Order Exempting Market Makers Participating in NASDAQ Stock Market LLC's Market Quality Program From Section 11(d)(1) of the Securities Exchange Act of 1934 and Rule 11d1-2 Thereunder, 40523-40525 [2013-16075]
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Federal Register / Vol. 78, No. 129 / Friday, July 5, 2013 / Notices
ICR Status: The approval for this
information collection is scheduled to
expire on 7/31/2013.
Description: Section 1512 of the
American Recovery and Reinvestment
Act of 2009, Public Law 111–5, 123 Stat.
115 (2009) (Recovery Act), requires
recipients of Recovery Act funds to
report on the use of those funds. These
reports are submitted to
FederalReporting.gov, and certain
information from these reports is then
posted publically. This collection
pertains only to recipients of federal
financial assistance.
More specifically, prime recipients,
sub-recipients, and vendors who receive
federal financial assistance Recovery
Act funds are required to submit Section
1512 data elements as set forth in the
Recipient Reporting Data Dictionary
(available electronically at https://
www.federalreporting.gov/
federalreporting/downloads.do). The
following is a cumulative summary of
the reporting guidance issued by the
Office of Management and Budget
(OMB) in its June 22, 2009, guidance
entitled, ‘‘Implementing Guidance for
the Reports on Use of Funds Pursuant
to the American Recovery and
Reinvestment Act of 2009’’ (M–09–21),
and its December 18, 2009, guidance
entitled, ‘‘Updated Guidance on the
American Recovery and Reinvestment
Act—Data Quality, Non-Reporting
Recipients, and Reporting of Job
Estimates’’ (M–10–08):
Prime Recipients: The prime recipient
is ultimately responsible for the
reporting of all data required by Section
1512 of the Recovery Act and the OMB
Guidance, including the Federal
Funding Accountability and
Transparency Act (FFATA) data
elements for the sub-recipients of the
prime recipient required under
Section1512(c)(4). In addition, the
prime recipient must report three
additional data elements associated
with any vendors receiving funds from
the prime recipient for any payments
greater than $25,000. Specifically, the
prime recipient must report the identity
of the vendor by reporting the DUNS
number, the amount of the payment,
and a description of what was obtained
in exchange for the payment. If the
vendor does not have a DUNS number,
then the name and zip code of the
vendor’s headquarters will be used for
identification.
Sub-Recipients of the Prime Recipient:
The sub-recipients of the prime
recipient may be required by the prime
recipient to report the FFATA data
elements required under Section
1512(c)(4) for payments from the prime
recipient to the sub-recipient. The
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reporting sub-recipients must also
report one data element associated with
any vendors receiving funds from that
sub-recipient. Specifically, the subrecipient must report, for any payments
greater than $25,000, the identity of the
vendor by reporting the DUNS number,
if available, or otherwise the name and
zip code of the vendor’s headquarters.
Required Data: The specific data
elements to be reported by prime
recipients and sub-recipients are
included in the Recipient Reporting
Data Dictionary. Below are the basic
reporting requirements to be reported on
prime recipients, recipient vendors, subrecipients, and sub-recipient vendors.
