Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify NASDAQ's Investor Support Program, Offer an Additional Liquidity Provider Credit Through a Pre-Market Investor Program, and Make Other Changes to Pricing for Members Using the NASDAQ Market Center, 70784-70788 [2011-29442]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 76, Number 220 (Tuesday, November 15, 2011)]
[Notices]
[Pages 70784-70788]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-29442]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65717; File No. SR-NASDAQ-2011-150]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Modify NASDAQ's Investor Support Program, Offer an Additional Liquidity 
Provider Credit Through a Pre-Market Investor Program, and Make Other 
Changes to Pricing for Members Using the NASDAQ Market Center

November 9, 2011.
    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, 2011, The NASDAQ Stock Market LLC (``NASDAQ'') 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 NASDAQ. 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

    NASDAQ proposes to modify its Investor Support Program, offer an 
additional liquidity provider credit through a pre-market investor 
program, and make other changes to pricing for NASDAQ members using the 
NASDAQ Market Center. NASDAQ will implement the proposed change on 
November 1, 2011. 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 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. 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
The Investor Support Program
    The Exchange is proposing changes to the credit provisions of Rule 
7014 to modify the structure of its Investor Support Program. The ISP 
enables 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 (``targeted 
liquidity'').\3\ The goal of the ISP is to incentivize members to 
provide such targeted liquidity to the NASDAQ Market Center.\4\ The 
Exchange noted in the ISP Filing that 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) 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.
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    \3\ For a detailed description of the Investor Support Program 
as originally implemented, see Securities Exchange Act Release No. 
63270 (November 8, 2010), 75 FR 69489 (November 12, 2010) (NASDAQ-
2010-141) (notice of filing and immediate effectiveness) (the ``ISP 
Filing''). See also Securities Exchange Act Release Nos. 63414 
(December 2, 2010), 75 FR 76505 (December 8, 2010) (NASDAQ-2010-153) 
(notice of filing and immediate effectiveness); 63628 (January 3, 
2011), 76 FR 1201 (January 7, 2011) (NASDAQ-2010-154) (notice of 
filing and immediate effectiveness); 63891 (February 11, 2011), 76 
FR 9384 (February 17, 2011) (NASDAQ-2011-022) (notice of filing and 
immediate effectiveness); and 64050 (March 8, 2011), 76 FR 13694 
(March 14, 2011) (SR-NASDAQ-2011-034).
    \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''). In the Concept Release, 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 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, and that 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).
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    The Exchange now proposes modifications to the ISP designed to 
broaden participation by members with targeted liquidity and create a 
clearer incentive structure. First, NASDAQ is modifying the definition 
of ``Baseline Participation Ratio'' to allow a greater number of 
members to participate in the program. In general terms, the Baseline 
Participation Ratio is the ratio of shares of liquidity provided by the 
member in NASDAQ for the month of August 2010 to the total consolidated 
volume for that month. To the extent that a member's participation in 
NASDAQ exceeds its Baseline Participation Ratio (i.e., to the extent 
that the member increases its participation in NASDAQ above August 2010 
levels), the member may be eligible for the program.\5\ The current 
definition of Baseline Participation Ratio is ``with respect to a 
member, such member's Participation Ratio \6\ for the

[[Page 70785]]

