Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Modify NASDAQ's Order Execution Rebates and Investor Support Program, 3931-3934 [2013-00869]
Download as PDF
<![CDATA[
Federal Register / Vol. 78, No. 12 / Thursday, January 17, 2013 / Notices
to [the Application] dedicated to
processing Benchmark Orders.’’ 64
The Commission believes that one
significant difference between
Benchmark Orders and existing
NASDAQ or other exchange orders is
that the Benchmark Order is not
initially directed to the NASDAQ
matching engine for potential execution,
but instead is directed to the
Application for further processing and
the generation of Child Orders, to be
routed to the NASDAQ matching engine
or another trading center. Thus,
NASDAQ’s proposed Benchmark Order
is not an exchange order in the
traditional sense, in that it would not
immediately enter the Exchange’s order
book (i.e., NASDAQ Market Center) 65
for potential execution. Instead, it
essentially is an instruction that would
reside outside of the matching engine
and be processed by an Application,
which would then route orders to
NASDAQ, or another trading venue,
using a selected algorithm, over a
particular period of time, to achieve a
particular objective.
Because NASDAQ is proposing to
offer a novel order type designed to
compete with services offered by brokerdealers, the Commission must consider,
among other things, whether the
proposed rule change would impose an
unnecessary or inappropriate burden on
competition under Section 6(b)(8) of the
Act.66 As noted above, SIFMA is
concerned that NASDAQ’s proposal
could create regulatory disparities that
would give NASDAQ an inappropriate
advantage over broker-dealers providing
the same services, and that NASDAQ
‘‘would use the doctrine of regulatory
immunity to protect itself from any
liability that arises out of the
Benchmark Order functionality, through
systems issues or otherwise.’’ 67 In
addition, the Commission notes that
NASDAQ Rule 4626 generally provides
that ‘‘Nasdaq and its affiliates shall not
be liable for any losses, damages, or
other claims arising out of the Nasdaq
Market Center or its use.’’ 68
NASDAQ does not respond to
concerns raised by SIFMA with any
substantive analysis of whether
pmangrum on DSK3VPTVN1PROD with
64 Id.
at 29436.
65 The term ‘‘NASDAQ Market Center’’ is defined
in pertinent part as the ‘‘automated system for order
execution and trade reporting owned and operated
by The NASDAQ Stock Market LLC * * *
[comprising] an order execution service that enables
Participants to automatically execute transactions
in System Securities; and provides Participants
with sufficient monitoring and updating capability
to participate in an automated execution
environment.’’ See NASDAQ Rule 4751(a)(1).
66 15 U.S.C. 78f(b)(8).
67 See SIFMA Letter, supra note 6, at 3.
68 See NASDAQ Rule 4626.
VerDate Mar<15>2010
14:19 Jan 16, 2013
Jkt 229001
regulatory immunity, or exchange rules
limiting liability, in the context of
NASDAQ’s proposal to offer a service
traditionally provided by broker-dealers,
would impose an undue burden on
competition under the Act. NASDAQ
simply responds that this ‘‘judicially
recognized doctrine is not at issue in
connection with the Commission’s
review of NASDAQ’s Benchmark Order
Proposal’’ and that ‘‘[t]here is no need
for the Commission to discuss immunity
in analyzing the consistency of
NASDAQ’s Proposal with the Exchange
Act.’’ 69 Accordingly, the Commission
does not believe that it can make the
finding that NASDAQ’s proposal is
consistent with the requirements of
Section 6(b)(8) of the Act.70
As noted above, Rule 700(b)(3) of the
Commission’s Rules of Practice states
that ‘‘[t]he burden to demonstrate that a
proposed rule change is consistent with
the Exchange Act and the rules and
regulations thereunder * * * is on the
self-regulatory organization that
proposed the rule change’’ and that a
‘‘mere assertion that the proposed rule
change is consistent with those
requirements * * * is not sufficient.’’ 71
For the reasons set forth above, the
Commission does not believe that
NASDAQ has met its burden to
demonstrate that the proposed rule
change is consistent with the
requirements of the Act and the rules
and regulations thereunder.
