Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Add New Rule 7014 To Enable NASDAQ Members To Qualify for a Monthly Fee Credit, 69489-69491 [2010-28545]

Download as PDF Federal Register / Vol. 75, No. 218 / Friday, November 12, 2010 / Notices SECURITIES AND EXCHANGE COMMISSION [Release No. 34–63270; File No. SR– NASDAQ–2010–141] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Add New Rule 7014 To Enable NASDAQ Members To Qualify for a Monthly Fee Credit November 8, 2010. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on October 26, 2010, The NASDAQ Stock Market LLC (‘‘NASDAQ’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘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. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change NASDAQ proposes to add new Rule 7014 (Investor Support Program) to enable NASDAQ members to qualify for a monthly fee credit. The text of the proposed rule change is available at https:// nasdaq.cchwallstreet.com, at NASDAQ’s principal office, and at the Commission’s Public Reference Room. mstockstill on DSKH9S0YB1PROD with NOTICES 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. The text of these statements may be examined at the places specified in Item III below, and is set forth in Sections A, B, and C below. NASDAQ 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 the Statutory Basis for, the Proposed Rule Change 1. Purpose NASDAQ is adding new Rule 7014 to establish an Investor Support Program 1 15 2 17 U.S.C. 78s(b)(1). CFR 240.19b–4. VerDate Mar<15>2010 17:23 Nov 10, 2010 Jkt 223001 (‘‘ISP’’), which would enable NASDAQ members to earn a monthly fee credit for providing additional liquidity to NASDAQ and increasing the NASDAQtraded volume of what are generally considered to be retail and institutional investor orders in exchange-traded securities.3 The goal of the ISP is to incentivize members to provide such targeted liquidity to the Nasdaq Market Center.4 Maintaining and increasing the proportion of orders in exchange-listed securities executed on a registered exchange (rather than relying on any of the available off-exchange execution methods) 5 would help raise investors’ confidence in the fairness of their transactions and would benefit all investors by deepening NASDAQ’s liquidity pool, supporting the quality of price discovery, promoting market transparency and improving investor protection.6 The first step for a NASDAQ member wishing to participate in the ISP is to designate one or more of its NASDAQ ports for ISP use.7 Orders entered 3 The liquidity would, as discussed below, emanate from members that have a low order to execution ratio. 4 The Commission has recently expressed its concern that a significant percentage of the orders of individual investors are executed at over the counter (‘‘OTC’’) markets, that is, at off-exchange markets; and that a significant percentage of the orders of institutional investors are executed in dark pools. Securities Exchange Act Release No. 61358 (January 14, 2010), 75 FR 3594 (January 21, 2010) (Concept Release on Equity Market Structure, ‘‘Concept Release’’). See also Mary L. Schapiro, Strengthening Our Equity Market Structure (Speech at the Economic Club of New York, Sept. 7, 2010) (‘‘Schapiro Speech,’’ available on the Commission Web site) (comments of Commission Chairman on what she viewed as a troubling trend of reduced participation in the equity markets by individual investors). 5 In the January 2010 Concept Release, the Commission noted that dark pools and internalizing broker-dealers executed approximately 25.4% of share volume. See Concept Release, Figure 6. In her September 2010 speech, Chairman Schapiro referenced that figure and the fact that it continued to grow: ‘‘today, nearly 30 percent of volume in U.S.-listed equities is executed in venues that do not display their liquidity or make it generally available to the public. The percentage executed by these dark, non-public markets is increasing nearly every month.’’ Schapiro Speech. 6 The Commission has recognized the strong policy preference under the Act in favor of price transparency and displayed markets. The Commission published the Concept Release to invite public comment on a wide range of market structure issues, including high frequency trading and un-displayed, or ‘‘dark,’’ liquidity. See Concept Release. Moreover, Chairman Schapiro identified ‘‘two concerns that go to the core of our equity market structure: First, whether the quality of price discovery has declined, and second, whether these changes in our market structure could undermine the fair and level playing field essential to investor protection, capital formation and vibrant capital markets generally.’’ Schapiro Speech. 7 Subsequent to initial port designation, a member may add or remove designated ports for ISP use no later than the first trading day of the month when the desired change is to become effective. PO 00000 Frm 00094 Fmt 4703 Sfmt 4703 69489 through ISP-designated ports will be used for ISP credit calculations. Subsection (b) of Rule 7014 describes how the ISP credit will be calculated. The ISP credit formula provides for a monthly credit of 3 cents per 100 shares of displayed liquidity provided through an ISP-designated port to the extent that such liquidity results in an increase (compared with August 2010) in the overall level of liquidity that the member provides to NASDAQ measured as a proportion of the consolidated share volume traded by all market participants across all trading venues. To this end, a member’s ‘‘Baseline Participation Ratio’’ is determined by measuring the number of shares in liquidity-providing orders entered by the member (through any NASDAQ port) and executed on NASDAQ and dividing this number by the consolidated (across all trading venues) share volume of System Securities 8 traded in August 2010.9 To determine whether a member added liquidity to NASDAQ in a given month, NASDAQ would perform the same calculation on a monthly basis for the then-current month and compare the resulting ratio to the Baseline Participation Ratio. If the member’s then-current month’s ratio is higher than the Baseline Participation Ratio, then the member’s ‘‘Added Liquidity’’ for that month would be calculated by multiplying the difference between the two ratios by such month’s consolidated average daily share volume of System Securities traded across all venues (if the result is a negative number, then Added Liquidity would be deemed zero).10 To determine the amount of the ISP credit, NASDAQ would multiply $0.0003 by the lower of: (1) The number of shares of displayed liquidity provided in orders entered by the member thorough its ISP-designated ports and executed in the Nasdaq Market Center during the given month, or (2) the amount of Added Liquidity for the given month. Any ISP credit issued pursuant to Rule 7014 will be in addition to (and will not replace) any other credit or rebate for which a member may qualify. Subsection (c) contains requirements designed to limit ISP credit eligibility to targeted orders. This is accomplished by establishing a maximum ratio (set at 10) of (i) liquidity-providing orders placed from all of given member’s ISPdesignated ports to (ii) liquidityproviding orders placed from such 8 The term ‘‘System Securities’’ is defined as all securities listed on NASDAQ and all securities subject to the Consolidated Tape Association Plan and the Consolidated Quotation Plan. Rule 4751(b). 9 See Proposed Rule 7014(d)(2). 10 See Proposed Rule 7014(d)(1). E:\FR\FM\12NON1.SGM 12NON1 69490 Federal Register / Vol. 75, No. 218 / Friday, November 12, 2010 / Notices mstockstill on DSKH9S0YB1PROD with NOTICES member’s ISP-designated ports and actually executed (at least partially) in the Nasdaq Market Center. If in a given month this ratio is 10 or higher for a given member (usually because the member cancelled a large portion of the orders placed), then the member would not receive ISP credit for that month. In calculating the ratio, NASDAQ will exclude pegged, odd-lot and System Hours and Market Hours Immediate-orCancel orders,11 and will not doublecount in the event of multiple partial executions of a single order. The rule sets 10 million shares daily on average as the minimum qualifying volume of shares in executed liquidityproviding orders entered from a member’s ISP-designated ports. This is done to attract firms with substantive amounts or retail and institutional order flow that may provide such targeted liquidity to NASDAQ. If, in a given month, this daily average is lower than 10 million shares, the member would not qualify for ISP credit. It is expected that both the execution ratio and the volume minimum would serve to encourage members to enter orders that are likely to be executed. 2. Statutory Basis NASDAQ believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,12 in general, and with Sections 6(b)(4) and 6(b)(5) of the Act,13 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 it is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market, and, in general, to protect investors and the public interest. The rule change establishes a program that enables NASDAQ members to earn a monthly fee credit for increasing the NASDAQtraded volume of what are generally retail and institutional investor orders in exchange-traded securities. The goal of the program is to encourage members to enter such orders in the Nasdaq Market Center. While the program distinguishes among orders, such distinctions ‘‘are not designed to permit unfair discrimination’’ 14 but, rather, are intended to promote submission of liquidity-providing orders to NASDAQ, 11 See Nasdaq Rule 4751(f)(4), (g)(3) and (h)(1) and (5). 