
[Federal Register Volume 81, Number 35 (Tuesday, February 23, 2016)]
[Notices]
[Pages 9061-9063]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-03660]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77152; File No. SR-NASDAQ-2016-020]


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

February 17, 2016.
    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 February 10, 2016, The NASDAQ Stock Market LLC (``Nasdaq'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') a proposed rule change as described in 
Items I, II and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4. [sic]
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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 amend Nasdaq Rule 7014(g) concerning 
the national best bid or best offer (``NBBO'') Program and Nasdaq Rule 
7018(a), governing fees and credits assessed for execution and routing 
of securities.
    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
    The purpose of the proposed rule change is to amend the NBBO 
Program in Nasdaq Rule 7014(g) and to amend Nasdaq Rule 7018(a), 
governing fees and credits assessed for execution and routing of 
securities listed on Nasdaq,\3\ listed on the New York Stock Exchange 
(``NYSE'') \4\ and listed on exchanges other than Nasdaq and NYSE \5\ 
(``Tape B'') (collectively, the ``Tapes'').
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    \3\ Nasdaq Rule 7018(a)(1).
    \4\ Nasdaq Rule 7018(a)(2).
    \5\ Nasdaq Rule 7018(a)(3).
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    Specifically, Nasdaq Rule 7014(g) will be amended to add a new 
credit and to clarify the NBBO Program language to indicate that this 
new credit will be in addition to any rebate or credit payable under 
Nasdaq Rule 7018(a) or the Investor Support Program (``ISP''), 
Qualified Market Maker (``QMM'') Program and NBBO Program under Nasdaq 
Rule 7014. A member will qualify for the additional $0.0001 per share 
executed credit for displayed quotes/orders (other than supplemental 
orders or designated retail orders) that provide liquidity priced at $1 
or more if the member qualifies for the (i) NBBO Program and (ii) has a 
ratio of at least 25% NBBO liquidity provided \6\ to liquidity provided 
during the month.
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    \6\ NBBO liquidity provided means liquidity provided from orders 
(other than Designated Retail Orders, as defined in Nasdaq Rule 
7018), that establish the NBBO, and displayed a quantity of at least 
one round lot at the time of execution.
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    For example, if a member provided liquidity of 0.55% total 
consolidated volume (``TCV'') during the month and provided NBBO 
liquidity of 0.15% TCV during the month, the member's ratio would equal 
27.27%. The member would meet the NBBO Program criteria (since it was 
greater than 0.5% TCV threshold set forth in Nasdaq Rule 7014(g)(1)) 
and because the ratio is greater than the proposed 25% threshold of 
NBBO liquidity provided to liquidity provided [sic] during the month. 
Therefore, the member would also qualify for the additional $0.0001 per 
share executed credit. This credit will be in addition to any rebate or 
credit payable under Rule 7018(a) and the ISP, QMM Program, and NBBO 
Program under Rule 7014.
    Nasdaq also proposes to amend across all three Tapes (Nasdaq Rules 
7018(a)(1), (2) and (3)) one of the two criteria that a member must 
satisfy to qualify for the $0.0030 per share executed credit for adding 
displayed liquidity. The first prong of the criteria will remain the 
same and requires that a member must have shares of liquidity provided 
in all securities through one or more of its Nasdaq Market Center MPIDs 
that represent 0.575% or more of consolidated volume (``Consolidated 
Volume'') during the month. The second prong of the criteria will be 
amended. Specifically, the second prong requires that 0.15% or more of 
Consolidated Volume during the month must include shares of liquidity 
provided with respect to securities that are listed on exchanges other 
than Nasdaq or NYSE. The percentage of shares of liquidity provided 
with respect to securities that are listed on exchanges other than 
Nasdaq or NYSE will be reduced from 0.15% to 0.10% or more of 
Consolidated Volume, thus reducing the required activity to achieve the 
credit. The amended criteria will read for all three Tapes as ``member 
with shares of liquidity provided in all securities through one or more 
of its Nasdaq Market Center MPIDs that represent 0.575% or more of 
Consolidated Volume during the month, including shares of liquidity 
provided with respect to securities that are listed on exchanges other 
than NASDAQ or NYSE that represent 0.10% or more of Consolidated 
Volume''.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\7\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\8\ 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 its facilities which 
the Exchange operates or controls, and is not designed to permit unfair

