Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify the Investor Support Program Under Rule 7014 and To Amend NASDAQ's Schedule of Execution and Routing Fees and Rebates Under Rule 7018, 27256-27260 [2012-11136]
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Federal Register / Vol. 77, No. 90 / Wednesday, May 9, 2012 / Notices
model the single name CDS that causes
the greatest loss when entering a state of
default (i.e., the single name CDS that
results in the greatest amount of loss
when stress-tested). This change
collateralizes the loss that would occur
from the single name CDS that causes
the greatest loss entering a state of
default. Consequently, the amount of
uncollateralized loss that would result
from the three single name CDS
contracts causing the greatest
cumulative losses when entering a state
of default is reduced, thereby reducing
the amount of required guaranty fund
contributions from clearing participants.
ICC represents that the decrease in the
guaranty fund and the increase in initial
margin requirements are not
symmetrical. Instead, based upon
current portfolios, ICC approximates
that for every $1 decrease to the
guaranty fund there will be a
corresponding increase to the initial
margin requirements of approximately
$5.
ICC represents that Modification #2
will make it easier for clearing
participants to evaluate the risk of their
CDS clearing portfolio as measured by
the impact of changing recovery rate
assumptions. ICC is implementing this
by removing the conditional recovery
rate stress-scenarios and adding a new
standalone recovery rate sensitivity
component that is computed by
considering changes in recovery rate
assumptions that impact the net asset
value of the CDS clearing portfolio. ICC
argues that by making it easier for
market participants to measure their
risk, Modification #2 is consistent with
the requirements of Section 17A of the
Act and the rules and regulations
thereunder applicable to it.
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III. Discussion
5 15
U.S.C. 78s(b)(2)(C).
U.S.C. 78q–1(b)(3)(F).
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IV. Conclusion
On the basis of the foregoing, the
Commission finds that the proposal is
consistent with the requirements of the
Act and in particular with the
requirements of Section 17A of the Act 6
and the rules thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,7 that the
proposed rule change (File No. SR–ICC–
2012–03) be, and hereby is, approved.8
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.9
Kevin O’Neill,
Deputy Secretary.
[FR Doc. 2012–11131 Filed 5–8–12; 8:45 am]
BILLING CODE 8011–01–P
Section 19(b)(2)(C) of the Act 4 directs
the Commission to approve a proposed
rule change of a self-regulatory
organization if it finds that such
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder
applicable to such organization. Section
17A(b)(3)(F) of the Act 5 requires, among
other things, that the rules of a clearing
agency be designed to remove
impediments to and perfect the
mechanism of a national system for the
prompt and accurate clearance and
settlement of securities transactions and
to assure the safeguarding of securities
and funds in the custody or control of
4 15
the clearing agency or for which it is
responsible.
Modification #1 will require each
clearing participant to collateralize its
greatest single name CDS exposure that
it creates for other clearing participants.
As such, Modification #1 will require
clearing participants to bear a greater
portion of the loss resulting from their
default and also increases the amount of
risk requirements ICC collects, thereby
assuring the safeguarding of securities
and funds in the custody or control of
ICC or for which it is responsible.
Modification #2 will require ICC to
separately estimate requirements using
various recovery rate assumptions and
improve the ability of clearing
participants to identify the impact of
considering various changes to recovery
rate assumptions on the net asset value
of their CDS clearing portfolios, thereby
removing an impediment to the prompt
and accurate clearance and settlement of
securities transactions.
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–66915; File No. SR–
NASDAQ–2012–053]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Modify the
Investor Support Program Under Rule
7014 and To Amend NASDAQ’s
Schedule of Execution and Routing
Fees and Rebates Under Rule 7018
May 3, 2012.
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 April 25,
2012, The NASDAQ Stock Market LLC
(‘‘NASDAQ’’ or ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
NASDAQ proposes to modify the
Investor Support Program under Rule
7014, and to amend NASDAQ’s
schedule of execution and routing fees
and rebates under Rule 7018. NASDAQ
will implement the proposed change on
May 1, 2012. The text of the proposed
rule change is available at
nasdaq.cchwallstreet.com, at
NASDAQ’s principal office, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
6 15
U.S.C. 78q–1.
U.S.C. 78s(b)(2).
8 In approving the proposed rule change, the
Commission considered the proposal’s impact on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
9 17 CFR 200.30–3(a)(12).
7 15
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In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
NASDAQ is proposing to modify the
ISP under Rule 7014, and to amend
NASDAQ’s schedule of execution and
routing fees and rebates under Rule
7018. As a general matter, the changes
will result in fee increases and rebate
reductions that reflect the persistent
reduction in trading volumes in the U.S.
capital markets.
Investor Support Program
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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’’). The goal of the ISP is to
incentivize members to provide such
targeted liquidity to the NASDAQ
Market Center.3 The Exchange noted in
its original filing to institute the ISP 4
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
3 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).
4 Securities Exchange Act Release No. 63270
(November 8, 2010), 75 FR 69489 (November 12,
2010) (NASDAQ–2010–141) (notice of filing and
immediate effectiveness).
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transparency and improving investor
protection.