12 15 U.S.C. 78f. 13 15 U.S.C. 78f(b)(4) and (5). 14 See Section 6(b)(5) of the Act, 15 U.S.C. 78f(b)(5). VerDate Mar<15>2010 17:23 Nov 10, 2010 Jkt 223001 which would benefit all NASDAQ members and all investors. Maintaining and increasing the proportion of retail and institutional orders in exchangelisted securities executed on a registered national securities exchange (rather than relying on any of the available offexchange execution methods) would help raise investors’ confidence in the fairness of their transactions and would benefit all investors by deepening NASDAQ’s liquidity pool, supporting the quality of price discovery, promoting market transparency and improving investor protection. Furthermore, setting a minimum monthly volume of eligible ISP orders as a condition for any fee credit eligibility (and therefore establishing a minimum threshold amount for any monthly credit) is not designed to discriminate unfairly, but rather to attract targeted retail and institutional investor liquidity. Likewise, the program is consistent with the Act’s requirement ‘‘for the equitable allocation of reasonable dues, fees, and other charges.’’ 15 As explained in the immediately preceding paragraphs, members who choose to increase the volume of ISP-eligible liquidityproviding orders that they submit to NASDAQ would be benefitting all investors, and therefore an additional credit, as contemplated in the proposed program, is equitable. Finally, NASDAQ notes that the intense competition among several national securities exchanges and numerous OTC venues effectively guarantees that fees and credits for the execution of trades in NMS securities remain equitable and are not unfairly discriminatory.16 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. 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 15 See Section 6(b)(4) of the Act, 15 U.S.C. 78f(b)(4). 16 See, e.g., Concept Release (discusses the various venues where trades are executed). PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 19(b)(3)(A)(ii) of the Act.17 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. 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 (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–NASDAQ–2010–141 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NASDAQ–2010–141. This file number should be included on the subject line if e-mail 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 (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, 18 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, on official business days between the hours of 10 a.m. and 17 15 U.S.C. 78s(b)(3)(a)(ii). text of the proposed rule change is available on the Commission’s Web site at https:// www.sec.gov/rules/sro.shtml. 18 The E:\FR\FM\12NON1.SGM 12NON1 Federal Register / Vol. 75, No. 218 / Friday, November 12, 2010 / Notices 3 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–2010–141 and should be submitted on or before December 3, 2010. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.19 Florence E. Harmon, Deputy Secretary. [FR Doc. 2010–28545 Filed 11–10–10; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–63266; File No. SR–NYSE– 2010–67] Self-Regulatory Organizations; Order Approving Proposed Rule Change by New York Stock Exchange LLC Changing the NYBX Order Execution Sequence November 5, 2010. I. Introduction On September 9, 2010, the New York Stock Exchange LLC (‘‘Exchange’’ or ‘‘NYSE’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a proposed rule change, pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 to change the execution of algorithm of the New York Block Exchange (‘‘NYBX’’ or the ‘‘Facility’’), an electronic trading facility of the NYSE. The proposed rule change was published for comment in the Federal Register on September 24, 2010.3 The Commission received no comments on the proposal. This order approves the proposed rule change. II. Description of the Proposal mstockstill on DSKH9S0YB1PROD with NOTICES The NYBX is an electronic facility of the Exchange for the trading of undisplayed orders in NYSE-listed securities.4 NYSE Rule 1600 governs the operation of the NYBX. 19 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 62955 (September 20, 2010), 75 FR 58456 (‘‘Notice’’). 