Where noted, the information is not
entered by the recipient but rather is
derived from another source:
Prime Recipient
1. Funding Agency Code
2. Awarding Agency Code
3. Program Source (TAS)
4. Award Number
5. Order Number
6. Recipient DUNS Number
7. Parent DUNS (derived from CCR)
8. Recipient Type (derived from CCR)
9. CFDA Number
10. Government Contracting Office
Code
11. Recipient Congressional District
12. Recipient Account Number
13. Final Report (not FFATA)
14. Award Type
15. Award Date
16. Award Description
17. Project Name or Project/Program
Title
18. Quarterly Activities/Project
19. Project Status
20. Activity Code (NAICS or NTEE–
NPC)
21. Number of Jobs
22. Descriptions of Jobs Created/
Retained
23. Amount of Award
24. Total Federal Amount ARRA
Funds Received/Invoiced
25. Total Federal Amount of ARRA
Expenditure
26. Total Federal ARRA Infrastructure
Expenditure
27. Infrastructure Purpose and
Rationale
28. Infrastructure Contact Information
29. Recipient Primary Place of
Performance
30. Recipient Indication of Reporting
Applicability
31. Recipient Officer Names and
Compensation (if applicable)
32. Total Number of Sub-Awards to
Individuals
33. Total Amount of Sub-Awards to
Individuals
34. Total Number of Payments to
Vendors Less Than $25,000/Award
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40523
35. Total Amount of Payments to
Vendors Less Than $25,000/Award
36. Total Number of Sub-Awards Less
Than $25,000/Award
37. Total Amount of Sub-Awards Less
Than $25,000/Award
Sub-Recipient
1. Sub-Recipient DUNS
2. Sub-Award Number
3. Sub-Recipient Name and Address
(derived from CCR)
4. Sub-Recipient Congressional
District
5. Amount of Sub-Award
6. Total Sub-Award Funds Disbursed
7. Sub-Award Date
8. Sub-Recipient Place of Performance
9. Sub-Recipient Indication of
Reporting Applicability
10. Sub-Recipient Officer Names and
Compensation (if applicable)
Vendor
1. Award Number—Prime Recipient
Vendor
2. Sub-Award Number—SubRecipient Vendor
3. Vendor DUNS Number
4. Vendor HQ Zip Code + 4
5. Vendor Name
6. Product and Service Description
7. Payment Amount
Affected Public: Recipients, as
defined in Section 1512(b)(1) of the
Recovery Act, of Recovery Act funds
(specifically, Federal financial
assistance).
Total Estimated Number of
Respondents: 24,356.
Frequency of Responses: Quarterly.
Total Estimated Annual Burden
Hours: 160,263.
Dated: July 1, 2013.
Atticus J. Reaser,
General Counsel, Recovery Accountability
and Transparency Board.
[FR Doc. 2013–16151 Filed 7–3–13; 8:45 am]
BILLING CODE 6821–15–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69892]
Order Exempting Market Makers
Participating in NASDAQ Stock Market
LLC’s Market Quality Program From
Section 11(d)(1) of the Securities
Exchange Act of 1934 and Rule 11d1–
2 Thereunder
June 28, 2013.
On March 13, 2013, the Securities and
Exchange Commission (‘‘Commission’’)
approved a proposed rule change of the
NASDAQ Stock Market LLC
(‘‘Exchange’’ or ‘‘NASDAQ’’) to add new
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NASDAQ Rule 5950 (‘‘New Rule 5950’’)
to establish the Market Quality Program
(‘‘MQP’’ or ‘‘Program’’).1 In connection
with the Program, on a voluntary pilot
basis, an MQP Company 2 may list an
eligible MQP Security 3 on NASDAQ
and in addition to the standard (nonMQP) NASDAQ listing fee, a sponsor
may pay a fee (‘‘MQP Fee’’) 4 that will
be used for the purpose of incentivizing
one or more market makers participating
in the MQP (‘‘MQP Market Makers’’) to
enhance the market quality of an MQP
Security.
Section 11(d)(1) of the Exchange Act 5
generally prohibits a broker-dealer from
extending or maintaining credit, or
arranging for the extension or
maintenance of credit, on shares of new
issue securities, if the broker-dealer
participated in the distribution of the
new issue securities within the
preceding 30 days. The Commission’s
view is that shares of open-end
investment companies and unit
investment trusts registered under the
1940 Act, such as ETF shares, are
distributed in a continuous manner, and
broker-dealers that sell such securities
are therefore participating in the
‘‘distribution’’ of a new issue for
purposes of Section 11(d)(1).6
1 Securities Exchange Act Release No. 69195,
(Mar. 20, 2013) (‘‘Approval Order’’). The Approval
Order contains a detailed description of the MQP.
