
[Federal Register Volume 81, Number 220 (Tuesday, November 15, 2016)]
[Notices]
[Pages 80137-80140]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-27375]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79270; File No. SR-NASDAQ-2016-153]


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

November 8, 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 November 1, 2016, 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 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 Nasdaq Rule 7014, Market Quality 
Incentive Programs, to modify the volume threshold for the method under 
which members may currently qualify for the Nasdaq Growth Program 
(``Program''). The Exchange also proposes to add another method through 
which members may qualify for the Program, and to modify the manner in 
which a member's Growth Baseline is updated.
    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.

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 proposes to amend Nasdaq Rule 7014, Market Quality 
Incentive Programs, to modify the volume threshold for the method under 
which members may currently qualify for the Program. The Exchange also 
proposes to add another method through which members may qualify for 
the Nasdaq Growth Program (``Program''), and to modify the manner in 
which a member's Growth Baseline is updated.
    Nasdaq recently introduced the Nasdaq Growth Program.\3\ The 
purpose of the Program is to provide a credit per share executed for 
members that meet certain growth criteria. The credit is designed to 
provide an incentive to members that do not qualify for other credits 
under Rule 7018 in excess of the Program credit to increase their 
participation on the Exchange. The Program will provide a member a 
$0.0025 per share executed credit in securities priced $1 or more per 
share if the member meets certain criteria. The credit will be provided 
in lieu of other credits provided to the member for displayed quotes/
orders (other than Supplemental Orders or Designated Retail Orders) 
that provide liquidity under Rule 7018, if the credit under the Nasdaq 
Growth Program is greater than the credit attained under Rule 7018. To 
be eligible for the credit a member must: (i) Add greater than 750,000 
shares a day on average during the month through one or more of its 
Nasdaq Market Center MPIDs; and (ii) increase its shares of liquidity 
provided through one or more of its Nasdaq Market Center MPIDs as a 
percent of Consolidated Volume by 25% versus the member's Growth 
Baseline.\4\
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    \3\ See Securities Exchange Act Release No. 78977 (September 29, 
2016), 81 FR 69140 (October 5, 2016) (SR-NASDAQ-2016-132).
    \4\ As part of this proposed rule change, Nasdaq is amending the 
rule text to add the conjunctive ``and'' between these two 
conditions to make clear that a member must satisfy both conditions 
in order to qualify for the Program.

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[[Page 80138]]