[[Page 9062]]

discrimination between customers, issuers, brokers, or dealers.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4) and (5).
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    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. In Regulation 
NMS, while adopting a series of steps to improve the current market 
model, the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \9\ Likewise, in 
NetCoalition v. Securities and Exchange Commission \10\ 
(``NetCoalition'') the D.C. Circuit upheld the Commission's use of a 
market-based approach in evaluating the fairness of market data fees 
against a challenge claiming that Congress mandated a cost-based 
approach.\11\ As the court emphasized, the Commission ``intended in 
Regulation NMS that `market forces, rather than regulatory 
requirements' play a role in determining the market data . . . to be 
made available to investors and at what cost.'' \12\
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    \9\ Securities Exchange Act Release No. 34-51808 (June 9, 2005) 
(``Regulation NMS Adopting Release'').
    \10\ NetCoalition v. SEC 615 F.3d 525 (D.C. Cir. 2010).
    \11\ Id. at 534-535.
    \12\ Id. at 537.
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    Further, ``[n]o one disputes that competition for order flow is 
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market 
system, buyers and sellers of securities, and the broker-dealers that 
act as their order-routing agents, have a wide range of choices of 
where to route orders for execution'; [and] `no exchange can afford to 
take its market share percentages for granted' because `no exchange 
possesses a monopoly, regulatory or otherwise, in the execution of 
order flow from broker dealers'. . . .'' \13\
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    \13\ Id. at 539 (quoting ArcaBook Order, 73 FR at 74782-74783).
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    The NBBO Program is intended to encourage members to add liquidity 
at prices that benefit all Nasdaq market participants and the Nasdaq 
market itself, and to enhance price discovery, by establishing a new 
NBBO.\14\ Specifically, Nasdaq believes that the proposed rule change 
to Nasdaq Rule 7014(g) that provides for an additional $0.0001 per 
share executed credit \15\ for displayed quotes/orders (other than 
supplemental orders or designated retail orders) that provide liquidity 
priced at $1 or more is reasonable because it is in line with other 
credits provided on Nasdaq, as well as on other exchanges. For example, 
both the QMM Program \16\ and the ISP \17\ have credits of $0.0001 per 
share executed. The Exchange also believes that the proposed additional 
credit will serve as an effective incentive to members to provide more 
liquidity provided from orders (other than Designated Retail Orders, as 
defined in Nasdaq Rule 7018), that establish the NBBO, and displayed a 
quantity of at least one round lot at the time of execution. Increasing 
such liquidity is reflective of the Exchange's desire to improve 
liquidity and strengthen the NBBO Program.
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    \14\ See Securities Exchange Act Release No. 68209 (November 9, 
2012), 77 FR 69519 (November 19, 2012) (SR-NASDAQ-2012-126).
    \15\ The member will receive this additional credit if the 
member qualifies for the (i) NBBO Program and (ii) has a ratio of at 
least 25% NBBO liquidity provided of the liquidity provided during 
the month.
    \16\ See Nasdaq Rule 7014(e) Tier 1.
    \17\ See Nasdaq Rule 7014(c)(2).
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    The Exchange also believes that choosing the ratio of at least 25% 
NBBO liquidity provided of the liquidity provided during the month will 
incentivize participants to more aggressively pursue adding liquidity 
at the NBBO while still offering an attainable goal. This may focus 
participants on meeting the criteria in a way that relying on solely 
NBBO specific rebates has not. This proposed change is similar to other 
market incentive programs that require a certain level of activity in 
order to be eligible to receive a particular credit. For example, to 
receive an ISP credit a member is already required to provide a 40% of 
their [sic] liquidity through ISP designated ports (among other 
criteria).\18\
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    \18\ See Nasdaq Rule 7014(c)(2)(C).
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    Additionally, minimum standards of specific activity (e.g., non-
display activity and other performance requirements) are also sometimes 
required to be eligible to receive a particular credit. One example of 
this is in Nasdaq Rule 7018(a)(1), which states that a member seeking 
to receive the particular available credit must provide shares of 
liquidity in all securities through one or more of its Nasdaq Market 
Center MPIDs of more than 0.75% of Consolidated Volume during the 
month, as well as provide a daily average of at least 5 million shares 
of non-displayed liquidity.
    Also, the clarifying language added to the NBBO Program under 
Nasdaq Rule 7014(g) regarding the applicability of this new credit is 
reasonable because it will lessen participant confusion as to how these 
additional rebates/credits apply. The Exchange believes that the 
proposed changes to the NBBO Program overall will improve market 
quality and thus benefits all members.
    Nasdaq believes that the proposed rule change is equitable and not 
unfairly discriminatory because the additional $0.0001 per share 
executed credit for displayed quotes/orders that provide liquidity 
priced at $1 or more under the NBBO Program is available to all members 
on an equal basis and provides an additional credit for activity that 
improves the Exchange's market quality through increased activity at 
the NBBO. In this regard, the NBBO Program encourages higher levels of 
liquidity provision into the price discovery process and is consistent 
with the overall goals of enhancing market quality. Also, this new 
credit will be in addition to any rebate or credit payable under Nasdaq 
Rule 7018(a) or the ISP, QMM Program, and NBBO Program under Nasdaq 
Rule 7014.
    Nasdaq believes that the proposed rule change to Nasdaq Rule 
7018(a)(1), (2) and (3) is reasonable because it will further encourage 
market participant activity and will also support liquidity provision 
across all three Tapes by making it easier for members to satisfy one 
of the two criteria to qualify for the $0.0030 per share executed 
credit for adding displayed liquidity. Specifically, by amending one 
prong of the criteria to reduce the percentage requirement from 0.15% 
to 0.10% of shares of liquidity provided with respect to securities 
that are listed on exchanges other than Nasdaq or NYSE [sic]. The 
Exchange believes this will allow more members to receive this credit 
and thereby incentivize the enhancement of liquidity with regard to 
displayed quotes/orders (other than Supplemental Orders or Designated 
Retail Orders) on Nasdaq. This, in turn, should positively impact 
market quality and benefit other Nasdaq members.
    The Exchange also believes that the proposed rule change is an 
equitable allocation and is not unfairly discriminatory because it is 
reducing across all three Tapes one of the two criteria that a member 
must satisfy to qualify for the $0.0030 per share executed credit for 
adding displayed liquidity. Additionally, members who currently qualify 
for the credit will continue to do so.