Participants in the ISP are required to
designate specific NASDAQ order entry
ports for use under the ISP and to meet
specified criteria focused on market
participation, liquidity provision, and
high rates of order execution. Currently,
a member that participates in the ISP
receives a credit of $0.0001, $0.0003, or
$0.0004 per share with respect to the
number of shares of displayed liquidity
provided by the member that execute at
$1 or more per share.5 The precise
credit rate 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. While making only
minimal changes to the existing criteria
for participation in the ISP, NASDAQ
will reduce the credits paid under the
program to $0.00005, $0.000275, and
$0.000375 respectively. In addition, in
one of existing tiers for the ISP, the
percentage of liquidity that a member is
required to provide through ISPdesignated ports will increase from 25%
to 30%. With these changes, the
requirements for existing ISP tiers, and
the associated credits, will be as
follows:
As provided in Rule 7014(c)(1),
NASDAQ will pay a credit of $0.00005
per share 6 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 7
for the month is equal to or greater than
its Baseline Participation Ratio.8 The
5 A participant in the ISP must designate specific
order-entry ports for use in tabulating certain
requirements under the program.
6 A reduction from $0.0001 per share.
7 ‘‘Participation Ratio’’ is defined as follows:
‘‘[F]or 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.’’ ‘‘Consolidated Volume’’ is defined as
follows: ‘‘[F]or 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.’’ ‘‘System Securities’’ means all securities
listed on NASDAQ and all securities subject to the
Consolidated Tape Association Plan and the
Consolidated Quotation Plan.
8 ‘‘Baseline Participation Ratio’’ is defined as
follows: ‘‘[W]ith 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
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27257
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) The member’s ‘‘ISP Execution
Ratio’’ for the month must be less than
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;
and (ii) no Pegged Orders, odd-lot
orders, or MIOC or SIOC orders shall be
included in the tabulation.’’ 9 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.
(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, reflecting the ISP’s goals of
encouraging higher levels of liquidity
provision.
(4) At least 30% 10 of the liquidity
provided by the member during the
month is provided through ISPdesignated ports. This 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 ISPdesignated ports and thereby receive a
credit with respect to those orders.
NASDAQ is raising the required
percentage from 25% to 30% to provide
added assurance that program
participants represent retail or
institutional order flow.
As provided in Rule 7014(c)(2),
NASDAQ will pay a credit of $0.000275
zero for either month, the Baseline Participation
Ratio shall be deemed to be 0.485% (when rounded
to three decimal places).’’ ‘‘Indirect Order Flow’’ is
defined as follows: ‘‘[F]or 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.’’
9 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.
10 Previously, 25%.
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Federal Register / Vol. 77, No. 90 / Wednesday, May 9, 2012 / Notices
per share 11 with respect to shares of
displayed liquidity executed at a price
of $1 or more and entered through ISPdesignated ports, and $0.00005 per
share 12 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%.
(2) The member’s ‘‘ISP Execution
Ratio’’ for the month is 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 ISPdesignated ports.
Alternatively, as provided in Rule
7014(c)(3), NASDAQ will pay a credit of
$0.000275 per share 13 with respect to
shares of displayed liquidity executed at
a price of $1 or more and entered
through ISP-designated ports, and
$0.00005 per share 14 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 0.30%.
(2) The member’s ‘‘ISP Execution
Ratio’’ for the month is 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 80% of the liquidity
provided by the member during the
month is provided through ISPdesignated ports.
(5) The member has an average daily
volume during the month of more than
100,000 contracts of liquidity provided
through one or more of its Nasdaq
Options Market market participant
identifiers (‘‘MPIDs’’), provided that
such liquidity is provided through
Public Customer Orders, as defined in
Chapter I, Section 1 of the Nasdaq
Options Market Rules; and
(6) The ratio between shares of
liquidity provided through ISPdesignated ports and total shares
accessed, provided, or routed through
ISP-designated ports during the month
is at least 0.70.
As provided in Rule 7014(c)(4),
NASDAQ will pay a credit of $0.000375
11 A
reduction from $0.0003 per share.
reduction from $0.0001 per share.
13 A reduction from $0.0003 per share.
14 A reduction from $0.0001 per share.
12 A
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per share 15 with respect to shares of
displayed liquidity executed at a price
of $1 or more and entered through ISPdesignated ports, and $0.00005 per
share 16 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%.
(2) The member’s ‘‘ISP Execution
Ratio’’ for the month is 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 ISPdesignated ports.
NASDAQ is also deleting Rule
7014(i), which contains obsolete
language describing a rule for
calculating the ISP during the month of
December 2011.
Execution and Routing Fees and Credits
NASDAQ is making a number of
changes to its fee and credit schedule
for order execution and routing. Overall,
the changes are designed to (i) raise
additional revenue to offset reductions
caused by a sustained decrease in
trading volumes in the U.S. capital
markets, and (ii) encourage members
that provide liquidity through nondisplayed orders to do so, to a greater
extent, through orders that offer price
improvement. Specifically, NASDAQ is
proposing to make the following
changes to Rule 7018(a), which governs
execution and routing of order for
securities priced at $1 or more per
share:
• Currently, NASDAQ pays credits
that range from $0.0010 to $0.0015 per
share executed with respect to liquidity
provided through non-displayed orders.
NASDAQ proposes to replace these
credits with a credit of $0.0017 or
$0.0015 per share for liquidity provided
through midpoint pegged 17 or midpoint
15 A
reduction from $0.0004 per share.
reduction from $0.0001 per share.