month of August 2010, provided that in calculating the August 2010 
Participation Ratio, the numerator shall be increased by the amount (if 
any) of the member's August 2010 Indirect Order Flow,\7\ and provided 
further that if the result is zero, the Baseline Participation Ratio 
shall be deemed to be 0.485% (when rounded to three decimal places).''
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    \5\ As discussed below, the ISP is being modified such that 
participation must equal or exceed past levels.
    \6\ The term ``Participation Ratio'' is defined as: ``for a 
given member in a given month, the ratio of (A) The number of shares 
of liquidity provided in orders entered by the member through any of 
its Nasdaq ports and executed in the Nasdaq Market Center during 
such month to (B) the Consolidated Volume.'' The term ``Consolidated 
Volume'' is defined as: ``for a given member in a given month, the 
consolidated volume of shares of System Securities in executed 
orders reported to all consolidated transaction reporting plans by 
all exchanges and trade reporting facilities during such month.'' 
The term ``System Securities'' is defined in Rule 4751(b) as: ``all 
securities listed on NASDAQ and all securities subject to the 
Consolidated Tape Association Plan and the Consolidated Quotation 
Plan.''
    \7\ The term ``Indirect Order Flow'' is defined as: ``for a 
given member in a given month, the number of shares of liquidity 
provided in orders entered into the Nasdaq Market Center at the 
member's direction by another member with minimal substantive 
intermediation by such other member and executed in the Nasdaq 
Market Center during such month.'' Thus, the term allows a member to 
include orders that it entered through another member in calculating 
the baseline.
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    NASDAQ is proposing to modify the definition to allow a member's 
Baseline Participation Ratio to be based on the lower of its 
Participation Ratio for August 2010 or August 2011. Thus, to the extent 
that a member's participation in the ISP was limited by having a high 
Participation Ratio in August 2010, the member might have greater 
eligibility to participate to the extent that its Participation Ratio 
was lower in August 2011 than in August 2010. On the other hand, a 
current participant with a low ratio in August 2010 would be eligible 
to continue to participate based on that ratio. The revised definition 
will read as follows: ``with respect to a member, the lower of such 
member's Participation Ratio for the month of August 2010 or the month 
of August 2011, provided that in calculating such Participation Ratios, 
the numerator shall be increased by the amount (if any) of the member's 
Indirect Order Flow for such month, and provided further that if the 
result is zero for either month, the Baseline Participation Ratio shall 
be deemed to be 0.485% (when rounded to three decimal places).''
    Second, NASDAQ is proposing to allow a member that is eligible to 
participate in the ISP to receive a credit with respect to all of the 
displayed liquidity that it provides through NASDAQ, not merely 
liquidity provided above the level of the Baseline Participation Ratio, 
as is currently the case. However, because a credit will be provided 
with respect to more shares, the level of the credit will be lowered in 
some cases.
    Currently, a member that participates in the ISP program receives a 
credit of $0.0003, $0.0004, or $0.0005 per share with respect to the 
lower of (i) The number of shares of displayed liquidity provided by 
the member through ports designated for ISP use that execute at $1 or 
more per share; \8\ or (ii) the member's ``Added Liquidity,'' which is 
a measure of the extent to which the member's participation in the 
market exceeds its Baseline Participation Ratio.\9\ The precise credit 
rate--$0.0003, $0.0004, or $0.0005 per share--is determined by factors 
designed to measure the degree of the member's participation in the 
Nasdaq Market Center and the percentage of orders that it enters that 
execute--its ``ISP Execution Ratio''--which is seen as indicative of 
retail or institutional participation. Under the proposed change, a 
credit will be paid with respect to all displayed liquidity- providing 
orders that execute at a price of $1 or more, provided the member 
satisfies the criteria described below, which are likewise designed to 
be indicative of retail or institutional participation. The rates of 
the credit vary based on criteria similar to those currently in use.
