Program.\7\
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    \3\ See Securities Exchange Act Release No. 69195 (March 20, 
2013), 78 FR 18393 (March 26, 2013) (SR-NASDAQ-2012-137) (order 
granting approval of Market Quality Program) (SR-NASDAQ-2012-137) 
(``MQP order''). See also Securities Exchange Act Release No. 68515 
(December 21, 2012), 77 FR 77141 (December 31, 2012) (SR-NASDAQ-
2012-137) (notice of filing Market Quality Program as pilot, with 
extensive description of program) (``MQP proposal''). In the MQP 
proposal the Exchange noted the need for the MQP and positive 
results of such programs, the extensive positive academic studies, 
and the success of the thirteen year old NASDAQ First North market 
incentive program that is similar in nature to the MQP.
    \4\ The term ``MQP Company'' is defined in Rule 5950(e)(5) as 
the trust or company housing the Exchange Traded Fund (``ETF'') or, 
if the ETF is not a series of a trust or company, then the Exchange 
Traded Fund itself. MQP Fees for MQP Securities will be paid by the 
Sponsors associated with the MQP Companies. The term ``Sponsor'' 
means the registered investment adviser that provides investment 
management services to an MQP Company or any of such adviser's 
parents or subsidiaries. The term ``Exchange Traded Fund'' is 
defined in Rule 5950(e)(2) includes [sic] Portfolio Depository 
Receipts and Index Fund Shares, which are defined in NASDAQ Rule 
5705; the Exchange believes, as noted in the MQP proposal, that 
predominantly ETFs will be listed on the MQP.
    \5\ The term ``Market Maker'' is defined in Rule 5005(a)(24) as 
a dealer that, with respect to a security, holds itself out (by 
entering quotations in the NASDAQ Market Center) as being willing to 
buy and sell such security for its own account on a regular and 
continuous basis and that is registered as such.
    \6\ Section (f) of Rule 5950 states, in relevant part, that the 
MQP will be effective for a one year pilot period that will commence 
when the Program is implemented by Exchange acceptance of an MQP 
Company, on behalf of an MQP Security, and relevant MQP Market Maker 
into the Program.
    \7\ See, e.g., Securities Exchange Act Release No. 69706 (June 
6, 2013), 78 FR 35340 (June 12, 2013) (SR-NYSEArca-2013-34) (order 
granting approval of NYSE Arca incentive pilot program). See also 
Securities Exchange Act Release No. 66307 (February 2, 2012), 77 FR 
6608 (February 8, 2012) (SR-BATS-2011-051) (order granting approval 
of BATS Competitive Liquidity Provider program).
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    Current Rule 5950 discusses the Market Quality Program. MQP 
Securities consist of ETF securities issued by an MQP Company and 
listed on the Exchange pursuant to NASDAQ Rule 5705.\8\ In addition to 
the standard (non-MQP) Exchange listing fee applicable to an MQP 
Security set forth in the NASDAQ Rule 5000 Series an MQP Company may 
[sic] incur a fee known as an MQP Fee, on behalf of an MQP Security, to 
participate in the Program. The MQP Fee will be paid by a Sponsors 
[sic] associated with an MQP Company.\9\ The MQP Fee will be used for 
the purpose of incentivizing one or more MQP Market Makers to enhance 
the market quality of an MQP Security. Subject to the conditions set 
forth in the proposed [sic] rule, this incentive payment will be 
credited (``MQP Credit'') pro rata to one or more MQP Market Makers 
that meet quoting and trading requirements in the MQP Security and 
thereby make a high-quality market in the MQP Security.\10\
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    \8\ The term ``MQP Security'' is defined in Rule 5950(e)(1) as 
an ETF security issued by an MQP Company that meets all of the 
requirements to be listed on NASDAQ pursuant to Rule 5705.
    \9\ See Rule 5950(b)(2)(C)(i). The term ``Sponsor'' is defined 
in Rule 5950(e)(5) to mean the registered investment adviser that 
provides investment management services to an MQP Company or any of 
the adviser's parents or subsidiaries.
    \10\ See Rule 5950(c). For an MQP Market Maker to be eligible to 
receive MQP Credit when making markets in MQP Securities, the MQP 
Market Maker must, in addition to meeting applicable Market Maker 
obligations pursuant to Rule 4613, on a monthly basis meet or exceed 
section (c) quoting and trading requirements that include, in 
relevant part: (i) For at least 25% of the time when quotes can be 
entered in the Regular Market Session as averaged over the course of 
a month, must maintain: a) at least 500 shares of attributable, 
displayed quotes or orders at the NBBO or better on the bid side of 
an MQP Security; and b) at least 500 shares of attributable, 
displayed quotes or orders at the NBBO or better on the offer side 
of an MQP Security; and (ii) For at least 90% of the time when 
quotes can be entered in the Regular Market Session as averaged over 
the course of a month, must maintain: a) at least 2,500 shares of 
attributable, displayed posted liquidity on the Nasdaq Market Center 
that are priced no wider than 2% away from the NBBO on the bid side 
of an MQP Security; and b) at least 2,500 shares of attributable, 
displayed posted liquidity on the Nasdaq Market Center that are 
priced no wider than 2% away from the NBBO on the offer side of an 
MQP Security.
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    Currently, per Rule 5950(b)(2), an MQP Company participating in the 
MQP will incur an annual basic MQP Fee of $50,000 per MQP Security 
(``basic MQP Fee''), which must be paid to the Exchange prospectively 
each quarter. An MQP Company may also, on an annual basis, voluntarily 
select to incur