On December 7, 2012, NASDAQ filed with the
Commission, pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934, as amended
(‘‘Act’’ or ‘‘Exchange Act’’) and Rule 19b–4
thereunder, a proposed rule change to establish the
MQP. The proposed rule change, as modified by
Amendment No. 1 thereto, was published for
comment in the Federal Register on December 31,
2012. Securities Exchange Act Release No. 68515
(Dec. 21, 2012), 77 FR 77141 (Dec. 31, 2012)
(‘‘Notice’’). On February 7, 2013, NASDAQ
submitted Amendment No. 2 to the proposed rule
change. On February 8, 2013 NASDAQ withdrew
Amendment No. 2 due to a technical error in that
amendment and submitted Amendment No. 3 to the
proposed rule change. As noted in the Approval
Order, Amendment No. 3 provided clarification to
the proposed rule change and did not require notice
and comment. On February 14, 2013, the
Commission designated a longer period within
which to take action on the proposed rule change.
Securities Exchange Act Release No. 68925 (Feb. 14,
2013), 78 FR 12116 (Feb. 21, 2013). The Approval
Order grants approval of the proposed rule change,
as modified by Amendment Nos. 1 and 3.
2 The term ‘‘MQP Company’’ means the trust or
company housing the exchange traded fund
(‘‘ETF’’) or, if the ETF is not a series of a trust or
company, then the ETF itself. New Rule 5950(e)(5).
3 The term ‘‘MQP Security’’ means an ETF
security issued by an MQP Company that meets all
of the requirements to be listed on NASDAQ
pursuant to Rule 5705. New Rule 5950(e)(1).
4 The MQP Fee, as described more fully in New
Rule 5950(b)(2), consists of an annual basic MQP
Fee, and may include an additional annual
supplemental fee.
5 15 U.S.C. 78k(d)(1).
6 See, e.g., Exchange Act Release Nos. 6726 (Feb.
8, 1962), 27 FR 1415 (Feb. 15, 1962) and 21577
(Dec. 18, 1984), 49 FR 50174 (Dec. 27, 1984).
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The Division of Trading and Markets,
acting under delegated authority,
granted an exemption from Section
11(d)(1) and Rule 11d1–2 thereunder for
broker-dealers that have entered into an
agreement with an ETF’s distributor to
place orders with the distributor to
purchase or redeem the ETF’s shares
(‘‘Broker-Dealer APs’’).7 The SIA
Exemption allows a Broker-Dealer AP to
extend or maintain credit, or arrange for
the extension or maintenance of credit,
to or for customers on the shares of
qualifying ETFs subject to the condition
that neither the Broker-Dealer AP, nor
any natural person associated with the
Broker-Dealer AP, directly or indirectly
(including through any affiliate of the
Broker-Dealer AP), receives from the
fund complex any payment,
compensation, or other economic
incentive to promote or sell the shares
of the ETF to persons outside the fund
complex, other than non-cash
compensation permitted under NASD
Rule 2830(l)(5)(A), (B), or (C). This
condition is intended to eliminate
special incentives that Broker-Dealer
APs and their associated persons might
otherwise have to ‘‘push’’ ETF shares.