4 See Securities Exchange Act Release No. 59282 (January 22, 2009), 74 FR 5009 (January 28, 2009) (NYSE–2008–119). 1 15 VerDate Mar<15>2010 17:23 Nov 10, 2010 Jkt 223001 When an order enters the Facility, the Facility scans its own book, the NYSE’s Display Book (‘‘DBK’’) (both displayed and undisplayed orders), and the protected quotations of automated trading centers to identify marketable contraside interest.5 Following this review, if marketable contraside interest exists and the applicable minimum triggering volume threshold of the incoming order is met, the Facility will commence a sequential process for executing the incoming order. As part of this process, the full remaining size of the incoming order will be routed back and forth between the Facility and the DBK at each price point, even though only a small portion of the order might be filled at a particular price point. This ‘‘oversizing’’ allows any CCS interest in the DBK, which the Facility is not aware of, to be triggered at each price point. During the sequential routing process, portions of the incoming order will be routed away to hit protected quotations of automated trading centers as necessary to avoid trade throughs. The NYSE proposes to change the order execution method from the current sequential, ‘‘oversizing’’ process to a simultaneous process. When a market evaluation indicates that sufficient marketable liquidity exists to meet the incoming order’s minimum trading volume threshold, the Facility will divide the incoming order into separate orders that will be routed simultaneously to execute against marketable contraside liquidity in the DBK and/or other automated trading centers up to the price of the incoming order. The orders routed to the DBK will no longer be oversized. The remainder of the original order will execute, to the extent possible, against contraside interest in the Facility at the same or better prices. Using this approach, any orders sent by the Facility to the DBK would not trigger any CCS interest. In addition, the Exchange is proposing to amend the Facility’s order-routing algorithm to route away to hit the protected quotations of automated trading centers even in some cases where it would not be necessary to do so to avoid a trade through.6 The Exchange states that the proposal is designed to allow a NYBX order to better capture the available contra side liquidity revealed during the Facility’s initial market evaluation. According to the NYSE, some NYBX orders currently are not able to execute against available contra side liquidity, because of ‘‘the disappearance or the adjustment of a substantial portion of the available 5 See 6 See PO 00000 NYSE Rule 1600(d)(1)(B). proposed NYSE Rule 1600(d)(1)(C)(iii). Frm 00096 Fmt 4703 Sfmt 9990 69491 contra side liquidity that shows up on the initial market evaluation, before the NYBX order is able to execute against that liquidity.’’ 7 III. Discussion After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder are applicable to a national securities exchange.8 In particular, the Commission believes that the proposed rule change is consistent with Section 6(b)(5) of the Act,9 which requires, among other things, that an exchange have rules designed 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. The Commission believes that the proposal is reasonably designed to increase the fill rates of NYBX orders in a manner consistent with Regulation NMS, by capturing a higher percentage of the marketable contra side liquidity that may be available for execution, as revealed by the Facility’s initial market evaluation. The proposal should also benefit market participants whose orders are displayed at automated trading centers, by increasing their fill rates against NYBX orders. Accordingly, the Commission finds that the proposal is reasonably designed to remove impediments to and perfect the mechanism of a free and open market and a national market system, and is also consistent with the protection of investors and the public interest. IV. Conclusion It is therefore ordered, that pursuant to Section 19(b)(2) of the Act,10 that the proposed rule change (SR–NYSE–2010– 67) be, and it hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.11 Florence E. Harmon, Deputy Secretary. [FR Doc. 2010–28542 Filed 11–10–10; 8:45 am] BILLING CODE 8011–01–P 7 See Notice, supra note 3. approving the proposed rule change, the Commission has considered its impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 9 15 U.S.C. 78f(b)(5). 10 15 U.S.C. 78s(b)(2). 11 17 CFR 200.30–3(a)(12). 8 In E:\FR\FM\12NON1.SGM 12NON1