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    \8\ A participant in the ISP must designate specific order-entry 
ports for use in tabulating certain requirements under the program.
    \9\ Specifically, ``Added Liquidity'' is defined as: ``for a 
given member in a given month, the number of shares calculated by 
(i) Subtracting from such member's Participation Ratio for that 
month the member's Baseline Participation Ratio, and the (ii) 
multiplying the resulting difference by the average daily 
Consolidated Volume; provided that if the result is a negative 
number, the Added Liquidity amount shall be deemed zero.''
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    Under the revised program, NASDAQ will pay a credit of $0.0001 per 
share with respect to all of a member's displayed liquidity-providing 
orders that execute at a price of $1 or more per share during the month 
if the following conditions are met:
    (1) The member's Participation Ratio for the month is equal to or 
greater than its Baseline Participation Ratio. Thus, the percentage of 
Consolidated Volume represented by the member's liquidity-providing 
orders must be equal to or greater than the member's percentage in 
either August 2010 or August 2011. The requirement reflects the 
expectation that a member participating in the program must maintain or 
increase its participation in NASDAQ as compared with an historical 
baseline.
    (2) As is currently the case, the member's ``ISP Execution Ratio'' 
for the month must be less than 10.\10\ The ISP Execution Ratio is 
defined as ``the ratio of (A) The total number of liquidity-providing 
orders entered by a member through its ISP-designated ports during the 
specified time period to (B) the number of liquidity-providing orders 
entered by such member through its ISP-designated ports and executed 
(in full or partially) in the Nasdaq Market Center during such time 
period; provided that: (i) No order shall be counted as executed more 
than once; (ii) no Pegged Orders, odd-lot orders, or MIOC or SIOC 
orders shall be included in the tabulation; \11\ and (iii) no order 
shall be included in the tabulation if it executes but does not add 
liquidity.'' \12\ Thus, the definition requires a ratio between the 
total number of orders that post to the NASDAQ book and the number of 
such orders that actually execute that is low, a characteristic that 
NASDAQ believes to be reflective of retail and institutional order 
flow.
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    \10\ Under the current provisions of Rule 7014(c), it is stated 
that a member may not participate in the ISP if its ISP Execution 
Ratio is 10 or above. Under the revised rule, it is stated that a 
member may participate in the ISP if its ISP Execution Ratio is less 
than 10. The change is intended to promote the clarity of the rule, 
but is not a substantive change.
    \11\ These terms have the meanings assigned to them in Rule 
4751. MIOC and SIOC orders are forms of ``immediate or cancel'' 
orders and therefore cannot be liquidity-providing orders.
    \12\ Clause (iii) of the definition is redundant, since all 
orders that do not provide liquidity are otherwise excluded by the 
remainder of the definition. Accordingly, NASDAQ is also proposing 
to delete the clause.
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    (3) The shares of liquidity provided through ISP-designated ports 
during the month are equal to or greater than 0.2% of Consolidated 
Volume during the month. This requirement replaces a provision 
stipulating that a participant's liquidity provision through ISP-
designated ports may not average less than 10 million shares per day. 
The requirements are generally comparable, in that they require a 
certain base level of usage of ISP ports. However, because the new 
requirement is based on a percentage of Consolidated Volume, rather 
than an absolute amount of shares, it adjusts to reflect changes in 
market volumes from month to month.
    (4) At least 25% of the liquidity provided by the member during the 
month is provided through ISP-designated ports. This new requirement is 
designed to mitigate ``gaming'' of the program by firms that do not 
generally represent retail or institutional order flow but that 
nevertheless are able to channel a portion of their orders that they 
intend to execute through ISP-designated ports and thereby receive a 
credit with respect to those orders. Because, under the modified 
program, an ISP credit will be paid with respect to all liquidity-
providing orders, the change is especially important to insure that the 
program remains focused on its purpose of encouraging greater

