
[Federal Register Volume 80, Number 75 (Monday, April 20, 2015)]
[Notices]
[Pages 21778-21782]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-08941]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74725; File No. SR-NASDAQ-2015-032]


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

April 14, 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 April 1, 2015, The NASDAQ Stock Market LLC (``NASDAQ'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II 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 the 
Substance of the Proposed Rule Change

    NASDAQ is proposing changes to the Qualified Market Maker (``QMM'') 
Incentive Program under Rule 7014, and the qualification requirements 
for certain fees relating to Market-on-Close and/or Limit-on-Close 
orders under Rule 7018(a).
    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

[[Page 21779]]

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 to amend Rule 7014(d), which provides the 
qualification criteria for designation as a Qualified Market Maker 
(``QMM'') under the QMM incentive program, to limit qualification to 
registered NASDAQ market makers (``Market Makers''). Currently, a QMM 
may be, but is not required to be, a Market Maker in any security.\3\ 
The QMM program provides incentives to a member firm to make a 
significant contribution to market quality by providing liquidity at 
the 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 
Exchange notes that the program, to date, has been used very little by 
member firms that are not Market Makers, and only Market Makers use the 
program at this time. Accordingly, the Exchange is proposing to amend 
Rule 7014(d)(3) to limit the program to Market Makers. The Exchange is 
also deleting the current qualification criteria under Rule 7014(d)(3) 
that requires a member firm to have liquidity provided in all 
securities through one of its NASDAQ Market Center MPIDs that represent 
0.30% of Consolidated Volume during the month. The Exchange notes that 
the Consolidated Volume requirement is superfluous given that it is 
adopting Consolidated Volume eligibility criteria for the credits under 
the QMM program, and is adding an absolute Consolidated Volume 
eligibility criteria to receive the reduced removal rate under the 
program, as discussed below.
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    \3\ Thus, the QMM designation does not by itself impose a two-
sided quotation obligation or convey any of the benefits associated 
with being a registered market maker.
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    NASDAQ is amending Rule 7014(e), which sets forth the criteria 
required to receive the benefits of the program, to move the two 
credits provided under subparagraphs (1) and (2) provided for 
executions in securities listed on NYSE (``Tape A'') and securities 
listed on exchanges other than NASDAQ and NYSE (``Tape B'') to a table 
format directly under Rule 7014(e). NASDAQ is also modifying the 
criteria a QMM must meet to receive the two tiers of credits under the 
rule. Currently, NASDAQ provides a rebate of $0.0002 per share executed 
(in addition to other credits received under Rule 7018(a)) with respect 
to orders that are executed at a price of $1 or more and (A) displayed 
a quantity of at least one round lot at the time of execution; (B) 
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; (C) were entered 
through a QMM MPID; (D) were for securities listed on NYSE or 
securities listed on exchanges other than NASDAQ and NYSE and (E) that 
no additional rebate will be issued with respect to Designated Retail 
Orders (as defined in Rule 7018). NASDAQ is proposing to replace these 
requirements with a new requirement that a QMM execute shares of 
liquidity provided in all securities through one or more of its NASDAQ 
Market Center MPIDs that represent greater than 0.90% of Consolidated 
Volume during the month. The Exchange is replacing the current 
requirements, which provide the QMM with an incentive to provide 
displayed liquidity that sets the NBBO on NASDAQ, with a new 
requirement to provide a significant level Consolidated Volume in all 
securities through one or more of its MPIDs. Consolidated Volume is 
defined by Rule 7018(a) 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.\4\ The Exchange 
believes that tying the rebate to the provision of greater overall 
volume will provide an increased impact to improving market quality 
over the current NBBO-based criteria.
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    \4\ 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.
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    Similarly, the Exchange is proposing to modify the requirements to 
receive a rebate of $0.0001 per share executed under Rule 7014(e)(2). 
Currently, a QMM will receive the rebate with respect to all other 
displayed orders (other than Designated Retail Orders, as defined in 
Rule 7018) in securities priced at $1 or more per share that provide 
liquidity that are entered through a QMM MPID in Tape A or B 
securities. The Exchange is proposing to now require that a QMM execute 
shares of liquidity provided in all securities through one or more of 
its Nasdaq Market Center MPIDs that represent from 0.70% up to and 
including 0.90% of Consolidated Volume during the month. The Exchange 
believes that tying the rebate to the provision of greater overall 
volume will provide an increased impact to improving market quality 
over the current requirement that the orders are displayed and provide 
liquidity.
    As a consequence of moving and modifying the criteria of Rules 
7014(e)(1) and (2), NASDAQ is moving certain rule text concerning the 
type of securities that the rule applies to, and certain exclusions 
from the program, from subparagraphs (1) and (2) to the first paragraph 
of Rule 7014(e). As noted above, NASDAQ is placing the two credits 
provided under subparagraphs (1) and (2) in a table format and, 
consequently, is deleting those subparagraphs. NASDAQ is moving 
language, which is repeated in both subparagraphs, that notes the 
credits provided apply to securities priced at $1 or more per share to 
the new table under Rule 7014(e) where the two credits are now located. 
The Exchange is also moving text that concerns exclusion of Designated 
Retail Orders from subparagraphs (1) and (2) to directly above the new 
table under Rule 7014(e).
    NASDAQ is proposing to amend the criteria under Rule 7014(e)(3) 
required to receive the reduced remove rate fee of $0.00295 per share 
executed under the rule in Tape A and B securities priced at $1 or more 
for shares executed via its QMM MPID. Currently, NASDAQ will charge a 
fee of $0.0030 per share executed for orders in securities listed on 
NASDAQ (``Tape C'') priced at $1 or more per share that access 
liquidity on the NASDAQ Market Center and that are entered through a 
QMM MPID, and charges a fee of $0.00295 per share executed for orders 
in Tape A or B securities priced at $1 or more per share that access 
liquidity on the NASDAQ Market Center and that are entered through a 
QMM MPID; provided, however, that after the first month in which an 
MPID becomes a QMM MPID, 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 not be 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). NASDAQ is proposing to eliminate 
the current Consolidated Volume requirement, which relates to