IV. Conclusion
For the foregoing reasons, the
Commission does not find that the
proposed rule change is consistent with
the Act and the rules and regulations
thereunder applicable to a national
securities exchange, and, in particular,
with Sections 6(b)(5) and 6(b)(8) of the
Act.72
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,73 that the
proposed rule change (SR–NASDAQ–
2012–059) be, and hereby is,
disapproved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.74
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–00871 Filed 1–16–13; 8:45 am]
BILLING CODE 8011–01–P
69 See
NASDAQ Letter, supra note 8, at 7.
U.S.C. 78f(b)(8).
71 17 CFR 201.700(b)(3).
72 15 U.S.C. 78f(b)(5) and (b)(8).
73 15 U.S.C. 78s(b)(2).
74 17 CFR 200.30–3(a)(12).
70 15
PO 00000
Frm 00054
Fmt 4703
Sfmt 4703
3931
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68626; File No. SR–
NASDAQ–2012–149]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
a Proposed Rule Change To Modify
NASDAQ’s Order Execution Rebates
and Investor Support Program
January 11, 2013.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1, and Rule 19b–4 2 thereunder,
notice is hereby given that on December
31, 2012, The NASDAQ Stock Market
LLC (‘‘NASDAQ’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I, II and III, below, which Items
have been prepared by NASDAQ. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
NASDAQ is proposing (i) to amend its
schedule of execution rebates under
Rule 7018(a), and (ii) to modify the
Investor Support Program (the ‘‘ISP’’)
under Rule 7014. While changes
pursuant to this proposal are effective
upon filing, the Exchange will
implement the proposed rule on January
2, 2013.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://
www.nasdaq.cchwallstreet.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change. The text of
these statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant aspects of such
statements.
1 15
2 17
E:\FR\FM\17JAN1.SGM
U.S.C. 78s(b)(1).
CFR 240.19b–4.
17JAN1
3932
Federal Register / Vol. 78, No. 12 / Thursday, January 17, 2013 / Notices
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
NASDAQ is proposing (i) to amend its
schedule of execution rebates under
Rule 7018(a), and (ii) to modify the ISP
under Rule 7014. As a general matter,
the changes are designed to increase and
broaden incentives for participation in
NASDAQ by liquidity providers.
Execution Rebates
pmangrum on DSK3VPTVN1PROD with
NASDAQ is making a number of
changes to its general schedule of
rebates for execution of securities priced
at $1 or more per share, as set forth in
Rule 7018(a). Overall, the changes are
aimed at providing greater incentives for
the entry of liquidity-providing orders
in NASDAQ. Specifically, NASDAQ is
proposing to make the following
changes:
• Currently, NASDAQ pays a credit of
$0.0029 per share executed with respect
to displayed quotes/orders for a member
with shares of liquidity provided in all
securities through one or more of its
NASDAQ Market Center market
participant identifiers (‘‘MPIDs’’) that
represent more than 0.50% of
Consolidated Volume 3 during the
month. NASDAQ is modifying this
rebate tier to decrease the threshold to
more than 0.45% of Consolidated
Volume. This change reverses a price
increase made by NASDAQ in
September 2012.4
• Similarly, NASDAQ is restoring a
rebate tier that was eliminated in
September 2012.5 Under the restored
tier, NASDAQ will pay a credit of
$0.0029 per share executed with respect
to displayed quotes/orders for a member
with shares of liquidity accessed in all
securities through one or more of its
MPIDs that represent more than 0.65%
of Consolidated Volume during the
month, and that 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.6
3 ‘‘Consolidated Volume’’ is defined as ‘‘the total
consolidated volume reported to all consolidated
transaction reporting plans by all exchanges and
trade reporting facilities.’’
4 Securities Exchange Act Release No. 67849
(September 13, 2012), 77 FR 58190 (September 19,
2012) (SR–NASDAQ–2012–103).