The MQP will permit certain ETFs to
voluntarily incur increased listing fees
payable to the Exchange. In turn, the
Exchange will use the fees to make
incentive payments to market makers
that improve the liquidity of
participating issuers’ securities, and
thus enhance the market quality for the
participating issuers. Incentives
payments will be accrued for, among
other things, executing purchases and
sales on the Exchange. Receipt of the
incentive payments by certain brokerdealers will implicate the condition of
the SIA Exemption from the new issue
lending restriction in Section 11(d)(1) of
the Exchange Act discussed above. The
Commission’s view is that the incentive
payments market makers will receive
under the proposal are indirect
payments from the fund complex to the
market maker and that those payments
are compensation to promote or sell the
shares of the ETF. Therefore, in the
absence of an exemption from Section
11(d)(1) and rule 11d1–2 thereunder, an
MQP Market Maker that is also a BrokerDealer AP for an ETF (or an associated
person or an affiliate of a Broker-Dealer
AP) that receives the incentives will not
be able to rely on the SIA Exemption
from Section 11(d)(1).8
7 See Letter from Catherine McGuire, Chief
Counsel, Division of Trading and Markets,
Securities and Exchange Commission to Securities
Industry Association (Nov. 21, 2005) (‘‘SIA
Exemption’’).
8 See Approval Order, supra note 1, at 32–33.
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NASDAQ has requested, on behalf of
itself and those MQP Market Makers
who are broker-dealers (or any
associated person or affiliate of such
broker-dealers), exemptive, interpretive
or no-action relief from the
requirements of Section 11(d)(1) of the
Exchange Act and Rule 11d1–2
thereunder, in connection with certain
payments from the Exchange to certain
Market Makers participating in the
MQP, as discussed in its letter.9
NASDAQ believes that the MQP
Credit should not disqualify a BrokerDealer AP or Non-AP Broker-Dealer
from relying on the SIA exemption.
Among other things, NASDAQ notes
that the MQP Credit is provided only to
MQP Market Makers that meet or exceed
MQP market quality standards and that
it will not act as an incentive for BrokerDealer APs or Non-AP Broker-Dealers to
‘‘push’’ the MQP Securities. In addition,
many features of the MQP seek to
improve the quality of the market for
MQP Securities, enhance liquidity in
participating MQP Securities, and
reduce spreads and decrease the
effective cost of investing in MQP
Securities. NASDAQ notes that the MQP
Credit attributable to sales of MQP
Securities by an MQP Market Maker is
modest at approximately 25% of the
total MQP Credit, with the remainder
attributable to purchases by the MQP
Market Maker and quotes. The Exchange
also notes the ‘‘the unprecedented
transparency of the MQP through a
dedicated MQP Web page, will enable
investors to understand the MQP and
the roles of MQP Companies, MQP
Market Makers and the Exchange within
the Program.’’ 10
9 Letter from David M. Lynn, Morrison & Foerster
LLP to David Blass, Chief Counsel, Division of
Trading and Markets, Securities and Exchange
Commission (June 27, 2013) (‘‘Request Letter’’).
10 Request Letter at 14. Several Exchange Rules
are designed to provide comprehensive and
accessible disclosure to investors about the MQP
Program through the Exchange’s Web site or
product-specific Web sites. New Rules 5950(a)(1)(C)
and 5950(c)(3) require the Exchange to provide
notification on its Web site regarding: (i) the
acceptance of an MQP Company (on behalf of an
MQP Security) and an MQP Market Maker into the
MQP; (ii) the total number of MQP Securities that
any one MQP Company may have in the MQP; (iii)
the names of MQP Securities and the MQP Market
Maker(s) in each MQP Security, and the dates that
an MQP Company, on behalf of an MQP Security,
commenced participation in and withdrew or was
terminated from the MQP; and (iv) any limit on the
number of MQP Market Makers permitted to
register in an MQP Security. New Rule
5950(a)(2)(D) requires the Exchange to provide
notification on its Web site when it receives
notification that an MQP Company (on behalf of an
MQP Security) or an MQP Market Maker intends to
withdraw from the MQP, including the date of
actual withdrawal or termination from the MQP.
Rule 5950(b)(1) requires the MQP Company to
disclose on a product-specific Web site for each
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tkelley on DSK3SPTVN1PROD with NOTICES
NASDAQ also believes that the
potential market quality improvements
of the MQP will be reduced if BrokerDealers APs and non-AP Broker-Dealers
do not receive the requested exemption.