Agencies

[Federal Register Volume 75, Number 218 (Friday, November 12, 2010)]
[Notices]
[Pages 69489-69491]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-28545]



[[Page 69489]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63270; File No. SR-NASDAQ-2010-141]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Add New Rule 7014 To Enable NASDAQ Members To Qualify for a Monthly Fee 
Credit

November 8, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on October 26, 2010, The NASDAQ Stock Market LLC (``NASDAQ'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``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.
---------------------------------------------------------------------------

    \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 add new Rule 7014 (Investor Support Program) to 
enable NASDAQ members to qualify for a monthly fee credit.
    The text of the proposed rule change is available at https://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. The 
text of these statements may be examined at the places specified in 
Item III below, and is set forth in Sections A, B, and C below. NASDAQ 
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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    NASDAQ is adding new Rule 7014 to establish an Investor Support 
Program (``ISP''), which would enable NASDAQ members to earn a monthly 
fee credit for providing additional liquidity to NASDAQ and increasing 
the NASDAQ-traded volume of what are generally considered to be retail 
and institutional investor orders in exchange-traded securities.\3\ The 
goal of the ISP is to incentivize members to provide such targeted 
liquidity to the Nasdaq Market Center.\4\ Maintaining and increasing 
the proportion of orders in exchange-listed securities executed on a 
registered exchange (rather than relying on any of the available off-
exchange execution methods) \5\ would help raise investors' confidence 
in the fairness of their transactions and would benefit all investors 
by deepening NASDAQ's liquidity pool, supporting the quality of price 
discovery, promoting market transparency and improving investor 
protection.\6\
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    \3\ The liquidity would, as discussed below, emanate from 
members that have a low order to execution ratio.
    \4\ The Commission has recently expressed its concern that a 
significant percentage of the orders of individual investors are 
executed at over the counter (``OTC'') markets, that is, at off-
exchange markets; and that a significant percentage of the orders of 
institutional investors are executed in dark pools. Securities 
Exchange Act Release No. 61358 (January 14, 2010), 75 FR 3594 
(January 21, 2010) (Concept Release on Equity Market Structure, 
``Concept Release''). See also Mary L. Schapiro, Strengthening Our 
Equity Market Structure (Speech at the Economic Club of New York, 
Sept. 7, 2010) (``Schapiro Speech,'' available on the Commission Web 
site) (comments of Commission Chairman on what she viewed as a 
troubling trend of reduced participation in the equity markets by 
individual investors).
    \5\ In the January 2010 Concept Release, the Commission noted 
that dark pools and internalizing broker-dealers executed 
approximately 25.4% of share volume. See Concept Release, Figure 6. 
In her September 2010 speech, Chairman Schapiro referenced that 
figure and the fact that it continued to grow: ``today, nearly 30 
percent of volume in U.S.-listed equities is executed in venues that 
do not display their liquidity or make it generally available to the 
public. The percentage executed by these dark, non-public markets is 
increasing nearly every month.'' Schapiro Speech.
    \6\ The Commission has recognized the strong policy preference 
under the Act in favor of price transparency and displayed markets. 
The Commission published the Concept Release to invite public 
comment on a wide range of market structure issues, including high 
frequency trading and un-displayed, or ``dark,'' liquidity. See 
Concept Release. Moreover, Chairman Schapiro identified ``two 
concerns that go to the core of our equity market structure: First, 
whether the quality of price discovery has declined, and second, 
whether these changes in our market structure could undermine the 
fair and level playing field essential to investor protection, 
capital formation and vibrant capital markets generally.'' Schapiro 
Speech.
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    The first step for a NASDAQ member wishing to participate in the 
ISP is to designate one or more of its NASDAQ ports for ISP use.\7\ 
Orders entered through ISP-designated ports will be used for ISP credit 
calculations.
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    \7\ Subsequent to initial port designation, a member may add or 
remove designated ports for ISP use no later than the first trading 
day of the month when the desired change is to become effective.
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    Subsection (b) of Rule 7014 describes how the ISP credit will be 
calculated. The ISP credit formula provides for a monthly credit of 3 
cents per 100 shares of displayed liquidity provided through an ISP-
designated port to the extent that such liquidity results in an 
increase (compared with August 2010) in the overall level of liquidity 
that the member provides to NASDAQ measured as a proportion of the 
consolidated share volume traded by all market participants across all 
trading venues. To this end, a member's ``Baseline Participation 
Ratio'' is determined by measuring the number of shares in liquidity-
providing orders entered by the member (through any NASDAQ port) and 
executed on NASDAQ and dividing this number by the consolidated (across 
all trading venues) share volume of System Securities \8\ traded in 
August 2010.\9\ To determine whether a member added liquidity to NASDAQ 
in a given month, NASDAQ would perform the same calculation on a 
monthly basis for the then-current month and compare the resulting 
ratio to the Baseline Participation Ratio. If the member's then-current 
month's ratio is higher than the Baseline Participation Ratio, then the 
member's ``Added Liquidity'' for that month would be calculated by 
multiplying the difference between the two ratios by such month's 
consolidated average daily share volume of System Securities traded 
across all venues (if the result is a negative number, then Added 
Liquidity would be deemed zero).\10\ To determine the amount of the ISP 
credit, NASDAQ would multiply $0.0003 by the lower of: (1) The number 
of shares of displayed liquidity provided in orders entered by the 
member thorough its ISP-designated ports and executed in the Nasdaq 
Market Center during the given month, or (2) the amount of Added 
Liquidity for the given month. Any ISP credit issued pursuant to Rule 
7014 will be in addition to (and will not replace) any other credit or 
rebate for which a member may qualify.
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    \8\ The term ``System Securities'' is defined as all securities 
listed on NASDAQ and all securities subject to the Consolidated Tape 
Association Plan and the Consolidated Quotation Plan. Rule 4751(b).
    \9\ See Proposed Rule 7014(d)(2).
    \10\ See Proposed Rule 7014(d)(1).
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    Subsection (c) contains requirements designed to limit ISP credit 
eligibility to targeted orders. This is accomplished by establishing a 
maximum ratio (set at 10) of (i) liquidity-providing orders placed from 
all of given member's ISP-designated ports to (ii) liquidity-providing 
orders placed from such