5 Id.
6 Along with the rule language providing for this
new rebate tier, NASDAQ is also including
language applicable to rebates for midpoint pegged
orders and midpoint post-only orders (‘‘midpoint
orders’’), and non-displayed orders. This language
is being added simply to make it clear that existing
rebates for these orders apply to members
VerDate Mar<15>2010
14:19 Jan 16, 2013
Jkt 229001
• NASDAQ currently pays a credit of
$0.0029 per share executed with respect
to displayed quotes/orders for a member
with shares of liquidity provided in all
securities through one or more of its
NASDAQ Market Center MPIDs
representing more than 0.25% of
Consolidated Volume during the month,
and with an average daily volume
during the month of more than 100,000
contracts of liquidity accessed or
provided through one or more of its
NASDAQ Options Market MPIDs.
NASDAQ is proposing to decrease the
Consolidated Volume requirement for
this tier to shares representing more
than 0.15% of Consolidated Volume,
thereby reversing another change made
in September 2012.7
• NASDAQ is also introducing a new
rebate tier of $0.00305 per share
executed with respect to displayed
quotes/orders for a member that either
(i) provides shares of liquidity in all
securities through one of its MPIDs that
represent 1.60% or more of
Consolidated Volume during the month,
or (ii) provides shares of liquidity in all
securities through one or more of its
MPIDs that represent 1.60% or more of
Consolidated Volume during the month,
and provides liquidity through one of its
MPIDs that represent 0.75% or more of
Consolidated Volume during the
month.8
• Similarly, NASDAQ is introducing
a new rebate tier of $0.0030 per share
executed with respect to displayed
quotes/orders for a member that either
(i) provides shares of liquidity in all
securities through one of its MPIDs that
represent 1.20% or more of
Consolidated Volume during the month,
or (ii) provides shares of liquidity in all
securities through one or more of its
MPIDs that represent 1.20% or more of
Consolidated Volume during the month,
and provides liquidity through one of its
qualifying for the new tier with respect to their
displayed orders.
7 Supra n.4.
8 As discussed in Securities Exchange Act Release
No. 64003 (March 2, 2011), 76 FR 12784 (March 8,
2011) (SR–NASDAQ–2011–028), some pricing
incentives in NASDAQ’s fee and rebate schedule
require members to achieve certain volume
thresholds through a single MPID to avoid
providing excessive encouragement to members to
aggregate the activity of several firms to which they
provide sponsored access (some of whom may not
themselves be members of NASDAQ) for the sole
purpose of earning a higher rebate.
Along with the rule language providing for this
new rebate tier, NASDAQ is also including
language applicable to rebates for midpoint orders
and non-displayed orders. This language is being
added simply to make it clear that existing rebates
for these orders apply to members qualifying for the
new tier with respect to their displayed orders.
NASDAQ is also making a conforming change to
move the location of the definition of ‘‘midpoint
orders’’.
PO 00000
Frm 00055
Fmt 4703
Sfmt 4703
MPIDs that represent 0.75% or more of
Consolidated Volume during the
month.9
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’’). However, in order to
partially offset the cost of the broad
rebate incentives discussed above,
NASDAQ is partially reducing the
rebates payable under the ISP.
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 $0.00005, $0.0001,
or $0.000375 per share with respect to
the number of shares of displayed
liquidity provided by the member that
execute at $1 or more per share.10 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. Without
making any other modifications to the
program, NASDAQ will reduce the
credit paid to market participants that
currently qualify for a $0.000375 per
share credit to $0.0002 per share. The
specific requirements for qualifying for
the $0.0002 credit are described below.
As provided in Rule 7014(c)(4),
NASDAQ will pay a credit of $0.0002
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 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 12 for the month exceeds its
9 Along with the rule language providing for this
new rebate tier, NASDAQ is also including
language applicable to rebates for midpoint orders
and non-displayed orders. This language is being
added simply to make it clear that existing rebates
for these orders apply to members qualifying for the
new tier with respect to their displayed orders.
10 A participant in the ISP must designate specific
order-entry ports for use in tabulating certain
requirements under the program.
11 A reduction from $0.000375 per share.
12 ‘‘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
E:\FR\FM\17JAN1.SGM
17JAN1
Federal Register / Vol. 78, No. 12 / Thursday, January 17, 2013 / Notices
pmangrum on DSK3VPTVN1PROD with
Baseline Participation Ratio 13 by at least
0.86%. The requirement reflects the
expectation that in order to earn a
higher rebate under the program, a
member participating in the program
must 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.’’ 14 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.