17 As provided in Rule 4751, ‘‘Pegged Orders’’ are
orders that, after entry, have their price
automatically adjusted by the System in response
to changes in either the Nasdaq Market Center
inside bid or offer or bids or offers in the national
market system, as appropriate. A Pegged Order can
specify that its price will equal the inside quote on
the same side of the market (‘‘Primary Peg’’), the
opposite side of the market (‘‘Market Peg’’), or the
midpoint of the national best bid and offer
(‘‘Midpoint Peg’’). A Midpoint Peg Order is priced
based upon the national best bid and offer,
excluding the effect that the Midpoint Peg Order
itself has on the inside bid or inside offer. Midpoint
Pegged Orders will never be displayed. A Midpoint
16 A
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peg post-only orders 18 (collectively,
‘‘midpoint orders’’), and a credit of
$0.0010 per share executed for all other
non-displayed orders. With respect to
midpoint orders, the $0.0017 rate will
apply if a member provides an average
daily volume of more than 3 million
shares through midpoint orders during
the month, and the $0.0015 rate will
apply if the member provides an average
daily volume of 3 million or fewer
shares through midpoint orders during
the month. NASDAQ’s pricing structure
is generally designed to encourage the
provision of liquidity through displayed
orders, since the credits paid with
respect to such orders are consistently
higher than those for non-displayed
orders. However, the change reflects a
concomitant goal of encouraging
members that use non-displayed orders
to also offer price improvement through
the use of orders that are designed to
execute at the midpoint of the national
best bid and offer. In a related change,
NASDAQ is also eliminating a liquidity
provider rebate tier under which a
member earns a credit of $0.0015 per
share executed for non-displayed
orders, and a credit of $0.0020 per share
for displayed orders if the member
provides 3 million or more shares of
liquidity through non-displayed
orders.19 This change is being made
because the tier is inconsistent with the
goal of paying a higher non-displayed
order rebate with respect to midpoint
orders.
• NASDAQ is eliminating a favorable
charge of $0.0027 per share executed for
orders that employ the SAVE 20 or
Pegged Order may be executed in sub-pennies if
necessary to obtain a midpoint price. A new
timestamp is created for the order each time it is
automatically adjusted.
18 ‘‘Midpoint Peg Post-Only Orders’’ are orders
that are priced in the same manner as Midpoint Peg
Orders. Upon entry, a Midpoint Peg Post-Only
Order will always post to the book unless it is a buy
(sell) order that is priced higher than (lower than)
a resting sell (buy) order, in which case it will
execute at the price of the resting order. Midpoint
Peg Post-Only Orders must always have a price of
more than $1 per share. A Midpoint Peg Post-Only
Order that would be assigned a price of $1 or less
per share will be rejected or cancelled, as
applicable. While a Midpoint Peg Post-Only Order
that posts to the book is locking a preexisting nondisplayed order, the Midpoint Peg Post-Only Order
will execute against an incoming order only if the
price of the incoming buy (sell) order is higher
(lower) than the price of the pre-existing order.
19 NASDAQ is also making a conforming change
to the language that describes the credits payable
with respect to displayed orders, but is not making
any changes to the applicable rates.
20 SAVE is a routing option under which orders
may either (i) route to the NASDAQ OMX BX
Equities Market (‘‘BX’’) and NASDAQ OMX PSX
(‘‘PSX’’), check the System, and then route to other
destinations on the System routing table, or (ii) may
check the System first and then route to
destinations on the System routing table. If shares
remain un-executed after routing, they are posted to
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SOLV 21 routing strategy but that
execute in the Nasdaq Market Center.
Accordingly, such orders will be
charged the otherwise applicable fee of
$0.0030 per share executed. Similarly,
the fee for SAVE, SOLV, or TFTY 22
orders that execute at the New York
Stock Exchange (‘‘NYSE’’) will increase
from $0.0022 per share executed to
$0.0023 per share executed, and the fee
for SAVE or SOLV orders that execute
at venues other than NASDAQ, NYSE,
BX, or PSX will increase from $0.0026
per share executed to $0.0029 per share
executed.
With respect to Rule 7018(b),
NASDAQ is proposing to eliminate the
liquidity provider rebate of $0.00009 per
share executed with respect to securities
priced at more than $0.05 but less than
$1 per share. As a result, NASDAQ will
pay no liquidity provider rebate for
securities priced under $1 per share.
2. Statutory Basis
NASDAQ believes that the proposed
rule change is consistent with the
provisions of Section 6 of the Act,23 in
general, and with Sections 6(b)(4) and
6(b)(5) of the Act,24 in particular, in that
it provides for the equitable allocation
of reasonable dues, fees and other
charges among members and issuers and
other persons using any facility or
system which NASDAQ operates or
controls, and is not designed to permit
unfair discrimination between
customers, issuers, brokers, or dealers.
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Changes to the ISP
The ISP encourages members to add
targeted liquidity that is executed in the
Nasdaq Market Center. NASDAQ
believes that the reduction in the rebates
paid under the ISP from $0.0001,
$0.0003, and $0.0004 to $0.00005,
$0.000275, and $0.000375 is reasonable,
the book. Once on the book, should the order
subsequently be locked or crossed by another
market center, the System will not route the order
to the locking or crossing market center.