NASDAQ asserts that the MQP
incentives are designed to encourage
market markers to participate in the
Program and that it is desirable for as
many market participants as possible to
participate in the Program. The
Commission recognizes that brokerdealers that have to choose between
participating in the MQP and having the
ability to rely on the SIA Exemption
may determine for business reasons that
they would prefer to benefit from the
SIA Exemption and thus would decline
to participate in the MQP.11 Therefore,
we understand how the absence of an
exemption from Section 11(d)(1) could
serve to reduce the number of MQP
Market Makers in the Program.
The Commission finds that it is
appropriate in the public interest, and is
consistent with the protection of
investors, to grant a limited exemption
from Section 11(d)(1) of the Exchange
Act and Rule 11d1–2 thereunder to
Broker-Dealer APs and Non-AP BrokerDealers who participate in the MQP.
The Program is intended to improve
market quality by promoting enhanced
liquidity, reduced spreads, and reduced
cost of investing in MQP Securities. The
Commission believes that granting the
exemption will encourage a larger
number of MQP Market Makers to
participate in the program and that a
larger number of MQP Market Makers
should create greater potential for the
market quality improvements the
Program aims for. The Exchange
determines to pay an MQP Credit only
if an MQP Market Maker maintains a
quality market in an MQP Security
meeting certain spread and liquidity
standards and that MQP payments are
not intended to promote the sale of
MQP Securities. The Commission
believes that the portion of the MQP
product, that the MQP Security is in the MQP and
to provide a link to the Exchange’s MQP Web site.
The Exchange will also post monthly reports
concerning the efficacy of the MQP program to its
Web site.
11 NASDAQ reports that Broker-Dealer APs and
Non-AP Broker-Dealers believe that participating in
the MQP in the absence of requested relief may
‘‘present an unacceptable level of risk that may
keep some market participants out of the Program.’’
Request Letter, note 82. We choose not to speculate
about the risk that these broker-dealers perceive,
but we note that, even in the absence of exemption
granted herein, a broker-dealer that receives MQP
credits derived from sales of MQP Securities but
that does not extend or maintain credit, or arrange
for the extension or maintenance of credit, on
shares of new issue MQP Securities for which the
broker-dealer participated in the distribution within
the preceding 30 days would not violate Exchange
Act Section 11(d)(1).
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Credit attributable to sales of MQP
Securities—approximately 25% of the
MQP Credit, with the remainder
attributable to purchases and
quotations—may create a modest
incentive for MQP Market Makers to
promote the sale of MQP Securities,
while creating an overall incentive for
MQP Market Makers to enhance market
quality. The Commission does not
believe that this combination of
incentives will provide the kind of
‘‘share-pushing’’ incentive with which
Congress was concerned when it
enacted Section 11(d). The required
Web site disclosures 12 will also help
Market Makers’ customers understand
the Program’s effect on MQP Market
Makers’ incentives and thus will help
investors to make informed decisions
despite the potential additional sales
pressure Market Makers may assert as a
result of the MQP.
Conclusion
It is therefore ordered, that BrokerDealer APs and Non-AP Broker-Dealers
who participate in the MQP, may rely
on the SIA Exemption pertaining to
Section 11(d)(1) and Rule 11d1–2
thereunder,13 subject to the conditions
provided in that exemption,
notwithstanding that Broker-Dealer APs
and Non-AP Broker-Dealers may receive
MQP Credits derived in part from the
sale of MQP Securities as described in
your request.
This exemption expires when the
Program terminates, and is subject to
modification or revocation at any time
the Commission determines that such
action is necessary or appropriate in
furtherance of the purposes of the
Exchange Act. This order does not
represent Commission views with
respect to any other question that the
proposed activities may raise or the
applicability of other federal or state
laws and rules to the proposed
activities.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–16075 Filed 7–3–13; 8:45 am]
BILLING CODE 8011–01–P
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12 See
note 10, supra.
note 7, supra.