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.
13 ‘‘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.’’
14 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.
VerDate Mar<15>2010
14:19 Jan 16, 2013
Jkt 229001
(4) At least 40% 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.
2. Statutory Basis
NASDAQ believes that the proposed
rule change is consistent with the
provisions of Section 6 of the Act,15 in
general, and with Sections 6(b)(4) and
6(b)(5) of the Act,16 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.
Changes to Rebates
NASDAQ believes that the proposed
changes to rebate tiers are reasonable,
because they will increase the rebates
payable to eligible market participants.
NASDAQ further believes that the
changes are consistent with an equitable
allocation of fees because the modified
rebate schedule will provide increased
incentives for provision of displayed
liquidity that NASDAQ believes benefit
all market participants by dampening
price volatility and promoting price
discovery. Finally, NASDAQ believes
that the changes are not unreasonably
discriminatory because opportunities
for enhanced rebates to liquidity
providers will be broadened under the
modified schedule. Specifically:
• The changes to the rebate tiers
through which members may earn a
$0.0029 per share executed rebate are
reasonable because they will make it
easier for members to receive a rebate at
that level, by lowering the volume
requirements for existing tiers and by
adding a new tier through which
members may qualify. In addition, the
changes are consistent with an equitable
allocation of fees because they reflect an
allocation of rebates to liquidity
providers designed to encourage
beneficial market activity, with greater
incentives for market participants to
provide liquidity. Finally, the changes
are not unreasonably discriminatory
because they increase the availability of
higher rebates without eliminating any
15 15
16 15
PO 00000
U.S.C. 78f.
U.S.C. 78f(b)(4) and (5).
Frm 00056
Fmt 4703
Sfmt 4703
3933
of the other means by which a member
may earn a higher rebate under Rule
7018(a).
• The addition of two new rebate tiers
focused on members that provide high
levels of liquidity is reasonable because
it will reduce the costs of market
participants that make significant
contributions to market quality. The
change is consistent with an equitable
allocation of fees because NASDAQ
believes that it is equitable to provide
incentives to members that are capable
of providing high levels of liquidity
(1.2% to 1.6% of Consolidated Volume)
to participate in NASDAQ to a greater
extent, because doing so has the
potential to increase NASDAQ’s market
quality to the benefit of all its market
participants. Finally, NASDAQ believes
that these new rebate tiers are not
unreasonably discriminatory because
the rebates they would provide are not
significantly higher than rebates
otherwise available through Rule
7018(a) and Rule 7014, and are being
offered to increase the quality of the
NASDAQ market.
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 $0.000375 to
$0.0002 with respect to certain tiers of
the ISP is reasonable, because it
provides a means for NASDAQ to
reduce costs during a period of
persistently low trading volumes, in
addition to partially offsetting the costs
of the general increased rebates
instituted by this filing, but while still
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. In conjunction with
the other changes made by this filing,
this may serve to broaden the
availability of enhanced rebates.
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 differentiation between the rebates
E:\FR\FM\17JAN1.SGM
17JAN1
3934
Federal Register / Vol. 78, No. 12 / Thursday, January 17, 2013 / Notices
paid to ISP participants and those paid
to other liquidity providers.
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.
pmangrum on DSK3VPTVN1PROD with
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.
Specifically, NASDAQ believes that the
change, which will generally result in
an increase in the rebates paid to
encourage market participants to use
NASDAQ, reflects the high degree of
competition in the cash equities markets
and will further enhance that
competition by lowering fees and
possibly encouraging NASDAQ’s
competitors to make competitive
responses. Moreover, the decreased ISP
rebate contained in the proposed rule
change will not burden competition
because the market for order execution
is extremely competitive and members
may readily opt to disfavor NASDAQ’s
execution services if they believe that
alternatives offer them better value.
Accordingly, NASDAQ believes that the
degree to which fee changes in this
market may impose any burden on
competition is extremely limited.
Because competitors are free to modify
their own fees in response, and because
market participants may readily adjust
their order routing practices, 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
No written comments were either
solicited or received.