21 SOLV is a routing option under which orders
may either (i) route to BX and PSX, check the
System, and then route to other destinations on the
System routing table, or (ii) may check the System
first and then route to destinations on the System
routing table. If shares remain un-executed after
routing, they are posted to the book. Once on the
book, should the order subsequently be locked or
crossed by another accessible market center, the
System shall route the order to the locking or
crossing market center.
22 TFTY is a routing option under which orders
check the System for available shares only if so
instructed by the entering firm and are thereafter
routed to destinations on the System routing table.
If shares remain un-executed after routing, they are
posted to the book. Once on the book, should the
order subsequently be locked or crossed by another
market center, the System will not route the order
to the locking or crossing market center.
23 15 U.S.C. 78f.
24 15 U.S.C. 78f(b)(4) and (5).
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because it provides a means for
NASDAQ to reduce costs during a
period of persistently low trading
volumes, while maintaining the overall
structure of the ISP for the purpose of
providing incentives for retail and
institutional investors to provide
targeted liquidity at NASDAQ. The
change is consistent with an equitable
allocation of fees: Although the change
maintains the ISP’s purpose of paying
higher rebates to certain market
participants in order to encourage them
to benefit all NASDAQ members
through the submission of targeted
liquidity, the change reduces the
disparity between rebates paid to ISP
participants and other members for
providing liquidity. Accordingly, it
results in a fee structure in which
available rebates are allocated more
equitably among market participants.
Similarly, although NASDAQ believes
that the price differentiation inherent in
the ISP is fair, because it is designed to
benefit all market participants by
drawing targeted liquidity to the
Exchange, the change reduces the level
of discrimination between the rebates
paid to ISP participants and those paid
to other liquidity providers.
Finally, NASDAQ believes that the
change to increase the percentage of
liquidity provided through ISPdesignated ports needed for a member to
qualify for the lowest ISP tier is
reasonable because it will reduce the
likelihood that members that do not
represent retail or institutional
customers will be able to ‘‘game’’ the
program by channeling a portion of their
orders that they intend to execute
through ISP-designated ports and
thereby receive a credit with respect to
those orders. The change is equitable
because the ISP is designed to attract
and benefit targeted liquidity, and
therefore it is equitable to take measures
to reduce the likelihood that ISP
incentives will be paid to members that
do not provide targeted liquidity.
Finally, the change is not unfairly
discriminatory because excluding
members that do not represent retail or
institutional customers is consistent
with the established purposes of the
ISP.
Routing Fee Changes
The changes to fees for use of the
SAVE, SOLV, and TFTY routing
strategies are reasonable because the
current fees for these routing strategies
reflect promotional pricing incentives
originally designed to encourage greater
use of these routing strategies.
Recognizing that NASDAQ is not
required to maintain promotional
pricing differentials indefinitely,
PO 00000
Frm 00083
Fmt 4703
Sfmt 4703
27259
NASDAQ believes that it is reasonable
to remove these incentives for the
following reasons: (i) The fee for SAVE
and SOLV orders that execute at
NASDAQ will be the same as the fee for
most other order executions at
NASDAQ, (ii) the fee for SAVE, SOLV,
and TFTY orders that execute at NYSE
will be same as the fee that NYSE
charges to NASDAQ to execute such
orders, and (iii) the fee for SAVE and
SOLV orders that execute at venues
other than NASDAQ, BX, PSX, and
NYSE will be less than the fee for
executing orders at NASDAQ, and less
than the charge for certain other routing
strategies, such as MOPP and directed
orders, that execute at these venues.
NASDAQ believes that these changes
promote an equitable allocation of fees
among market participants, because
they allow NASDAQ to charge fees for
these execution and routing services
that are more similar to the fees
otherwise charged for execution and
routing. Finally, NASDAQ believes that
the change is not unfairly
discriminatory because it reduces the
differentiation in NASDAQ’s fee
schedule with respect to the fees
charged for different routing strategies.
Rebates for Non-Displayed Liquidity
The changes to the rebates payable
with respect to liquidity provided
through non-displayed orders are
reasonable because, consistent with
NASDAQ’s goal of reducing expenses,
they direct the focus of rebates away
from non-displayed liquidity in general
and toward non-displayed liquidity
provided through midpoint orders.
Because such orders provide price
improvement, NASDAQ believes that it
is reasonable to use rebates to encourage
their use, while still maintaining a
rebate structure that places even greater
emphasis on the value of displayed
liquidity in advancing transparency and
price discovery. As a result of the
change, the rebate paid for nondisplayed liquidity, other than liquidity
provided through midpoint orders, will
decrease for some market participants,
but the rebate paid with respect to
midpoint orders will remain constant or
increase for all market participants. The
change is consistent with an equitable
allocation of fees because it is designed
to encourage members that provide
liquidity through non-displayed orders
to benefit other market participants
through price improvement. Finally, the
change is not unfairly discriminatory:
the elements of differentiation between
displayed and non-displayed liquidity
and midpoint orders and other nondisplayed orders are fair because they
promote the goals of price discovery and
E:\FR\FM\09MYN1.SGM
09MYN1
27260
Federal Register / Vol. 77, No. 90 / Wednesday, May 9, 2012 / Notices
encouraging market participants to
provide price improvement.