[[Page 70786]]

participation in NASDAQ by retail and institutional investors.
    Alternatively, NASDAQ will pay a credit of $0.0003 per share with 
respect to shares of displayed liquidity executed at a price of $1 or 
more and entered through ISP-designated ports, and $0.0001 per share 
with respect to all other shares of displayed liquidity executed at a 
price of $1 or more, if the following conditions are met:
    (1) The member's Participation Ratio for the month exceeds its 
Baseline Participation Ratio by at least 0.43%.\13\
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    \13\ Under the current provisions of Rule 7014(c), it is stated 
that a member may not receive a higher credit at currently specified 
rates if the member does not exceed its Baseline Participation Ratio 
by at least 0.43%. Under the revised rule, it is stated that a 
member may receive a credit at the $0.0003 rate if the member 
exceeds its Baseline Participation Ratio by at least 0.43%. The 
change is intended to promote the clarity of the rule, but is not a 
substantive change.
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    (2) As is currently the case, the member's ``ISP Execution Ratio'' 
for the month must be less than 10.
    (3) The shares of liquidity provided through ISP-designated ports 
during the month are equal to or greater than 0.2% of Consolidated 
Volume during the month.
    (4) At least 40% of the liquidity provided by the member during the 
month is provided through ISP-designated ports. Thus, the higher credit 
requires that a greater percentage of the member's order flow has 
execution ratio characteristics associated with retail and 
institutional order flow.
    Finally, NASDAQ will pay a credit of $0.0004 per share with respect 
to shares of displayed liquidity executed at a price of $1 or more and 
entered through ISP-designated ports, and $0.0001 per share with 
respect to all other shares of displayed liquidity executed at a price 
of $1 or more, if the following conditions are met:
    (1) The member's Participation Ratio for the month exceeds its 
Baseline Participation Ratio by at least 0.86%.\14\
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    \14\ Under the current provisions of Rule 7014(c), it is stated 
that a member may not receive a higher credit at currently specified 
rates if the member does not exceed its Baseline Participation Ratio 
by at least 0.86%. Under the revised rule, it is stated that a 
member may receive a credit at the $0.0004 rate if the member 
exceeds its Baseline Participation Ratio by at least 0.86%. The 
change is intended to promote the clarity of the rule, but is not a 
substantive change.
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    (2) As is currently the case, the member's ``ISP Execution Ratio'' 
for the month must be less than 10.
    (3) The shares of liquidity provided through ISP-designated ports 
during the month are equal to or greater than 0.2% of Consolidated 
Volume during the month.
    (4) At least 40% of the liquidity provided by the member during the 
month is provided through ISP-designated ports.
    Because the program will now pay eligible participants with respect 
to all liquidity provided, rather than only with respect to liquidity 
added in excess of the Baseline Participation Ratio, the definition of 
``Added Liquidity'' is being deleted. In addition, under the current 
program, a member may add or remove the designation of a port for ISP 
use for a given month, provided the member provides notice to NASDAQ by 
the first day of the month. This provision will remain in effect for a 
member's existing ports. However, if a member adds a new port and 
designates it for ISP use, the designation of that port will take 
effect immediately, even if it occurs in the middle of the month. The 
existing provision ensures that members and NASDAQ will not be required 
to prorate order flow for the purpose of making the calculations 
required under the program. In the case of a new port, however, all of 
the order flow under the designated port during the course of the month 
can be counted without having to remove flow from days prior to the 
designation.
Pre-Market Investor Program
    NASDAQ is introducing a Pre-Market Investor Program (the ``PMI 
program'') to encourage greater use of NASDAQ's facilities for trading 
before the market open at 9:30 a.m. and through the trading day. The 
goal of the PMI is to encourage the development of a deeper, more 
liquid trading book during pre-market hours, while also recognizing the 
correlation observed by NASDAQ between levels of liquidity provided 
during pre-market hours and levels provided during regular trading 
hours. Under the program, a member will be required to designate one or 
more market participant identifiers (``MPIDs'') for use under the 
program.\15\ The member will then qualify for an extra rebate of 
$0.0001 per share with respect to all of displayed liquidity provided 
through a designated MPID that executes at a price of $1 or more during 
the month if the following conditions are met:
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    \15\ Similar to the ISP, after the initial designation of Nasdaq 
MPIDs for PMI use, a member may add or remove such PMI designations 
for existing MPIDs, provided that Nasdaq must be appropriately 
notified of such a change on or before the first trading day of the 
month when the change is to become effective. A newly established 
MPID may be designated for PMI use immediately upon establishment.
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    (1) The MPID's ``PMI Execution Ratio'' for the month is less than 
10. Similar to the ISP Execution Ratio, the PMI Execution Ratio is 
defined as ``the ratio of (A) The total number of liquidity-providing 
orders entered by a member through a PMI-designated MPID during the 
specified time period to (B) the number of liquidity-providing orders 
entered by such member through such PMI-designated MPID and executed 
(in full or partially) in the Nasdaq Market Center during such time 
period; provided that: (i) No order shall be counted as executed more 
than once; and (ii) no Pegged Orders, odd-lot orders, or MIOC or SIOC 
orders shall be included in the tabulation.'' Thus, the requirement 
stipulates that a high proportion of potentially liquidity-providing 
orders entered through the MPID actually execute and provide liquidity. 
Similar to the ISP, this requirement is designed to focus the 
availability of the program on members representing retail and 
institutional customers.
    (2) The member provides an average daily volume of 2 million or 
more shares of liquidity during the month using orders that are 
executed prior to NASDAQ's Opening Cross. NASDAQ has observed that 
members that provide higher volumes of liquidity-providing orders 
during the pre-market hours generally do so throughout the rest of the 
trading day. Accordingly, the PMI pays a credit with respect to all 
liquidity-providing orders, but only in the event that comparatively 
large volumes of such orders execute in pre-market hours.
    (3) The ratio between shares of liquidity provided through the MPID 
and total shares accessed, provided, or routed through the MPID during 
the month is at least 0.80. This requirement reflects the PMI's goal of 
encouraging members that provide high levels of liquidity in pre-market 
hours to also do so during the rest of the trading day.
    The new program is similar to a fee provision of the EDGX Exchange 
under which a favorable execution fee and rebate are offered to members 
that add or route an average of more than 4 million shares of liquidity 
during pre-market and/or post-market hours.\16\
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    \16\ https://www.directedge.com/Membership/FeeSchedule/EDGXFeeSchedule.aspx.
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Change in Rule 7018 Rebate Provisions
    NASDAQ is making a minor modification to its fee and credit 
schedule for transaction executions in Rule 7018(a) \17\ to broaden the 
conditions under which a member may qualify for a liquidity provider 
rebate of $0.0025 per share executed with respect to displayed 
liquidity (and $0.0010 per