VerDate Mar<15>2010
14:19 Jan 16, 2013
Jkt 229001
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act.17 At any time
within 60 days of the filing of the
proposed rule change, the Commission
summarily may temporarily suspend
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act. If the Commission
takes such action, the Commission shall
institute proceedings to determine
whether the proposed rule should be
approved or disapproved.
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–2012–149 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–2012–149. 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 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–2012–149 and should be
submitted on or before February 7, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–00869 Filed 1–16–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68627; File No. SR–ISE–
2013–01]
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Notice of Filing and Immediate
Effectiveness of Proposed Rule
Change To Amend the Schedule of
Fees
January 11, 2013.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on January 2,
2013, the International Securities
Exchange, LLC (the ‘‘Exchange’’ or the
‘‘ISE’’) filed with the Securities and
Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which items have been
prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The ISE proposes to amend its
Schedule of Fees. The text of the
proposed rule change is available on the
Exchange’s Web site (https://
www.ise.com), at the principal office of
18 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
17 15
PO 00000
U.S.C. 78s(b)(3)(A)(ii).
Frm 00057
Fmt 4703
Sfmt 4703
E:\FR\FM\17JAN1.SGM
17JAN1
]]>Agencies
[Federal Register Volume 78, Number 12 (Thursday, January 17, 2013)]
[Notices]
[Pages 3931-3934]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-00869]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68626; File No. SR-NASDAQ-2012-149]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
To Modify NASDAQ's Order Execution Rebates and Investor Support Program
January 11, 2013.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\, and Rule 19b-4 \2\ thereunder, notice is hereby given
that on December 31, 2012, The NASDAQ Stock Market LLC (``NASDAQ'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II and III, below, which Items have been prepared by NASDAQ.
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 Substance
of the Proposed Rule Change
NASDAQ is proposing (i) to amend its schedule of execution rebates
under Rule 7018(a), and (ii) to modify the Investor Support Program
(the ``ISP'') under Rule 7014. While changes pursuant to this proposal
are effective upon filing, the Exchange will implement the proposed
rule on January 2, 2013.
The text of the proposed rule change is available on the Exchange's
Web site at https://www.nasdaq.cchwallstreet.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
[[Page 3932]]
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
NASDAQ is proposing (i) to amend its schedule of execution rebates
under Rule 7018(a), and (ii) to modify the ISP under Rule 7014. As a
general matter, the changes are designed to increase and broaden
incentives for participation in NASDAQ by liquidity providers.
Execution Rebates
NASDAQ is making a number of changes to its general schedule of
rebates for execution of securities priced at $1 or more per share, as
set forth in Rule 7018(a). Overall, the changes are aimed at providing
greater incentives for the entry of liquidity-providing orders in
NASDAQ. Specifically, NASDAQ is proposing to make the following
changes:
Currently, NASDAQ pays a credit of $0.0029 per share
executed with respect to displayed quotes/orders for a member with
shares of liquidity provided in all securities through one or more of
its NASDAQ Market Center market participant identifiers (``MPIDs'')
that represent more than 0.50% of Consolidated Volume \3\ during the
month. NASDAQ is modifying this rebate tier to decrease the threshold
to more than 0.45% of Consolidated Volume. This change reverses a price
increase made by NASDAQ in September 2012.\4\
---------------------------------------------------------------------------
\3\ ``Consolidated Volume'' is defined as ``the total
consolidated volume reported to all consolidated transaction
reporting plans by all exchanges and trade reporting facilities.''
\4\ Securities Exchange Act Release No. 67849 (September 13,
2012), 77 FR 58190 (September 19, 2012) (SR-NASDAQ-2012-103).
---------------------------------------------------------------------------
Similarly, NASDAQ is restoring a rebate tier that was
eliminated in September 2012.\5\ Under the restored tier, NASDAQ will
pay a credit of $0.0029 per share executed with respect to displayed
quotes/orders for a member with shares of liquidity accessed in all
securities through one or more of its MPIDs that represent more than
0.65% of Consolidated Volume during the month, and that 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.\6\
---------------------------------------------------------------------------
\5\ Id.