    Rule 7014 defines the Growth Baseline as the member's shares of 
liquidity provided in all securities through one or more of its Nasdaq 
Market Center MPIDs as a percentage of Consolidated Volume during the 
last month a member qualified for the Program. If a member has not 
qualified for a credit under the Program, its August 2016 share of 
liquidity provided in all securities through one or more of its Nasdaq 
Market Center MPIDs as a percent of Consolidated Volume will be used to 
establish a baseline.
    As noted above, Nasdaq is proposing to modify the volume 
requirement that members must satisfy in order to qualify for the 
Program under the current method. Nasdaq also proposes to add another 
method through which members may qualify for the Program. Nasdaq is 
therefore re-numbering Rule 7014(j)(ii) as Rule 7014(j)(ii)(A) and (B) 
accordingly.
    Accordingly, Rule 7014(j)(ii)(A) will now state that, in order to 
be eligible for the rebate, the member must increase its shares of 
liquidity provided through one or more of its Nasdaq Market Center 
MPIDs as a percent of Consolidated Volume by 20% versus the member's 
Growth Baseline. Nasdaq notes that the purpose of the Program is to 
increase participation on the Exchange by incentivizing members to 
transact more volume on the Exchange. Nasdaq believes that changing the 
volume requirement from 25% to 20% will make it easier for members to 
qualify for the Program, thereby creating a greater incentive for 
members to increase their activity on the Exchange.
    New Rule 7014(j)(ii)(B) provides that a member may qualify for the 
Program if it met the criteria set forth in Rule 7014(j)(ii)(A) in the 
preceding month and maintained or increased its shares of liquidity 
provided through one or more of its Nasdaq Market Center MPIDs as a 
percent of Consolidated Volume compared to the preceding month.
    Previously, a member would have been required to increase its 
shares of liquidity by 25% (now 20%) each month versus the member's 
Growth Baseline in order to qualify for the Program. Assuming the 
member satisfied the criteria set forth in Rule 7014(j)(ii)(A) in the 
previous month, Rule 7014(j)(ii)(B) will allow a member to continue to 
qualify for the program as long as it maintains or increases its shares 
of liquidity in the current month. Since Rule 7014(j)(ii)(B) requires 
that the member met the criteria in Rule 7014(j)(ii)(A) in the 
preceding month, a member would not be able to use Rule 7014(j)(ii)(B) 
in successive months.
    Third, Nasdaq proposes to modify the calculation of a member's 
baseline. As noted above, the Growth Baseline is defined as the 
member's shares of liquidity provided in all securities through one or 
more of its Nasdaq Market Center MPIDs as a percent of Consolidated 
Volume during the last month a member qualified for the Nasdaq Growth 
Program. If a member has not qualified for a credit under the Program, 
its August 2016 share of liquidity provided in all securities through 
one or more of its Nasdaq Market Center MPIDs as a percent of 
Consolidated Volume will be used to establish a baseline. Once the 
member qualifies for the Program, the August 2016 baseline is replaced 
by the volume of that qualifying month, which becomes the member's 
updated baseline.
    Nasdaq is proposing to add language to the definition of the Growth 
Baseline to reflect the fact that a member's baseline will only be 
updated when a member qualifies for the rebate under Rule 
7014(j)(ii)(A). A member may only qualify for the rebate under Rule 
7014(j)(ii)(A) if it increases its volume by 20% over its baseline, 
whereas a member would qualify for the rebate under Rule 7014(j)(ii)(B) 
if it maintained or increased its volume in comparison to the previous 
month. Nasdaq believes that adjusting the member's baseline when the 
growth of the member's monthly volume meets or exceeds 20% is 
appropriate because this is a clearly defined threshold. Nasdaq also 
notes that members cannot qualify for the rebate under Rule 
7014(j)(ii)(B) in successive months, so Nasdaq does not anticipate a 
scenario where a member qualifies for a rebate for several months 
without having its baseline adjusted accordingly.
    The following example illustrates the proposed changes:
     In August 2016, the firm's shares of liquidity as a 
percentage of Consolidated Volume is 0.03%. This is the firm's Growth 
Baseline.
     In September 2016, the firm's shares of liquidity as a 
percentage of Consolidated Volume is 0.035%. The member does not 
qualify for an applicable rebate, and the member's Growth Baseline 
remains 0.03% (its August 2016 volume).
     In October 2016, the firm's shares of liquidity as a 
percentage of Consolidated Volume is 0.04%. Since the firm has 
increased its volume by more than 20% in comparison to its Growth 
Baseline, the firm qualifies for the credit. Since the firm has 
qualified for the credit, its Growth Baseline is now 0.04%.
     In November 2016, the firm's shares of liquidity as a 
percentage of Consolidated Volume is 0.041%. Although the firm did not 
increase its volume by 20% in comparison to its Growth Baseline, it 
still qualifies for the credit, since Rule 7014(j)(ii)(B) allows a 
member to continue to qualify for the Program if it met the criteria in 
Rule 7014(j)(ii)(A) in the previous month, and if it maintains or 
increases its shares of liquidity in the current month. Since the firm 
qualified for the credit under Rule 7014(j)(ii)(B), the Growth Baseline 
does not update.
     A member may only qualify for the rebate under Rule 
7014(j)(ii)(B) if it satisfied the criteria of Rule 7014(j)(ii)(A) in 
the preceding month. In order to be eligible for the December 2016 
rebate, the firm would therefore have to increase its volume by more 
than 20% in comparison to its Growth Baseline (which is October 2016).
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\5\ in general, and furthers the objectives of 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 its facilities which 
the Exchange 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(b).
    \6\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange notes that the amount of the credits provided under 
the Program is unchanged.\7\ Nasdaq believes that the proposed changes 
are equitably allocated among members, and are not designed to permit 
unfair discrimination. Nasdaq notes that, in decreasing the volume 
threshold from 25% to 20% in order to qualify for the Program under 
Rule 7014(j)(ii)(A), and in proposing an alternate method under which 
members may qualify for the Program, Nasdaq is making the Program and 
its associated credits more accessible to members. At the same time, 
the purpose of the Program is to increase members' participation on the 
Exchange by offering a credit to members that meet the volume 
requirements. Nasdaq believes that the proposed changes strike an 
appropriate and equitable balance by expanding the number of members 
that may be eligible for the Program while continuing to