14 17 CFR 200.30–3(a)(62).
13 See
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40525
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69894; File No. SR–NSCC–
2013–805]
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Notice of No Objection to
Advance Notice Filing To Require That
All Locked-in Trade Data Submitted to
It for Trade Recording Be Submitted in
Real-Time
June 28, 2013.
I. Introduction
On April 30, 2013, National Securities
Clearing Corporation (‘‘NSCC’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) advance
notice SR–NSCC–2013–805 (‘‘Advance
Notice’’) pursuant to Section 806(e) of
Title VIII of the Dodd-Frank Wall Street
Reform and Consumer Protection Act
(‘‘Dodd-Frank Act’’),1 entitled the
Payment, Clearing, and Settlement
Supervision Act of 2010 (‘‘Clearing
Supervision Act’’ or ‘‘Title VIII’’) and
Rule 19b–4(n) of the Securities
Exchange Act of 1934 (‘‘Exchange Act’’).
On May 14, 2013, NSCC filed with the
Commission Amendment No. 1 to the
Advance Notice.2 The Advance Notice
was published in the Federal Register
on June 11, 2013.3 The Commission
received one comment letter to the
proposed rule change.4 This publication
serves as notice of no objection to the
Advance Notice.
II. Analysis
NSCC filed the Advance Notice to
require that all locked-in trade data
submitted to NSCC for trade recording
1 Dodd-Frank Wall Street Reform and Consumer
Protection Act, Public Law 111–203, 124 Stat. 1376
(2010).
2 In Amendment No. 1, NSCC corrected a
typographical error in the text of its Rules &
Procedures (‘‘Rules’’) related to the Advance Notice.
3 Release No. 34–69699 (June 5, 2013), 78 FR
35076 (June 11, 2013). NSCC also filed a proposed
rule change pursuant to Section 19(b)(1) of the
Exchange Act on April 30, 2013 seeking
Commission approval to permit NSCC to change its
rules to reflect the proposed change described
herein. The Commission, through delegated
authority, published notice of the proposed rule
change on May 14, 2013. Release No. 34–69571
(May 14, 2013), 78 FR 29408 (May 20, 2013).
4 Comment letter from Kermit Kubitz (‘‘Kubitz’’)
dated June 10, 2013, https://www.sec.gov/comments/
sr-nscc-2013-05/nscc201305.shtml. Kubitz supports
the proposed rule change’s requirement ‘‘to submit
trades without any pre-processing . . .’’ and
believes that, ‘‘any cost associated with submitting
higher volumes of data from limiting pre-netting is
small compared to the risks and costs of inaccurate
data which might result from submission of other
than accurate trade data.’’ The Commission
considers all public comments received on the
proposed rule change as comments to the Advance
Notice.
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]]>Agencies
[Federal Register Volume 78, Number 129 (Friday, July 5, 2013)]
[Notices]
[Pages 40523-40525]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-16075]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69892]
Order Exempting Market Makers Participating in NASDAQ Stock
Market LLC's Market Quality Program From Section 11(d)(1) of the
Securities Exchange Act of 1934 and Rule 11d1-2 Thereunder
June 28, 2013.
On March 13, 2013, the Securities and Exchange Commission
(``Commission'') approved a proposed rule change of the NASDAQ Stock
Market LLC (``Exchange'' or ``NASDAQ'') to add new
[[Page 40524]]
NASDAQ Rule 5950 (``New Rule 5950'') to establish the Market Quality
Program (``MQP'' or ``Program'').\1\ In connection with the Program, on
a voluntary pilot basis, an MQP Company \2\ may list an eligible MQP
Security \3\ on NASDAQ and in addition to the standard (non-MQP) NASDAQ
listing fee, a sponsor may pay a fee (``MQP Fee'') \4\ that will be
used for the purpose of incentivizing one or more market makers
participating in the MQP (``MQP Market Makers'') to enhance the market
quality of an MQP Security.