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an annual supplemental MQP Fee per MQP Security (``supplemental MQP 
Fee''), which must be paid to the Exchange prospectively each quarter. 
Currently, the basic MQP Fee and supplemental MQP Fee cannot exceed 
$100,000 per year when combined. The amount of the supplemental MQP 
Fee, if any, for each MQP Security will be determined by the MQP 
Company initially and will remain the same for one year. The Exchange 
will provide notification on its Web site regarding the amount, if any, 
of any supplemental MQP Fee determined by an MQP Company per MQP 
Security.\11\
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    \11\ In addition to the supplemental MQP fee, the Exchange will 
include on its Web site the following information: (i) The 
identities of the MQP Companies, MQP Securities, and MQP Market 
Makers accepted into the MQP; (ii) any limits the Exchange may 
impose on the number of MQP Securities per MQP Company or MQP Market 
Makers per MQP Security in the MQP; (iii) any notification received 
by the Exchange that an MQP Company, on behalf of an MQP Security, 
or MQP Market Maker intends to withdraw from the MQP; and (iv) the 
dates that an MQP Company, on behalf of an MQP Security, commences 
participation in and is withdrawn or terminated from the MQP. 
Furthermore, an MQP Company will be required to disclose on a 
product-specific Web site that the MQP Security is participating in 
the MQP and will be required to provide a link on that Web site to 
the Exchange's MQP Web site.
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    The Exchange proposes to amend the basic MQP Fee and the 
supplemental MQP Fee. Specifically, the Exchange proposes to amend the 
MQP Fee as follows: the annual basic MQP fee will be $35,000; and the 
basic MQP Fee and supplemental MQP Fee when combined will not exceed 
$70,000. Thus, the supplemental MQP Fee as proposed may not be greater 
than $35,000 in addition to the basic MQP Fee. The 1:2 relationship 
between the basic and supplemental fee is preserved. That is, where 
currently the basic MQP Fee is $50,000 and the basic MQP Fee and 
supplemental MQP Fee when combined may not exceed $100,000 (twice the 
basic MQP Fee), the proposed basic MQP Fee is $35,000 and the basic MQP 
Fee and supplemental MQP Fee when combined may not exceed $70,000 (also 
twice the basic MQP Fee). Other than the MQP Fee, no other changes are 
proposed in this filing.
    The Exchange has discussed the structure and implementation of the 
Program with potential MQP Companies and MQP Market Makers. The 
Exchange believes that the proposal will help to incentivize MQP 
Companies to list ETF products, and MQP Market Makers to make quality 
markets through the MQP Program. The Exchange believes that its 
proposal, which would encourage Program implementation, will be 
beneficial to the market and market participants.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder, including the 
requirements of Section 6(b) of the Act.\12\ In particular, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \13\ requirements that the rules of an exchange be 
designed to promote just and equitable principles of trade, to prevent 
fraudulent and manipulative acts, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and to perfect the mechanism for a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest. The Exchange believes that 
its proposal to decrease the MQP Fee is wholly consistent with the Act 
and promotes the implementation and use of the MQP.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    The goal of the MQP--to incentivize members to make high-quality, 
liquid markets--supports the primary goal of the Act to promote the 
development of a resilient and efficient national market system. The 
primary goal of the Act includes multiple policies such as price 
discovery, order interaction, and competition among orders and markets. 
The MQP as amended promotes all of these policies and will enhance 
quote competition, improve NASDAQ liquidity, support the quality of 
price discovery, promote market transparency and increase competition 
for listings and trade executions while reducing spreads and 
transaction costs. Maintaining and increasing liquidity in exchange-
listed securities executed on a registered exchange will help raise 
investors' confidence in the fairness of the market and their 
transactions. Improving liquidity in this manner is particularly 
important with respect to ETFs and low-volume securities, as noted by 
the Joint CFTC/SEC Advisory Commission on Emerging Regulatory 
Issues.\14\
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    \14\ See Recommendations Regarding Regulatory Responses To The 
Market Events Of May 6, 2010, February 18, 2011 (Recommendation that 
the SEC evaluate whether incentives or regulations can be developed 
to encourage persons who engage in market making strategies to 
regularly provide buy and sell quotations that are ``reasonably 
related to the market.''). Available at http://www.sec.gov/spotlight/sec-cftcjointcommittee/021811-report.pdf.
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    Each aspect of the MQP as amended adheres to and supports the Act. 
The Program promotes the equitable allocation of fees and dues among 
issuers. The MQP is completely voluntary in that it will provide an 
additional means by which issuers may relate to the Exchange without 
modifying the existing listing options. Issuers can supplement the 
standard listing fees (which have already been determined to be 
consistent with the Act) with those of the MQP (which are consistent 
with the Act as well). While the MQP will result in higher overall fees 
for issuers that choose to participate, the Exchange notes that the MQP 
Fee (both basic and supplemental) for participation in the Program is 
decidedly lower and would enable the issuers to receive significant 
benefits for participating, including greater liquidity, and lower 
transaction costs for their investors.\15\
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    \15\ Additionally, issuers will have the ability to withdraw 
from the Program after an initial commitment in the event they 
determine that participation is not beneficial. In that case, the 
withdrawing issuers will automatically revert to the already-
approved fee schedule applicable to the market tier in which their 
shares are listed.
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    The MQP as amended also represents an equitable allocation of fees 
and dues among Market Makers. Again, the MQP is completely voluntary 
with respect to Market Maker participation in that it will provide an 
additional means by which members may qualify for a credit, without 
eliminating any of the existing means of qualifying for incentives on 
the Exchange. Currently, NASDAQ and other exchanges use multiple fee 
arrangements to incentivize Market Makers to maintain high quality 
markets or to improve the quality of executions, including various 
payment for order flow arrangements, liquidity provider credits, and 
NASDAQ's Investor Support Program (set forth in NASDAQ Rule 7014). 
Market Makers that choose to undertake increased burdens pursuant to 
the MQP will be rewarded with increased credits; those that do not 
undertake such burdens will receive no added benefit. As with issuers, 
Market Makers that choose to participate in the MQP will be permitted 
to withdraw from it after an initial commitment if they determine that 
the burdens imposed by the MQP outweigh the benefits provided.
    Additionally, the MQP as amended reflects an equitable allocation 
of MQP Credits among Market Makers that choose to participate and 
fulfill the obligations imposed by the rule. If one Market Maker 
fulfills those obligations, the MQP Credit will be distributed by 
NASDAQ to that Market Maker out of the General Fund; and if multiple 
Market Makers satisfy the standard, the MQP Credit will be distributed 
pro rata among them. In other words, all of the

