
[Federal Register Volume 80, Number 134 (Tuesday, July 14, 2015)]
[Notices]
[Pages 41133-41136]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-17167]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75389; File No. SR- NASDAQ-2015-071]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to 
the Designated Liquidity Provider Program Under Rule 7018(i)

July 8, 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 July 1, 2015, The NASDAQ Stock Market LLC (``NASDAQ'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the 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

    The Exchange proposes to amend the Designated Liquidity Provider 
(``DLP'') program under Rule 7018(i).
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaq.cchwallstreet.com, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

[[Page 41134]]

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 Exchange is proposing to make the following changes to the DLP 
program under Rule 7018(i): (1) Move the program rules from Rule 7018 
to Rule 7014; (2) change the name of the program to the Lead Market 
Maker program; (3) add clarifying rule text; (4) shorten the notice 
period required before a market maker may withdraw as a DLP; and (5) 
provide additional flexibility to NASDAQ on the application of the 
minimum performance measurements under subparagraph (2) of the rule. 
The DLP program provides fees and credits for execution of a Qualified 
Security by one of its DLPs. Rule 7018(i)(1) defines Qualified Security 
as an exchange-traded fund or index-linked security listed on NASDAQ 
pursuant to NASDAQ Rules 5705, 5710, or 5720 that has at least one DLP. 
As defined in Rule 7018(i)(2), a DLP is a registered NASDAQ market 
maker for a Qualified Security that has committed to maintain specified 
minimum performance standards. The rule provides that a DLP shall be 
selected by NASDAQ based on factors including, but not limited to, 
experience with making markets in exchange-traded funds and index-
linked securities, adequacy of capital, willingness to promote NASDAQ 
as a marketplace, issuer preference, operational capacity, support 
personnel, and history of adherence to NASDAQ rules and securities 
laws. Moreover, the rule permits NASDAQ to limit the number of DLPs in 
a security, or modify a previously established limit, upon prior 
written notice to members.
    NASDAQ is proposing to move the rule from Rule 7018, which concerns 
fees and credits for execution and routing of orders entered on NASDAQ, 
to Rule 7014, which concerns NASDAQ's market quality incentive 
programs. NASDAQ adopted the DLP program as a pricing incentive program 
for market makers in certain exchange traded products. The DLP program 
is designed to improve market quality in Qualified Securities by 
providing credits to market makers in return for providing certain 
levels of market-improving quoting in those securities. As such, the 
Exchange believes that it is more appropriate to locate the rules 
relating to the program under Rule 7014, along with other market 
quality incentive programs.
    The Exchange is also proposing to amend Rule 7018(i)(2) to provide 
NASDAQ additional flexibility in the application of the four 
performance measurements under the rule. Rule 7018(i)(2) sets forth 
four minimum performance measurements that a market maker must achieve 
to be considered a DLP, which are applied to market makers at the 
conclusion of each month to determine if their contribution to market 
quality in an individual Qualified Security meets or exceeds the 
minimum performance measurements. The minimum performance measurements 
may be determined from time to time by NASDAQ and may vary depending on 
the price, liquidity, and volatility of the Qualified Security in which 
the DLP is registered. Under the rule, the performance standards must 
include the percent of time at the national best bid (best offer) 
(``NBBO''), the percent of executions better than the NBBO, the average 
displayed size, and the average quoted spread. NASDAQ has flexibility 
to modify the specific levels of the performance measurements in an 
individual Qualified Security in response to changes in the market in 
price, volatility and liquidity, or NASDAQ may set a uniform level for 
a particular minimum performance measurement applied to all Qualified 
Securities. The Exchange is proposing to amend Rule 7018(i)(2) so that 
it is no longer required to consider all four factors in its minimum 
performance criteria, but rather provide the Exchange flexibility to 
apply one or more of the factors. NASDAQ notes that such additional 
flexibility will enable the Exchange to further tailor eligibility for 
the incentive program based on overall market conditions, applying only 
the criteria needed to improve market quality. In this regard, NASDAQ 
notes that the desired improvement in market quality may be achieved in 
certain instances by applying fewer than all four of the minimum 
performance measurements. In some cases, applying all four minimum 
performance measurements may require setting one or more of the 
measures so low as to allow all market makers to qualify under those 
measures, thus rendering those measures superfluous.
    The Exchange is adding new language to make it clear that it will 
provide written notice of the criteria to market participants. This 
notice will describe the specific criteria applicable under the program 
for the upcoming month so market participants can understand how to 
qualify for credits. The description will include not only the criteria 
applicable but also the standard under each criteria or combination of 
criteria. Such clarifying language will help market participants 
understand how changes to the minimum performance measurements will be 
communicated, thereby providing further transparency into the operation 
of the program.
    NASDAQ will also use the specific criteria described in the notice 
to measure performance under the program, and to make changes to 
improve that performance. For example, if after studying performance 
under a given set of criteria, NASDAQ determines that performance 
greatly exceeds the criteria, NASDAQ will have a solid basis for 
increasing the requirements. Alternatively, if this review reveals that 
a criteria is yielding no improvement to performance, NASDAQ will then 
have a basis to select an alternative criteria and to so notify market 
makers of the change.
    The Exchange is also shortening the amount of prior written notice 
that a DMM must provide to NASDAQ when it wishes to withdraw its 
registration in a Qualified Security from 30 days to 5 days. 
Historically, the Exchange needed at least 30 days to process the de-
registration of a DMM in a Qualified Security. Improvements to the 
Exchange's systems and processes have now made it possible for the 
Exchange to process such de-registrations with 5 days' notice.
    Lastly, NASDAQ is changing the name of the program to the ``Lead 
Market Maker program'' and is, accordingly, changing references to 
``Designated Liquidity Providers'' and ``DLPs'' to ``Lead Market 
Makers'' and ``LMMs,'' respectively. NASDAQ believes that the term Lead 
Market Maker is more descriptive of who is eligible for the program 
(i.e., market makers), as opposed to a Designated Liquidity Provider, 
which could lead a market participant to believe that any market 
participant is eligible to qualify for the program. NASDAQ notes that 
the proposed change in terminology does not impact the operation of the 
program, but rather merely clarifies and