---------------------------------------------------------------------------
\1\ Securities Exchange Act Release No. 69195, (Mar. 20, 2013)
(``Approval Order''). The Approval Order contains a detailed
description of the MQP. On December 7, 2012, NASDAQ filed with the
Commission, pursuant to Section 19(b)(1) of the Securities Exchange
Act of 1934, as amended (``Act'' or ``Exchange Act'') and Rule 19b-4
thereunder, a proposed rule change to establish the MQP. The
proposed rule change, as modified by Amendment No. 1 thereto, was
published for comment in the Federal Register on December 31, 2012.
Securities Exchange Act Release No. 68515 (Dec. 21, 2012), 77 FR
77141 (Dec. 31, 2012) (``Notice''). On February 7, 2013, NASDAQ
submitted Amendment No. 2 to the proposed rule change. On February
8, 2013 NASDAQ withdrew Amendment No. 2 due to a technical error in
that amendment and submitted Amendment No. 3 to the proposed rule
change. As noted in the Approval Order, Amendment No. 3 provided
clarification to the proposed rule change and did not require notice
and comment. On February 14, 2013, the Commission designated a
longer period within which to take action on the proposed rule
change. Securities Exchange Act Release No. 68925 (Feb. 14, 2013),
78 FR 12116 (Feb. 21, 2013). The Approval Order grants approval of
the proposed rule change, as modified by Amendment Nos. 1 and 3.
\2\ The term ``MQP Company'' means the trust or company housing
the exchange traded fund (``ETF'') or, if the ETF is not a series of
a trust or company, then the ETF itself. New Rule 5950(e)(5).
\3\ The term ``MQP Security'' means an ETF security issued by an
MQP Company that meets all of the requirements to be listed on
NASDAQ pursuant to Rule 5705. New Rule 5950(e)(1).
\4\ The MQP Fee, as described more fully in New Rule 5950(b)(2),
consists of an annual basic MQP Fee, and may include an additional
annual supplemental fee.
---------------------------------------------------------------------------
Section 11(d)(1) of the Exchange Act \5\ generally prohibits a
broker-dealer from extending or maintaining credit, or arranging for
the extension or maintenance of credit, on shares of new issue
securities, if the broker-dealer participated in the distribution of
the new issue securities within the preceding 30 days. The Commission's
view is that shares of open-end investment companies and unit
investment trusts registered under the 1940 Act, such as ETF shares,
are distributed in a continuous manner, and broker-dealers that sell
such securities are therefore participating in the ``distribution'' of
a new issue for purposes of Section 11(d)(1).\6\
---------------------------------------------------------------------------
\5\ 15 U.S.C. 78k(d)(1).
\6\ See, e.g., Exchange Act Release Nos. 6726 (Feb. 8, 1962), 27
FR 1415 (Feb. 15, 1962) and 21577 (Dec. 18, 1984), 49 FR 50174 (Dec.
27, 1984).
---------------------------------------------------------------------------
The Division of Trading and Markets, acting under delegated
authority, granted an exemption from Section 11(d)(1) and Rule 11d1-2
thereunder for broker-dealers that have entered into an agreement with
an ETF's distributor to place orders with the distributor to purchase
or redeem the ETF's shares (``Broker-Dealer APs'').\7\ The SIA
Exemption allows a Broker-Dealer AP to extend or maintain credit, or
arrange for the extension or maintenance of credit, to or for customers
on the shares of qualifying ETFs subject to the condition that neither
the Broker-Dealer AP, nor any natural person associated with the
Broker-Dealer AP, directly or indirectly (including through any
affiliate of the Broker-Dealer AP), receives from the fund complex any
payment, compensation, or other economic incentive to promote or sell
the shares of the ETF to persons outside the fund complex, other than
non-cash compensation permitted under NASD Rule 2830(l)(5)(A), (B), or
(C). This condition is intended to eliminate special incentives that
Broker-Dealer APs and their associated persons might otherwise have to
``push'' ETF shares.