[[Page 21780]]

the first month in which an MPID qualified as a QMM MPID, and now 
require that the QMM executes shares of liquidity provided in all 
securities through one or more of its NASDAQ Market Center MPIDs of 
0.80% or more of Consolidated Volume during the month. The Exchange 
believes that the changes will tie receipt of the reduced removal fee 
in Tape A and B securities to a more meaningful measure of market-
improvement. Decoupling the measure from the QMM's first month QMM 
Consolidated Volume will ensure that all QMMs meet a minimum standard 
that is uniform. Increasing the Consolidated Volume required to receive 
the fee will provide incentive to QMMs to provide greater market-
improving participation in return for the benefit.
    The Exchange is also proposing to increase the level of 
Consolidated Volume that a member firm must have in Market-on-Close 
and/or Limit-on-Close orders during the month in order to qualify for 
fees to remove liquidity in securities executed at or above $1 under 
Rule 7018(a)(1), (2) and (3). Currently, NASDAQ assesses a fee for 
member firms that qualify based on their Market-on-Close and/or Limit-
on-Close order participation in the Closing Cross of $0.0030 per share 
executed in Tape C securities under Rule 7018(a)(1), and fees of 
$0.00295 per share executed in Tape A and B securities under Rules 
7018(a)(2) and (3), respectively. To qualify under each of the rules, a 
member firm must have Market-on-Close and/or Limit-on-Close orders 
executed in the NASDAQ Closing Cross, entered through a single NASDAQ 
Market Center market participant identifier, that represent more than 
0.06% of Consolidated Volume during the month. The Exchange is 
proposing to increase the minimum level of Consolidated Volume required 
under each of the rules to 0.15%.
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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    NASDAQ believes that the proposed changes to the QMM program in 
NASDAQ Rule 7014(d)(3) is [sic] reasonable and will not discriminate 
unfairly because they refine the program to focus on market 
participants who currently use the program. As discussed above, Market 
Makers have provided the vast majority of participation in the program 
and are currently the only market participant utilizing the program. 
Accordingly, restricting the program to Market Makers will not result 
in a material change in who participates in the program. Additionally, 
Market Makers have both obligations to the market and regulatory 
requirements that normally do not apply to other market participants. 
As such, the Exchange believes that providing additional incentives to 
Market Makers to provide liquidity for the benefit of all investors and 
other market participants is reasonable and not unfairly 
discriminatory. The proposed modifications to the QMM program recognize 
the benefits of increased Market Maker participation and the Exchange 
believes that this proposal will improve displayed liquidity, and thus 
the execution quality overall on the Exchange. Moreover, the Exchange 
believes that eliminating the current Consolidated Volume requirement 
is reasonable and not unfairly discriminatory because it will become 
superfluous in light of additional requirements based on Consolidated 
Volume that are also being proposed herein. For the same reasons noted 
above, limiting eligibility in the program to Market Makers and 
eliminating the Consolidated Volume requirement under Rule 7014(d)(3) 
is an equitable allocation of the fees and credits provided by the 
program. In this regard, no current participants in the program will be 
excluded from being eligible to participate after the proposed change 
is effective, and applying the current Consolidated Volume criteria 
will have no significance in light of the proposed changes to the 
specific fees and credits under the program.
    The Exchange believes that the proposed changes to Rule 7014(e) are 
reasonable and not unfairly discriminatory because they impose stricter 
requirements on Market Makers to receive the benefits of the program, 
which will be applied uniformly to all Market Makers that are eligible 
to participate in the QMM program. With regard to the $0.0002 rebate 
provided in Tape A and B securities, the Exchange is eliminating the 
NBBO-based criteria and tying the rebate to greater overall volume, 
which the Exchange believes will provide a greater impact to improving 
overall market quality because the economic benefits provided to the 
Market Maker are more certain and therefore provide the Market Maker a 
means to more aggressively provide displayed liquidity to the Exchange 
for the benefit of all market participants. In this regard, the 
Exchange notes that Market Makers must provide more than 0.90% of 
Consolidated Volume during the month, which is a significant level 
participation in the market. Similarly, NASDAQ is proposing a 
significant level of Consolidated Volume to receive the $0.0001 rebate 
under the rule, which currently only requires that the QMM participant 
provide displayed liquidity. The Exchange believes that it is 
reasonable and not unfairly discriminatory to impose stricter criteria 
designed to improve market quality in return for the credit NASDAQ 
elects to provide. NASDAQ also believes that the proposed changes to 
the eligibility requirements for the reduced removal fee in Tape A and 
B securities of $0.00295 per share executed are reasonable and not 
unfairly discriminatory because they increase the level of Consolidated 
Volume required, which will be an absolute requirement and not tied to 
historical levels of Consolidated Volume, thereby increasing the level 
of market improvement necessary to receive the reduced rate. As an 
absolute requirement, the Consolidated Volume requirement will apply 
uniformly to all Market Makers eligible to participate in the program. 
The Exchange believes that the proposed changes to the eligibility 
requirements under Rule 7014(e) are an equitable allocation because 
NASDAQ will provide the same rebates and fees to all Market Makers that 
qualify under the rule.
    Lastly, NASDAQ notes that Market Makers serve an important role on 
the Exchange with regard to order interaction and provide continuous, 
passive liquidity in the marketplace. Additionally, Market Makers incur 
costs unlike the majority of other market participants including, but 
not limited to, their own infrastructure and other technology costs 
associated with market making activities. Consequently, the proposed 
differentiation between Market Makers and other market participants 
recognizes the differing contributions made to the quality of the 
market on the Exchange by Market Makers and the heightened regulatory 
requirements and costs associated with being a Market Maker. In brief, 
the Exchange believes that the proposed changes to the QMM program 
further