[[Page 41135]]

harmonizes the terminology used with the terminology used for similar 
programs of other exchanges. For example, The BATS Exchange, Inc. has a 
Lead Market Maker program, which provides its market makers with lower 
fees for removing liquidity and higher credits for providing liquidity 
if they meet certain performance standards in certain exchange-traded 
products.\3\ NASDAQ believes that harmonizing the terminology with that 
of other exchanges will promote clarity in its rules and may help to 
avoid potential market participant confusion over the differing 
terminology.
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    \3\ BATS Rule 11.8(e).
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2. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\4\ in general, and with 
Sections 6(b)(4) and 6(b)(5) of the Act,\5\ 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 are not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers.
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    \4\ 15 U.S.C. 78f.
    \5\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the proposed change in the terminology 
applied to the program further perfects the mechanism of a free and 
open market and a national market system, and, in general, to promotes 
public interest because it harmonizes NASDAQ's program's terminology 
with the terminology of other markets that offer similar programs to 
their market participants. NASDAQ believes that the proposed new 
terminology is more reflective of who is eligible to participate in the 
program. As such, the Exchange believes that the proposed change will 
avoid potential market participant confusion over the scope and nature 
of the program. Similarly, the Exchange believes that moving the rules 
of the program to the rule section that contains other market 
improvement programs will avoid potential market participant confusion 
and helps NASDAQ further refine its rulebook to make it more 
understandable and accessible to all market participants. The Exchange 
believes that adding clarifying language concerning notice of changes 
to the minimum performance measurements is consistent with the Act 
because it will promote transparency in the operation and requirements 
of the program. The Exchange believes that reducing the notice 
requirement is consistent with further perfecting the mechanism of a 
free and open market and a national market system because it lessens 
the time that a DLP must remain registered in a Qualified Security once 
it makes the determination to de-register.
    The proposed change providing NASDAQ additional flexibility in 
applying the minimum performance measurements will allow NASDAQ to more 
closely tailor eligibility for the beneficial fees and credits of the 
program based on the level of improvement to the market NASDAQ 
determines is desired. In this regard, in certain instances the desired 
improvement in market quality may be achieved by applying fewer than 
all four of the minimum performance measurements, including applying 
just one, two or three of them. Accordingly, allowing the Exchange to 
apply less than all four of the minimum performance measurements will 
not negatively impact the public interest or investor protection. The 
Exchange notes that the minimum standards that NASDAQ sets for a 
Qualified Security apply to all market makers registered in the 
security, and therefore, all such market makers that elect to provide 
the level of market-improving behavior required by the program will 
receive the credit. The Exchange also believes that the proposed 
additional flexibility in applying the minimum performance measurements 
will not permit unfair discrimination among market makers, as the 
measurements are set based on the Exchange's determination of what 
beneficial activity, and the amount thereof, in a Qualified Security is 
needed to achieve the desired improvement to market quality.
    The Exchange believes that the proposed change to provide NASDAQ 
with additional flexibility in applying the four minimum performance 
measurements is consistent with an equitable allocation of a reasonable 
fee because NASDAQ will always apply at least one factor, which will 
require a market maker to improve the market over other market makers 
in a Qualified Security in order to receive reduced fees and increased 
credits. In addition, whatever combination of criteria NASDAQ imposes 
will applied equally to all market markers. It is NASDAQ's belief that 
the revised program will promote competition among market maker to 
provide the best markets for investors, even where that competition 
focuses on just one of the four criteria. NASDAQ believes that as it 
gains experience with the program, it will be able to apply each 
criteria and combination of criteria to maximize this competition and 
benefit to investors. Moreover, credit eligibility is not discretionary 
under the program. Any market maker that meets the specified criteria 
will receive the credit.

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

    The Exchange 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. 
Specifically, the changes are designed to promote clarity in the 
application of NASDAQ's rules and to provide NASDAQ flexibility in the 
application of the qualification requirements of an incentive program, 
which is designed to improve the market in Qualified Securities on 
NASDAQ. Such changes do not place a burden on competition between 
market participants as the changes are applied consistently to all 
participants. Lastly, the proposed change to provide NASDAQ with 
greater flexibility in applying the four minimum performance measures 
may actually promote competition among exchanges to the extent the 
additional flexibility results in improved market quality on NASDAQ.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \6\ and

[[Page 41136]]

subparagraph (f)(6) of Rule 19b-4 thereunder.\7\ 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.
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    \6\ 15 U.S.C. 78s(b)(3)(a)(iii).
    \7\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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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-2015-071 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-2015-071. 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-2015-071 and should 
be submitted on or before August 4, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-17167 Filed 7-13-15; 8:45 am]
 BILLING CODE 8011-01-P