Rebates for Stocks Priced Under $1
NASDAQ believes that the
elimination of the rebate for liquidity
provided in stocks priced under $1 is
reasonable because the amount of this
rebate is extremely small and therefore
of minimal value to market participants.
For example, the rebate on a 1000 share
trade is just $0.09. NASDAQ believes
that the change is consistent with an
equitable allocation of fees, since the
rebate is not being replaced by a fee, so
there is no charge for liquidity providers
to execute trades in these stocks.
Finally, NASDAQ believes that the
change is not unfairly discriminatory
because the per-trade revenues
associated with executions of these
stocks are also very small. Accordingly,
NASDAQ believes that it is not unfair to
pay a rebate with respect to higher
priced stocks, while declining to pay a
rebate with respect to these stocks.
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. These
competitive forces help to ensure that
NASDAQ’s fees are reasonable,
equitably allocated, and not unfairly
discriminatory since market participants
can largely avoid fees to which they
object by changing their trading
behavior.
mstockstill on DSK4VPTVN1PROD with NOTICES
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.
VerDate Mar<15>2010
15:44 May 08, 2012
Jkt 226001
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.25 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 email to rulecomments@sec.gov. Please include File
Number SR–NASDAQ–2012–053 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–2012–053. 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
10:00 a.m. and 3:00 p.m. Copies of such
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 No. SR–NASDAQ–
2012–053 and should be submitted on
or before May 30, 2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–11136 Filed 5–8–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–66918; File No. SR–ICC–
2012–08]
Self-Regulatory Organizations; ICE
Clear Credit LLC; Notice of Filing and
Order Granting Accelerated Approval
of Proposed Rule Change To Add
Margin Collection Requirements for
Futures Commission Merchant
Clearing Participants
May 3, 2012.
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 April 23,
2012, ICE Clear Credit LLC (‘‘ICC’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared primarily by ICC. The
Commission is publishing this Notice
and Order to solicit comments on the
proposed rule change from interested
persons and to approve the proposed
rule change on an accelerated basis.
26 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
25 15
PO 00000
U.S.C. 78s(b)(3)(a)(ii).
Frm 00084
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E:\FR\FM\09MYN1.SGM
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]]>Agencies
[Federal Register Volume 77, Number 90 (Wednesday, May 9, 2012)]
[Notices]
[Pages 27256-27260]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-11136]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-66915; File No. SR-NASDAQ-2012-053]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Modify the Investor Support Program Under Rule 7014 and To Amend
NASDAQ's Schedule of Execution and Routing Fees and Rebates Under Rule
7018
May 3, 2012.
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 April 25, 2012, The NASDAQ Stock Market LLC (``NASDAQ'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
NASDAQ proposes to modify the Investor Support Program under Rule
7014, and to amend NASDAQ's schedule of execution and routing fees and
rebates under Rule 7018. NASDAQ will implement the proposed change on
May 1, 2012. The text of the proposed rule change is available at
nasdaq.cchwallstreet.com, at NASDAQ's principal office, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
[[Page 27257]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
NASDAQ is proposing to modify the ISP under Rule 7014, and to amend
NASDAQ's schedule of execution and routing fees and rebates under Rule
7018. As a general matter, the changes will result in fee increases and
rebate reductions that reflect the persistent reduction in trading
volumes in the U.S. capital markets.
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''). The goal of the ISP is to incentivize members to provide
such targeted liquidity to the NASDAQ Market Center.\3\ The Exchange
noted in its original filing to institute the ISP \4\ 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.
---------------------------------------------------------------------------
\3\ 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).
\4\ Securities Exchange Act Release No. 63270 (November 8,
2010), 75 FR 69489 (November 12, 2010) (NASDAQ-2010-141) (notice of
filing and immediate effectiveness).
---------------------------------------------------------------------------
Participants in the ISP are required to designate specific NASDAQ
order entry ports for use under the ISP and to meet specified criteria
focused on market participation, liquidity provision, and high rates of
order execution. Currently, a member that participates in the ISP
receives a credit of $0.0001, $0.0003, or $0.0004 per share with
respect to the number of shares of displayed liquidity provided by the
member that execute at $1 or more per share.\5\ The precise credit rate
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. While making
only minimal changes to the existing criteria for participation in the
ISP, NASDAQ will reduce the credits paid under the program to $0.00005,
$0.000275, and $0.000375 respectively. In addition, in one of existing
tiers for the ISP, the percentage of liquidity that a member is
required to provide through ISP-designated ports will increase from 25%
to 30%. With these changes, the requirements for existing ISP tiers,
and the associated credits, will be as follows:
---------------------------------------------------------------------------
\5\ A participant in the ISP must designate specific order-entry
ports for use in tabulating certain requirements under the program.
---------------------------------------------------------------------------
As provided in Rule 7014(c)(1), NASDAQ will pay a credit of
$0.00005 per share \6\ 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:
---------------------------------------------------------------------------
\6\ A reduction from $0.0001 per share.
---------------------------------------------------------------------------
(1) The member's Participation Ratio \7\ for the month is equal to
or greater than its Baseline Participation Ratio.\8\ 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.
---------------------------------------------------------------------------
\7\ ``Participation Ratio'' is defined as follows: ``[F]or 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.'' ``Consolidated Volume''
is defined as follows: ``[F]or 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.''