[[Page 70787]]

share executed with respect to non-displayed liquidity). Currently, a 
member qualifies for this rebate tier if:
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    \17\ Rule 7018(a) applies to executions at $1 or more per share.
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    (1) It has an average daily volume in all securities of more than 
20 million shares of liquidity provided through one or more of its 
Nasdaq Market Center MPIDs;
    (2) It accesses shares of liquidity in all securities through one 
or more of its Nasdaq Market Center MPIDs representing more than 0.45% 
of the Consolidated Volume during the month; provided that the member 
also provides a daily average of at least 2 million shares of liquidity 
in all securities through one or more of its Nasdaq Market Center MPIDs 
during the month; or
    (3) The member has (i) Shares of liquidity provided in all 
securities during the month representing more than 0.10% of the 
Consolidated Volume during the month, through one or more of its Nasdaq 
Market Center MPIDs, and (ii) an average daily volume during the month 
of more than 115,000 contracts of liquidity accessed or provided 
through one or more of its Nasdaq Options Market MPIDs.
    In addition to these methods of achieving this rebate tier, NASDAQ 
will also make the tier available to a member that (i) Provides 
liquidity through one or more MPIDs representing 0.10% of the 
Consolidated Volume during the month; and (ii) accesses shares of 
liquidity representing more than 0.20% of the Consolidated Volume 
during the month.
Housekeeping Changes
    NASDAQ is also making a few ``housekeeping'' changes to the fee 
rules. Specifically, NASDAQ is deleting rule language that governed a 
pilot ``attributable market provider program,'' which, by its terms, 
expired on September 30, 2011. NASDAQ is also redesignating the 
definition section of Rule 7014 from Rule 7014(d) to Rule 7014(g), to 
allow the insertion of provisions relating to the PMI. NASDAQ is 
renumbering provisions of this definition section to reflect the 
deletion of the definition of ``Added Liquidity'', and is making 
changes to Rule 7014(h) (formerly 7014(e)) to allow NASDAQ to obtain 
information from members with regard to compliance with requirements of 
the PMI (as well as the ISP) and to correct a typographical error. 
NASDAQ is also adding a definition of ``Nasdaq Opening Cross'' to the 
definitions of Rule 7014. Finally, NASDAQ is redesignating clauses in 
the definitions of ISP Execution Ratio and Participation Ratio to 
enhance their clarity, and deleting redundant language from the 
definition of ISP Execution Ratio.
2. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\18\ in general, and with 
Sections 6(b)(4) and 6(b)(5) of the Act,\19\ 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.
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    \18\ 15 U.S.C. 78f.
    \19\ 15 U.S.C. 78f(b)(4) and (5).
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    The ISP encourages members to add targeted liquidity that is 
executed in the NASDAQ Market Center. The primary objective in making 
the enhancements to the ISP reflected in the proposed rule change is to 
add an even greater amount of targeted liquidity to the Exchange. 
Specifically:
    (i) The proposed rule change introduces a requirement that 
participants provide specified percentages of liquidity through ISP-
designated ports. Because ISP-designated ports are required to have a 
low ratio of orders to executions, a characteristic reflective of 
targeted liquidity, the added requirement that a percentage of all of 
the member's provided liquidity comes through such ports provides 
further assurance that ISP participants represent targeted liquidity.
    (ii) The proposed rule change replaces a requirement that liquidity 
provided through ISP-designated ports average at least 10 million 
shares per day with a corresponding requirement that such liquidity 
constitute at least 0.2% of Consolidated Volume. The change is not 
intended to materially impact the scope of the program, but rather to 
allow it to adjust to months with varying market volumes.
    (iii) The change reduces the credit rates payable under the program 
from $0.0003, $0.0004, and $0.0005 to $0.0001, $0.0003, and $0.0004, 
but expands the shares to which the rates apply to include all 
displayed liquidity provided at a price of $1 or more. The change is 
intended to simplify member's calculations of expected credits by 
making them applicable to all shares, but lower the rates to avoid an 
excessive increase in the cost of the program.
    (iv) The change enhances the availability of the program to a wider 
range of members representing targeted liquidity by modifying the 
Baseline Participation Ratio to reflect the lower of a member's 
participation in August 2010 or August 2011. Given the requirement that 
ISP participations must equal or exceed their baseline participation in 
the market, the change will enhance the value of the program to members 
whose market participation was higher in 2010 than in 2011, thereby 
encouraging them to again increase their participation.
    (v) The change enhances the flexibility of the program with respect 
to designation of new ports for ISP use.
    NASDAQ believes that the overall effect of these changes is to 
ensure that the program is focused as carefully as possible on targeted 
liquidity, to ensure that as many firms representing targeted liquidity 
as possible are eligible to participate, and to simplify the 
calculation of such member's credits. The rule change proposal, like 
the original ISP, is not designed to permit unfair discrimination, but 
rather is intended to promote submission of liquidity-providing orders 
to NASDAQ, which benefits all NASDAQ members and all investors. 
Likewise, the proposal, like the ISP, is consistent with the Act's 
requirement for the equitable allocation of reasonable dues, fees, and 
other charges. As explained in the immediately preceding paragraphs, 
the proposal enhances the goal of the ISP. Members who choose to 
significantly increase the volume of ISP-eligible liquidity-providing 
orders that they submit to NASDAQ would be benefitting all investors, 
and therefore providing credits to them, as contemplated in the 
proposed enhanced program, is equitable. Moreover, NASDAQ believes that 
the level of the credit--$0.0001, $0.0003, or $0.0004 per share, in 
addition to credits ranging from $0.0010 to $0.00295 per share under 
NASDAQ regular transaction execution fee and rebate schedule--is 
reasonable.
    The proposed Pre-Market Investor Program is similarly designed to 
attract greater liquidity to NASDAQ, with a particular emphasis on 
encouraging a deeper and more liquid book during pre-market hours and 
recognizing and further encouraging the observed correlation between 
liquidity provision during pre-market hours and throughout the trading 
day. Accordingly, in a manner comparable to the ISP, the PMI will 
provide an additional credit to members that satisfy criteria designed 
to be indicative these patterns of market participation. Thus, a 
participant in the program is required to designate MPIDs with a low 
ratio between orders entered and executions; to provide a specified