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

    Nasdaq does not believe that the proposed rule change will result 
in a burden on competition that is not necessary or appropriate in 
furtherance

[[Page 9063]]

of the purposes of the Act, as amended.\19\ In terms of inter-market 
competition, the Exchange 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 credit opportunities available at other venues to be more 
favorable. In such an environment, the Exchange must continually adjust 
its fees and credits to remain competitive with other exchanges and 
with alternative trading systems that have been exempted from 
compliance with the statutory standards applicable to exchanges. 
Because competitors are free to modify their own fees and credits in 
response, and because market participants may readily adjust their 
order routing practices, the Exchange believes that the degree to which 
fee changes in this market may impose any burden on competition is 
extremely limited.
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    \19\ 15 U.S.C. 78f(b)(8).
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    In this instance, the proposed additional $0.0001 per share 
executed credit for displayed quotes/orders that provide liquidity 
priced at $1 or more in connection with the NBBO Program under Nasdaq 
Rule 7014(g), as well as the easing of the criteria under Nasdaq Rule 
7018(a) to receive a $0.0030 executed rebate for displayed quotes/
orders (other than Supplemental Orders or Designated Retail Orders) 
that provide liquidity, do not impose a burden on competition because 
the Exchange's execution services are voluntary and subject to 
extensive competition both from other exchanges and from off-exchange 
venues. The Exchange believes that the competition among exchanges and 
other venues will help to drive price improvement and overall execution 
quality higher for investors.
    In sum, if the rule change proposed herein is unattractive to 
market participants, it is likely that the Exchange will lose market 
share as a result. Accordingly, the Exchange does not believe that the 
proposed change will impair the ability of members or competing order 
execution venues to maintain their competitive standing 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.\20\ 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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    \20\ 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-2016-020 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-2016-020. 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-2016-
020, and should be submitted on or before March 15, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-03660 Filed 2-22-16; 8:45 am]
 BILLING CODE 8011-01-P