``System Securities'' means all securities listed on NASDAQ and all
securities subject to the Consolidated Tape Association Plan and the
Consolidated Quotation Plan.
\8\ ``Baseline Participation Ratio'' is defined as follows:
``[W]ith 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).'' ``Indirect Order Flow'' is defined as
follows: ``[F]or 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.''
---------------------------------------------------------------------------
(2) The member's ``ISP Execution Ratio'' for the month must be less
than 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; and (ii) no Pegged Orders,
odd-lot orders, or MIOC or SIOC orders shall be included in the
tabulation.'' \9\ 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.
---------------------------------------------------------------------------
\9\ 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.
---------------------------------------------------------------------------
(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, reflecting the ISP's goals of encouraging
higher levels of liquidity provision.
(4) At least 30% \10\ of the liquidity provided by the member
during the month is provided through ISP-designated ports. This
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. NASDAQ is raising the required
percentage from 25% to 30% to provide added assurance that program
participants represent retail or institutional order flow.
---------------------------------------------------------------------------
\10\ Previously, 25%.
---------------------------------------------------------------------------
As provided in Rule 7014(c)(2), NASDAQ will pay a credit of
$0.000275
[[Page 27258]]
per share \11\ with respect to shares of displayed liquidity executed
at a price of $1 or more and entered through ISP-designated ports, and
$0.00005 per share \12\ with respect to all other shares of displayed
liquidity executed at a price of $1 or more, if the following
conditions are met:
---------------------------------------------------------------------------
\11\ A reduction from $0.0003 per share.
\12\ A reduction from $0.0001 per share.
---------------------------------------------------------------------------
(1) The member's Participation Ratio for the month exceeds its
Baseline Participation Ratio by at least 0.43%.
(2) The member's ``ISP Execution Ratio'' for the month is 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.
Alternatively, as provided in Rule 7014(c)(3), NASDAQ will pay a
credit of $0.000275 per share \13\ with respect to shares of displayed
liquidity executed at a price of $1 or more and entered through ISP-
designated ports, and $0.00005 per share \14\ with respect to all other
shares of displayed liquidity executed at a price of $1 or more, if the
following conditions are met:
---------------------------------------------------------------------------
\13\ A reduction from $0.0003 per share.
\14\ A reduction from $0.0001 per share.
---------------------------------------------------------------------------
(1) The member's Participation Ratio for the month exceeds its
Baseline Participation Ratio by at least 0.30%.
(2) The member's ``ISP Execution Ratio'' for the month is 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 80% of the liquidity provided by the member during the
month is provided through ISP-designated ports.
(5) The member has an average daily volume during the month of more
than 100,000 contracts of liquidity provided through one or more of its
Nasdaq Options Market market participant identifiers (``MPIDs''),
provided that such liquidity is provided through Public Customer
Orders, as defined in Chapter I, Section 1 of the Nasdaq Options Market
Rules; and
(6) The ratio between shares of liquidity provided through ISP-
designated ports and total shares accessed, provided, or routed through
ISP-designated ports during the month is at least 0.70.
As provided in Rule 7014(c)(4), NASDAQ will pay a credit of
$0.000375 per share \15\ with respect to shares of displayed liquidity
executed at a price of $1 or more and entered through ISP-designated
ports, and $0.00005 per share \16\ with respect to all other shares of
displayed liquidity executed at a price of $1 or more, if the following
conditions are met:
---------------------------------------------------------------------------
\15\ A reduction from $0.0004 per share.
\16\ A reduction from $0.0001 per share.
---------------------------------------------------------------------------
(1) The member's Participation Ratio for the month exceeds its
Baseline Participation Ratio by at least 0.86%.
(2) The member's ``ISP Execution Ratio'' for the month is 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.
NASDAQ is also deleting Rule 7014(i), which contains obsolete
language describing a rule for calculating the ISP during the month of
December 2011.
Execution and Routing Fees and Credits
NASDAQ is making a number of changes to its fee and credit schedule
for order execution and routing. Overall, the changes are designed to
(i) raise additional revenue to offset reductions caused by a sustained
decrease in trading volumes in the U.S. capital markets, and (ii)
encourage members that provide liquidity through non-displayed orders
to do so, to a greater extent, through orders that offer price
improvement. Specifically, NASDAQ is proposing to make the following
changes to Rule 7018(a), which governs execution and routing of order
for securities priced at $1 or more per share:
Currently, NASDAQ pays credits that range from $0.0010 to
$0.0015 per share executed with respect to liquidity provided through
non-displayed orders. NASDAQ proposes to replace these credits with a
credit of $0.0017 or $0.0015 per share for liquidity provided through
midpoint pegged \17\ or midpoint peg post-only orders \18\
(collectively, ``midpoint orders''), and a credit of $0.0010 per share
executed for all other non-displayed orders. With respect to midpoint
orders, the $0.0017 rate will apply if a member provides an average
daily volume of more than 3 million shares through midpoint orders
during the month, and the $0.0015 rate will apply if the member
provides an average daily volume of 3 million or fewer shares through
midpoint orders during the month. NASDAQ's pricing structure is
generally designed to encourage the provision of liquidity through
displayed orders, since the credits paid with respect to such orders
are consistently higher than those for non-displayed orders. However,
the change reflects a concomitant goal of encouraging members that use
non-displayed orders to also offer price improvement through the use of
orders that are designed to execute at the midpoint of the national
best bid and offer. In a related change, NASDAQ is also eliminating a
liquidity provider rebate tier under which a member earns a credit of
$0.0015 per share executed for non-displayed orders, and a credit of
$0.0020 per share for displayed orders if the member provides 3 million
or more shares of liquidity through non-displayed orders.\19\ This
change is being made because the tier is inconsistent with the goal of
paying a higher non-displayed order rebate with respect to midpoint
orders.