[[Page 70788]]

volume of liquidity during pre-market hours; and to maintain a high 
ratio of liquidity provision to order execution throughout the month.
    The PMI, like the ISP, is not unfairly discriminatory because it is 
intended to promote submission of liquidity-providing orders to NASDAQ, 
which benefits all NASDAQ members and all investors. Likewise, the PMI, 
like the ISP, is consistent with the Act's requirement for the 
equitable allocation of reasonable dues, fees, and other charges. 
Members who choose to significantly increase the volume of PMI-eligible 
liquidity-providing orders that they submit to NASDAQ would be 
benefitting all investors, and therefore providing credits to them, as 
contemplated in the proposed enhanced program, is equitable. Moreover, 
NASDAQ believes that the level of the credit--$0.0001 per share, in 
addition to credits ranging from $0.0010 to $0.00295 per share under 
NASDAQ regular transaction execution fee and rebate schedule--is 
reasonable.
    With regard to the additional rebate tier in NASDAQ's transaction 
execution fee and credit schedule, NASDAQ believes that this change is 
reasonable because it will provide an additional means by which members 
may qualify for an enhanced rebate, without eliminating any of the 
existing means of qualifying for the rebate level in question. NASDAQ 
further believes that the change is equitable and non-discriminatory, 
because it is designed to encourage greater levels of liquidity 
provision, which benefits all market participants, and because it is 
open to all market participants on the same terms.
    Finally, NASDAQ notes that it operates in a highly competitive 
market in which market participants can readily favor competing venues 
if they deem fee levels at a particular venue to be excessive, or 
rebate opportunities available at other venues to be more favorable. In 
such an environment, NASDAQ must continually adjust its fees to remain 
competitive with other exchanges and with alternative trading systems 
that have been exempted from compliance with the statutory standards 
applicable to exchanges. NASDAQ believes that all aspects of the 
proposed rule change reflect this competitive environment because the 
changes to the ISP, the PMI, and the additional rebate tier are all 
designed to increase the credits provided to members that enhance 
NASDAQ's market quality through liquidity provision.

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. Because the market 
for order execution is extremely competitive, members may readily opt 
to disfavor NASDAQ's execution services if they believe that 
alternatives offer them better value. For this reason and the reasons 
discussed in connection with the statutory basis for the proposed rule 
change, NASDAQ does not believe that the proposed changes 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 rule 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. 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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    \20\ 15 U.S.C. 78s(b)(3)(a)(ii) [sic].
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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 email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2011-150 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-2011-150. 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 (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of 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-2011-150 and should 
be submitted on or before December 6, 2011.

    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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-29442 Filed 11-14-11; 8:45 am]
BILLING CODE 8011-01-P