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benefit of the MQP Credits will flow to high-performing Market Makers, 
provided that at least one Market Maker fulfills the obligations under 
the proposed rule.
    The MQP as amended is designed to avoid unfair discrimination among 
Market Makers and issuers. The proposed rule contains objective, 
measurable (universal) standards that NASDAQ will apply with care. 
These standards will be applied equally to ensure that similarly 
situated parties are treated similarly. This is equally true for 
inclusion of issuers and Market Makers, withdrawal of issuers and 
Market Makers, and termination of eligibility for the MQP. The 
standards are carefully constructed to protect the rights of all 
parties wishing to participate in the Program by providing notice of 
requirements and a description of the selection process. NASDAQ will 
apply these standards with the same care and experience with which it 
applies the many similar rules and standards in NASDAQ's rule manuals. 
The MQP Fee as amended and the credit to Market Makers will be applied 
uniformly to all in the Program that maintain Program standards.
    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 program 
offerings 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 all aspects of the proposed rule change reflect this competitive 
environment because the MQP is designed to increase the credits 
provided to members that enhance NASDAQ's market quality.\16\
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    \16\ NASDAQ notes that, as discussed, the proposed paid for 
market making system has been used successfully for years on NASDAQ 
Nordic's First North market and has been beneficial to market 
participants including investors and listing companies (issuers) 
that have experienced market quality and liquidity with narrowed 
spreads.
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    The proposal to lower the MQP Fee is commensurate with the goals of 
the Act, in compliance with the Act, and raises no new issues that have 
not already been discussed. The proposal is non-controversial in 
nature.

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. To the contrary, 
NASDAQ believes that its proposal is pro-competitive in that it will 
incentivize the use of the MQP and increase competition in both the 
listings market and in the transaction services market. This proposal, 
like the MQP, will promote competition in the listings market by 
advancing NASDAQ's reputation as an exchange that works tirelessly to 
develop a better market for all issuers, and for partnering with 
issuers to improve the quality of trading on NASDAQ. In fact, this 
proposal, and the MQP itself, is a response to the competition provided 
by other markets that have developed competing programs, including NYSE 
Arca and BATS.
    The MQP as amended promotes competition in the transaction services 
market by creating incentives for market makers to make better quality 
markets. As market makers strive to attain the quality standards 
established by the MQP, the quality of NASDAQ's quotes will improve. 
This, in turn, will attract more liquidity to NASDAQ and further 
improve the quality of trading of MQP stocks. Market quality and 
liquidity is paramount to NASDAQ, as also to other exchanges. As 
discussed, competing markets have created incentives of their own to 
improve the quality of their markets and to attract liquidity to their 
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

    Pursuant to Section 19(b)(3)(A)(ii) of the Act,\17\ the Exchange 
has designated this proposal as establishing or changing a due, fee, or 
other charge imposed on any person, whether or not the person is a 
member of the self-regulatory organization, which renders the proposed 
rule change effective upon filing.
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    \17\ 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-2015-025 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-2015-025. 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 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-2015-025 and should 
be submitted on or before April 21, 2015.


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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-07260 Filed 3-30-15; 8:45 am]
BILLING CODE 8011-01-P