---------------------------------------------------------------------------
\17\ As provided in Rule 4751, ``Pegged Orders'' are orders
that, after entry, have their price automatically adjusted by the
System in response to changes in either the Nasdaq Market Center
inside bid or offer or bids or offers in the national market system,
as appropriate. A Pegged Order can specify that its price will equal
the inside quote on the same side of the market (``Primary Peg''),
the opposite side of the market (``Market Peg''), or the midpoint of
the national best bid and offer (``Midpoint Peg''). A Midpoint Peg
Order is priced based upon the national best bid and offer,
excluding the effect that the Midpoint Peg Order itself has on the
inside bid or inside offer. Midpoint Pegged Orders will never be
displayed. A Midpoint Pegged Order may be executed in sub-pennies if
necessary to obtain a midpoint price. A new timestamp is created for
the order each time it is automatically adjusted.
\18\ ``Midpoint Peg Post-Only Orders'' are orders that are
priced in the same manner as Midpoint Peg Orders. Upon entry, a
Midpoint Peg Post-Only Order will always post to the book unless it
is a buy (sell) order that is priced higher than (lower than) a
resting sell (buy) order, in which case it will execute at the price
of the resting order. Midpoint Peg Post-Only Orders must always have
a price of more than $1 per share. A Midpoint Peg Post-Only Order
that would be assigned a price of $1 or less per share will be
rejected or cancelled, as applicable. While a Midpoint Peg Post-Only
Order that posts to the book is locking a preexisting non-displayed
order, the Midpoint Peg Post-Only Order will execute against an
incoming order only if the price of the incoming buy (sell) order is
higher (lower) than the price of the pre-existing order.
\19\ NASDAQ is also making a conforming change to the language
that describes the credits payable with respect to displayed orders,
but is not making any changes to the applicable rates.
---------------------------------------------------------------------------
NASDAQ is eliminating a favorable charge of $0.0027 per
share executed for orders that employ the SAVE \20\ or
[[Page 27259]]
SOLV \21\ routing strategy but that execute in the Nasdaq Market
Center. Accordingly, such orders will be charged the otherwise
applicable fee of $0.0030 per share executed. Similarly, the fee for
SAVE, SOLV, or TFTY \22\ orders that execute at the New York Stock
Exchange (``NYSE'') will increase from $0.0022 per share executed to
$0.0023 per share executed, and the fee for SAVE or SOLV orders that
execute at venues other than NASDAQ, NYSE, BX, or PSX will increase
from $0.0026 per share executed to $0.0029 per share executed.
---------------------------------------------------------------------------
\20\ SAVE is a routing option under which orders may either (i)
route to the NASDAQ OMX BX Equities Market (``BX'') and NASDAQ OMX
PSX (``PSX''), check the System, and then route to other
destinations on the System routing table, or (ii) may check the
System first and then route to destinations on the System routing
table. If shares remain un-executed after routing, they are posted
to the book. Once on the book, should the order subsequently be
locked or crossed by another market center, the System will not
route the order to the locking or crossing market center.
\21\ SOLV is a routing option under which orders may either (i)
route to BX and PSX, check the System, and then route to other
destinations on the System routing table, or (ii) may check the
System first and then route to destinations on the System routing
table. If shares remain un-executed after routing, they are posted
to the book. Once on the book, should the order subsequently be
locked or crossed by another accessible market center, the System
shall route the order to the locking or crossing market center.
\22\ TFTY is a routing option under which orders check the
System for available shares only if so instructed by the entering
firm and are thereafter routed to destinations on the System routing
table. If shares remain un-executed after routing, they are posted
to the book. Once on the book, should the order subsequently be
locked or crossed by another market center, the System will not
route the order to the locking or crossing market center.
---------------------------------------------------------------------------
With respect to Rule 7018(b), NASDAQ is proposing to eliminate the
liquidity provider rebate of $0.00009 per share executed with respect
to securities priced at more than $0.05 but less than $1 per share. As
a result, NASDAQ will pay no liquidity provider rebate for securities
priced under $1 per share.
2. Statutory Basis
NASDAQ believes that the proposed rule change is consistent with
the provisions of Section 6 of the Act,\23\ in general, and with
Sections 6(b)(4) and 6(b)(5) of the Act,\24\ in particular, in that it
provides for the equitable allocation of reasonable dues, fees and
other charges among members and issuers and other persons using any
facility or system which NASDAQ operates or controls, and is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\23\ 15 U.S.C. 78f.
\24\ 15 U.S.C. 78f(b)(4) and (5).
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Changes to the ISP
The ISP encourages members to add targeted liquidity that is
executed in the Nasdaq Market Center. NASDAQ believes that the
reduction in the rebates paid under the ISP from $0.0001, $0.0003, and
$0.0004 to $0.00005, $0.000275, and $0.000375 is reasonable, because it
provides a means for NASDAQ to reduce costs during a period of
persistently low trading volumes, while maintaining the overall
structure of the ISP for the purpose of providing incentives for retail
and institutional investors to provide targeted liquidity at NASDAQ.