\6\ Along with the rule language providing for this new rebate
tier, NASDAQ is also including language applicable to rebates for
midpoint pegged orders and midpoint post-only orders (``midpoint
orders''), and non-displayed orders. This language is being added
simply to make it clear that existing rebates for these orders apply
to members qualifying for the new tier with respect to their
displayed orders.
---------------------------------------------------------------------------
NASDAQ currently pays a credit of $0.0029 per share
executed with respect to displayed quotes/orders for a member with
shares of liquidity provided in all securities through one or more of
its NASDAQ Market Center MPIDs representing more than 0.25% of
Consolidated Volume during the month, and with an average daily volume
during the month of more than 100,000 contracts of liquidity accessed
or provided through one or more of its NASDAQ Options Market MPIDs.
NASDAQ is proposing to decrease the Consolidated Volume requirement for
this tier to shares representing more than 0.15% of Consolidated
Volume, thereby reversing another change made in September 2012.\7\
---------------------------------------------------------------------------
\7\ Supra n.4.
---------------------------------------------------------------------------
NASDAQ is also introducing a new rebate tier of $0.00305
per share executed with respect to displayed quotes/orders for a member
that either (i) provides shares of liquidity in all securities through
one of its MPIDs that represent 1.60% or more of Consolidated Volume
during the month, or (ii) provides shares of liquidity in all
securities through one or more of its MPIDs that represent 1.60% or
more of Consolidated Volume during the month, and provides liquidity
through one of its MPIDs that represent 0.75% or more of Consolidated
Volume during the month.\8\
---------------------------------------------------------------------------
\8\ As discussed in Securities Exchange Act Release No. 64003
(March 2, 2011), 76 FR 12784 (March 8, 2011) (SR-NASDAQ-2011-028),
some pricing incentives in NASDAQ's fee and rebate schedule require
members to achieve certain volume thresholds through a single MPID
to avoid providing excessive encouragement to members to aggregate
the activity of several firms to which they provide sponsored access
(some of whom may not themselves be members of NASDAQ) for the sole
purpose of earning a higher rebate.
Along with the rule language providing for this new rebate
tier, NASDAQ is also including language applicable to rebates for
midpoint orders and non-displayed orders. This language is being
added simply to make it clear that existing rebates for these orders
apply to members qualifying for the new tier with respect to their
displayed orders. NASDAQ is also making a conforming change to move
the location of the definition of ``midpoint orders''.
---------------------------------------------------------------------------
Similarly, NASDAQ is introducing a new rebate tier of
$0.0030 per share executed with respect to displayed quotes/orders for
a member that either (i) provides shares of liquidity in all securities
through one of its MPIDs that represent 1.20% or more of Consolidated
Volume during the month, or (ii) provides shares of liquidity in all
securities through one or more of its MPIDs that represent 1.20% or
more of Consolidated Volume during the month, and provides liquidity
through one of its MPIDs that represent 0.75% or more of Consolidated
Volume during the month.\9\
---------------------------------------------------------------------------
\9\ Along with the rule language providing for this new rebate
tier, NASDAQ is also including language applicable to rebates for
midpoint orders and non-displayed orders. This language is being
added simply to make it clear that existing rebates for these orders
apply to members qualifying for the new tier with respect to their
displayed orders.
---------------------------------------------------------------------------
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''). However, in order to partially offset the cost of the
broad rebate incentives discussed above, NASDAQ is partially reducing
the rebates payable under the ISP.
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 $0.00005, $0.0001, or $0.000375 per share with
respect to the number of shares of displayed liquidity provided by the
member that execute at $1 or more per share.\10\ 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.
Without making any other modifications to the program, NASDAQ will
reduce the credit paid to market participants that currently qualify
for a $0.000375 per share credit to $0.0002 per share. The specific
requirements for qualifying for the $0.0002 credit are described below.
---------------------------------------------------------------------------
\10\ 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)(4), NASDAQ will pay a credit of $0.0002
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 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 $0.000375 per share.
---------------------------------------------------------------------------
(1) The member's Participation Ratio \12\ for the month exceeds its
[[Page 3933]]
Baseline Participation Ratio \13\ by at least 0.86%. The requirement
reflects the expectation that in order to earn a higher rebate under
the program, a member participating in the program must increase its
participation in NASDAQ as compared with an historical baseline.