[[Page 80139]]

incentivize other members that may not currently qualify for the 
Program to transact greater volume in order to become eligible for the 
Program.
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    \7\ See Securities Exchange Act Release No. 78977 (September 29, 
2016), 81 FR 69140 (October 5, 2016) (SR-NASDAQ-2016-132) 
(establishing the Nasdaq Growth Program and its credit structure).
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    In amending Rule 7014(j)(ii)(A) so that members may qualify for the 
Program by increasing their volume in a given month by 20% over their 
baseline, Nasdaq also notes that this proposed change merely changes 
the member's trading volume necessary to qualify for the program under 
Rule 7014(j)(ii)(A), and does not otherwise differentiate among members 
who may qualify for the Program.
    Nasdaq also believes that Rule 7014(j)(ii)(B) is equitably 
allocated and not unfairly discriminatory. In adopting Rule 
7014(j)(ii)(B), Nasdaq is providing all members that otherwise qualify 
for the Program with an alternate way in which they may qualify for the 
Program's rebate in a given month by permitting members to either 
maintain or increase their volume in comparison to the preceding month. 
Given, however, that the purpose of the Program is to increase a 
member's trading activity on the Exchange, Nasdaq believes that it is 
equitable and not unfairly discriminatory to only permit members to 
qualify for the rebate in this manner if they have qualified for the 
rebate in the preceding month under Rule 7014(j)(ii)(A) (increasing 
their volume by 20% or more in comparison to the Growth Baseline). 
Similarly, the member will be required to satisfy the criteria in Rule 
7014(j)(ii)(A) in order to qualify for the rebate in the following 
month, which means that it will be required to increase its volume by 
20% in comparison to its Growth Baseline. Nasdaq believes this 
requirement is equitable and not unfairly discriminatory because it 
furthers the aims of the Program by encouraging increased volume on the 
Exchange. Nasdaq also notes that these requirements will apply equally 
to all members.
    Nasdaq believes that updating a member's Growth Baseline when the 
member has qualified for the rebate pursuant to Rule 7014(j)(ii)(A) by 
increasing its volume by 20% over its previous Growth Baseline is 
equitable and not unfairly discriminatory because this is a clearly 
defined threshold that applies equally to all members that qualify for 
the rebate under Rule 7014(j)(ii)(A). Nasdaq also notes that members 
cannot qualify for the rebate under Rule 7014(j)(ii)(B) in successive 
months, so Nasdaq does not anticipate a scenario where a member 
qualifies for a rebate for several months without having its baseline 
adjusted accordingly.
    Finally, Nasdaq notes that participation in the Program is 
voluntary, and that the proposed changes apply to all members that 
otherwise qualify for the Program, e.g., [sic] members that add greater 
than 750,000 shares a day on average during the month through one or 
more of its [sic] Nasdaq Market Center MPIDs.

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

    The proposed rule change will not result in a burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act, as amended.\8\ 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.
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    \8\ 15 U.S.C. 78f(b)(8).
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    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. In addition, the Exchange believes that the 
competition among exchanges and other venues will help to drive price 
improvement and overall execution quality higher for end retail 
investors.
    In this instance, participation in the Program is voluntary. The 
proposed changes will lower the volume threshold for the current method 
of qualifying for the Program, and will provide members with another 
way in which they may qualify for the Program. These changes will apply 
equally to all members who otherwise qualify for the Program. 
Similarly, the proposed method of updating the Growth Baseline will be 
uniformly applied across members.
    In sum, if the 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

    No written comments were either solicited or 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.\9\
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    \9\ 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-2016-153 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-2016-153. 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

[[Page 80140]]

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-2016-153 and should be submitted on or before 
December 6, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-27375 Filed 11-14-16; 8:45 am]
 BILLING CODE 8011-01-P