The change is consistent with an equitable allocation of fees: Although
the change maintains the ISP's purpose of paying higher rebates to
certain market participants in order to encourage them to benefit all
NASDAQ members through the submission of targeted liquidity, the change
reduces the disparity between rebates paid to ISP participants and
other members for providing liquidity. Accordingly, it results in a fee
structure in which available rebates are allocated more equitably among
market participants. Similarly, although NASDAQ believes that the price
differentiation inherent in the ISP is fair, because it is designed to
benefit all market participants by drawing targeted liquidity to the
Exchange, the change reduces the level of discrimination between the
rebates paid to ISP participants and those paid to other liquidity
providers.
Finally, NASDAQ believes that the change to increase the percentage
of liquidity provided through ISP-designated ports needed for a member
to qualify for the lowest ISP tier is reasonable because it will reduce
the likelihood that members that do not represent retail or
institutional customers will be able to ``game'' the program by
channeling a portion of their orders that they intend to execute
through ISP-designated ports and thereby receive a credit with respect
to those orders. The change is equitable because the ISP is designed to
attract and benefit targeted liquidity, and therefore it is equitable
to take measures to reduce the likelihood that ISP incentives will be
paid to members that do not provide targeted liquidity. Finally, the
change is not unfairly discriminatory because excluding members that do
not represent retail or institutional customers is consistent with the
established purposes of the ISP.
Routing Fee Changes
The changes to fees for use of the SAVE, SOLV, and TFTY routing
strategies are reasonable because the current fees for these routing
strategies reflect promotional pricing incentives originally designed
to encourage greater use of these routing strategies. Recognizing that
NASDAQ is not required to maintain promotional pricing differentials
indefinitely, NASDAQ believes that it is reasonable to remove these
incentives for the following reasons: (i) The fee for SAVE and SOLV
orders that execute at NASDAQ will be the same as the fee for most
other order executions at NASDAQ, (ii) the fee for SAVE, SOLV, and TFTY
orders that execute at NYSE will be same as the fee that NYSE charges
to NASDAQ to execute such orders, and (iii) the fee for SAVE and SOLV
orders that execute at venues other than NASDAQ, BX, PSX, and NYSE will
be less than the fee for executing orders at NASDAQ, and less than the
charge for certain other routing strategies, such as MOPP and directed
orders, that execute at these venues. NASDAQ believes that these
changes promote an equitable allocation of fees among market
participants, because they allow NASDAQ to charge fees for these
execution and routing services that are more similar to the fees
otherwise charged for execution and routing. Finally, NASDAQ believes
that the change is not unfairly discriminatory because it reduces the
differentiation in NASDAQ's fee schedule with respect to the fees
charged for different routing strategies.
Rebates for Non-Displayed Liquidity
The changes to the rebates payable with respect to liquidity
provided through non-displayed orders are reasonable because,
consistent with NASDAQ's goal of reducing expenses, they direct the
focus of rebates away from non-displayed liquidity in general and
toward non-displayed liquidity provided through midpoint orders.
Because such orders provide price improvement, NASDAQ believes that it
is reasonable to use rebates to encourage their use, while still
maintaining a rebate structure that places even greater emphasis on the
value of displayed liquidity in advancing transparency and price
discovery. As a result of the change, the rebate paid for non-displayed
liquidity, other than liquidity provided through midpoint orders, will
decrease for some market participants, but the rebate paid with respect
to midpoint orders will remain constant or increase for all market
participants. The change is consistent with an equitable allocation of
fees because it is designed to encourage members that provide liquidity
through non-displayed orders to benefit other market participants
through price improvement. Finally, the change is not unfairly
discriminatory: the elements of differentiation between displayed and
non-displayed liquidity and midpoint orders and other non-displayed
orders are fair because they promote the goals of price discovery and
[[Page 27260]]
encouraging market participants to provide price improvement.
Rebates for Stocks Priced Under $1
NASDAQ believes that the elimination of the rebate for liquidity
provided in stocks priced under $1 is reasonable because the amount of
this rebate is extremely small and therefore of minimal value to market
participants. For example, the rebate on a 1000 share trade is just
$0.09. NASDAQ believes that the change is consistent with an equitable
allocation of fees, since the rebate is not being replaced by a fee, so
there is no charge for liquidity providers to execute trades in these
stocks. Finally, NASDAQ believes that the change is not unfairly
discriminatory because the per-trade revenues associated with
executions of these stocks are also very small. Accordingly, NASDAQ
believes that it is not unfair to pay a rebate with respect to higher
priced stocks, while declining to pay a rebate with respect to these
stocks.
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. These competitive forces help to ensure that
NASDAQ's fees are reasonable, equitably allocated, and not unfairly
discriminatory since market participants can largely avoid fees to
which they object by changing their trading behavior.
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.\25\ 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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\25\ 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 email to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2012-053 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-2012-053. 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
10:00 a.m. and 3:00 p.m. Copies of such 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 No. SR-NASDAQ-2012-053 and should be
submitted on or before May 30, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-11136 Filed 5-8-12; 8:45 am]
BILLING CODE 8011-01-P