---------------------------------------------------------------------------
\12\ ``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.
\13\ ``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.'' \14\ 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.
---------------------------------------------------------------------------
\14\ 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 40% 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.
2. Statutory Basis
NASDAQ believes that the proposed rule change is consistent with
the provisions of Section 6 of the Act,\15\ in general, and with
Sections 6(b)(4) and 6(b)(5) of the Act,\16\ 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.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78f.
\16\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
Changes to Rebates
NASDAQ believes that the proposed changes to rebate tiers are
reasonable, because they will increase the rebates payable to eligible
market participants. NASDAQ further believes that the changes are
consistent with an equitable allocation of fees because the modified
rebate schedule will provide increased incentives for provision of
displayed liquidity that NASDAQ believes benefit all market
participants by dampening price volatility and promoting price
discovery. Finally, NASDAQ believes that the changes are not
unreasonably discriminatory because opportunities for enhanced rebates
to liquidity providers will be broadened under the modified schedule.
Specifically:
The changes to the rebate tiers through which members may
earn a $0.0029 per share executed rebate are reasonable because they
will make it easier for members to receive a rebate at that level, by
lowering the volume requirements for existing tiers and by adding a new
tier through which members may qualify. In addition, the changes are
consistent with an equitable allocation of fees because they reflect an
allocation of rebates to liquidity providers designed to encourage
beneficial market activity, with greater incentives for market
participants to provide liquidity. Finally, the changes are not
unreasonably discriminatory because they increase the availability of
higher rebates without eliminating any of the other means by which a
member may earn a higher rebate under Rule 7018(a).
The addition of two new rebate tiers focused on members
that provide high levels of liquidity is reasonable because it will
reduce the costs of market participants that make significant
contributions to market quality. The change is consistent with an
equitable allocation of fees because NASDAQ believes that it is
equitable to provide incentives to members that are capable of
providing high levels of liquidity (1.2% to 1.6% of Consolidated
Volume) to participate in NASDAQ to a greater extent, because doing so
has the potential to increase NASDAQ's market quality to the benefit of
all its market participants. Finally, NASDAQ believes that these new
rebate tiers are not unreasonably discriminatory because the rebates
they would provide are not significantly higher than rebates otherwise
available through Rule 7018(a) and Rule 7014, and are being offered to
increase the quality of the NASDAQ market.
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 $0.000375 to $0.0002
with respect to certain tiers of the ISP is reasonable, because it
provides a means for NASDAQ to reduce costs during a period of
persistently low trading volumes, in addition to partially offsetting
the costs of the general increased rebates instituted by this filing,
but while still 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. In conjunction with the other changes made by this
filing, this may serve to broaden the availability of enhanced rebates.
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 differentiation between the rebates
[[Page 3934]]
paid to ISP participants and those paid to other liquidity providers.
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. Specifically,
NASDAQ believes that the change, which will generally result in an
increase in the rebates paid to encourage market participants to use
NASDAQ, reflects the high degree of competition in the cash equities
markets and will further enhance that competition by lowering fees and
possibly encouraging NASDAQ's competitors to make competitive
responses. Moreover, the decreased ISP rebate contained in the proposed
rule change will not burden competition because the market for order
execution is extremely competitive and members may readily opt to
disfavor NASDAQ's execution services if they believe that alternatives
offer them better value. Accordingly, NASDAQ believes that the degree
to which fee changes in this market may impose any burden on
competition is extremely limited. Because competitors are free to
modify their own fees in response, and because market participants may
readily adjust their order routing practices, 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
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act.\17\ At any time within 60 days of the
filing of the proposed rule change, the Commission summarily may
temporarily suspend such rule change if it appears to the Commission
that such action is necessary or appropriate in the public interest,
for the protection of investors, or otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------
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-2012-149 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-2012-149. 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 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-2012-149 and should
be submitted on or before February 7, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
---------------------------------------------------------------------------
\18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-00869 Filed 1-16-13; 8:45 am]
BILLING CODE 8011-01-P