[[Page 69490]]

member's ISP-designated ports and actually executed (at least 
partially) in the Nasdaq Market Center. If in a given month this ratio 
is 10 or higher for a given member (usually because the member 
cancelled a large portion of the orders placed), then the member would 
not receive ISP credit for that month. In calculating the ratio, NASDAQ 
will exclude pegged, odd-lot and System Hours and Market Hours 
Immediate-or-Cancel orders,\11\ and will not double-count in the event 
of multiple partial executions of a single order.
---------------------------------------------------------------------------

    \11\ See Nasdaq Rule 4751(f)(4), (g)(3) and (h)(1) and (5).
---------------------------------------------------------------------------

    The rule sets 10 million shares daily on average as the minimum 
qualifying volume of shares in executed liquidity-providing orders 
entered from a member's ISP-designated ports. This is done to attract 
firms with substantive amounts or retail and institutional order flow 
that may provide such targeted liquidity to NASDAQ. If, in a given 
month, this daily average is lower than 10 million shares, the member 
would not qualify for ISP credit. It is expected that both the 
execution ratio and the volume minimum would serve to encourage members 
to enter orders that are likely to be executed.
2. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\12\ in general, and with 
Sections 6(b)(4) and 6(b)(5) of the Act,\13\ 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 it is 
designed to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market, 
and, in general, to protect investors and the public interest. The rule 
change establishes a program that enables NASDAQ members to earn a 
monthly fee credit for increasing the NASDAQ-traded volume of what are 
generally retail and institutional investor orders in exchange-traded 
securities. The goal of the program is to encourage members to enter 
such orders in the Nasdaq Market Center.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78f.
    \13\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    While the program distinguishes among orders, such distinctions 
``are not designed to permit unfair discrimination'' \14\ but, rather, 
are intended to promote submission of liquidity-providing orders to 
NASDAQ, which would benefit all NASDAQ members and all investors. 
Maintaining and increasing the proportion of retail and institutional 
orders in exchange-listed securities executed on a registered national 
securities exchange (rather than relying on any of the available off-
exchange execution methods) would help raise investors' confidence in 
the fairness of their transactions and would benefit all investors by 
deepening NASDAQ's liquidity pool, supporting the quality of price 
discovery, promoting market transparency and improving investor 
protection.
---------------------------------------------------------------------------

    \14\ See Section 6(b)(5) of the Act, 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Furthermore, setting a minimum monthly volume of eligible ISP 
orders as a condition for any fee credit eligibility (and therefore 
establishing a minimum threshold amount for any monthly credit) is not 
designed to discriminate unfairly, but rather to attract targeted 
retail and institutional investor liquidity. Likewise, the program is 
consistent with the Act's requirement ``for the equitable allocation of 
reasonable dues, fees, and other charges.'' \15\ As explained in the 
immediately preceding paragraphs, members who choose to increase the 
volume of ISP-eligible liquidity-providing orders that they submit to 
NASDAQ would be benefitting all investors, and therefore an additional 
credit, as contemplated in the proposed program, is equitable.
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    \15\ See Section 6(b)(4) of the Act, 15 U.S.C. 78f(b)(4).
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    Finally, NASDAQ notes that the intense competition among several 
national securities exchanges and numerous OTC venues effectively 
guarantees that fees and credits for the execution of trades in NMS 
securities remain equitable and are not unfairly discriminatory.\16\
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    \16\ See, e.g., Concept Release (discusses the various venues 
where trades are executed).
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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.

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.\17\ 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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    \17\ 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2010-141 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2010-141. This 
file number should be included on the subject line if e-mail 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 (https://www.sec.gov/rules/sro.shtml). Copies of the submission, \18\ 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, on official business days between the hours of 10 a.m. 
and

[[Page 69491]]

3 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-2010-141 and should be submitted 
on or before December 3, 2010.
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    \18\ The text of the proposed rule change is available on the 
Commission's Web site at https://www.sec.gov/rules/sro.shtml.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-28545 Filed 11-10-10; 8:45 am]
BILLING CODE 8011-01-P
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