[[Page 21781]]

incentives registered Market Makers to provide liquidity improves 
market qualify [sic], furthers the price discovery process and benefits 
investors.
    The Exchange believes that the proposed changes to the level of 
Consolidated Volume in Market-on-Close and/or Limit-on-Close order 
participation in the Closing Cross required to receive the fees for 
orders that remove liquidity under Rules 7018(a)(1), (2), and (3) are 
reasonable and not unfairly discriminatory because they represent an 
increase in the level of market-improving Consolidated Volume 
contributed to the Closing Cross. NASDAQ provides discounted fees in 
Market-on-Close and/or Limit-on-Close orders in Tape A and B securities 
to provide incentives to member firms to provide liquidity in the 
closing process. NASDAQ is increasing the Consolidated Volume 
requirement to better align the discounted remove fees with members 
that use the closing cross process more regulatory [sic] over 
alternatives and also access liquidity more frequently on the Exchange 
as opposed to other members. Nonetheless, NASDAQ believes that it is 
reasonable and not unfairly discriminatory to change the eligibility 
criteria so that it mirrors the eligibility criteria of the related 
fees under Rules 7018(a)(2) and (3). Lastly, the Exchange believes that 
the proposed changes to the rules are an equitable allocation of the 
fees because the fee is provided uniformly to all member firms that 
qualify for the fees and all member firms have an equal opportunity to 
earn the discounted fee for accessing liquidity.

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.\7\ 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 or even non-existent. In this instance, the changes 
to eligibility criteria required to receive credits and reduced fees 
under the QMM program do not impose a burden on competition because the 
incentive program remains in place, still offers economically 
advantageous credits and reduced fees, and is reflective of the need 
for exchanges to offer, and to let, the financial incentives to attract 
order flow evolve. While the Exchange does not believe that the 
proposed changes to the QMM program will result in any burden on 
competition, if the changes proposed herein are unattractive to market 
participants it is likely that NASDAQ will lose market share as a 
result. Similarly, the proposed changes to the eligibility criteria for 
remove fees under Rule 7018(a) based on Market-on-Close and/or Limit-
on-Close order participation in the Closing Cross are designed to 
increase participation in the Closing Cross by setting the minimum 
level of Consolidated Volume eligibility criteria higher, thereby 
improving the market at the market close. To the extent the 
qualification criteria is too onerous or unattractive to market 
participants, NASDAQ will likely lose order flow and participation in 
the Closing Cross as a result.
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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\ 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. If the Commission takes such action, the Commission shall 
institute proceedings to determine whether the proposed rule should be 
approved or disapproved.
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    \8\ 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-2015-032 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-2015-032. 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 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2015-032, and should 
be submitted on or before May 8, 2015.


[[Page 21782]]


    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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Brent J. Fields,
Secretary.
[FR Doc. 2015-08941 Filed 4-17-15; 8:45 am]
BILLING CODE 8011-01-P