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\7\ See Letter from Catherine McGuire, Chief Counsel, Division
of Trading and Markets, Securities and Exchange Commission to
Securities Industry Association (Nov. 21, 2005) (``SIA Exemption'').
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The MQP will permit certain ETFs to voluntarily incur increased
listing fees payable to the Exchange. In turn, the Exchange will use
the fees to make incentive payments to market makers that improve the
liquidity of participating issuers' securities, and thus enhance the
market quality for the participating issuers. Incentives payments will
be accrued for, among other things, executing purchases and sales on
the Exchange. Receipt of the incentive payments by certain broker-
dealers will implicate the condition of the SIA Exemption from the new
issue lending restriction in Section 11(d)(1) of the Exchange Act
discussed above. The Commission's view is that the incentive payments
market makers will receive under the proposal are indirect payments
from the fund complex to the market maker and that those payments are
compensation to promote or sell the shares of the ETF. Therefore, in
the absence of an exemption from Section 11(d)(1) and rule 11d1-2
thereunder, an MQP Market Maker that is also a Broker-Dealer AP for an
ETF (or an associated person or an affiliate of a Broker-Dealer AP)
that receives the incentives will not be able to rely on the SIA
Exemption from Section 11(d)(1).\8\
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\8\ See Approval Order, supra note 1, at 32-33.
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NASDAQ has requested, on behalf of itself and those MQP Market
Makers who are broker-dealers (or any associated person or affiliate of
such broker-dealers), exemptive, interpretive or no-action relief from
the requirements of Section 11(d)(1) of the Exchange Act and Rule 11d1-
2 thereunder, in connection with certain payments from the Exchange to
certain Market Makers participating in the MQP, as discussed in its
letter.\9\
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\9\ Letter from David M. Lynn, Morrison & Foerster LLP to David
Blass, Chief Counsel, Division of Trading and Markets, Securities
and Exchange Commission (June 27, 2013) (``Request Letter'').
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NASDAQ believes that the MQP Credit should not disqualify a Broker-
Dealer AP or Non-AP Broker-Dealer from relying on the SIA exemption.
Among other things, NASDAQ notes that the MQP Credit is provided only
to MQP Market Makers that meet or exceed MQP market quality standards
and that it will not act as an incentive for Broker-Dealer APs or Non-
AP Broker-Dealers to ``push'' the MQP Securities. In addition, many
features of the MQP seek to improve the quality of the market for MQP
Securities, enhance liquidity in participating MQP Securities, and
reduce spreads and decrease the effective cost of investing in MQP
Securities. NASDAQ notes that the MQP Credit attributable to sales of
MQP Securities by an MQP Market Maker is modest at approximately 25% of
the total MQP Credit, with the remainder attributable to purchases by
the MQP Market Maker and quotes. The Exchange also notes the ``the
unprecedented transparency of the MQP through a dedicated MQP Web page,
will enable investors to understand the MQP and the roles of MQP
Companies, MQP Market Makers and the Exchange within the Program.''
\10\
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\10\ Request Letter at 14. Several Exchange Rules are designed
to provide comprehensive and accessible disclosure to investors
about the MQP Program through the Exchange's Web site or product-
specific Web sites. New Rules 5950(a)(1)(C) and 5950(c)(3) require
the Exchange to provide notification on its Web site regarding: (i)
the acceptance of an MQP Company (on behalf of an MQP Security) and
an MQP Market Maker into the MQP; (ii) the total number of MQP
Securities that any one MQP Company may have in the MQP; (iii) the
names of MQP Securities and the MQP Market Maker(s) in each MQP
Security, and the dates that an MQP Company, on behalf of an MQP
Security, commenced participation in and withdrew or was terminated
from the MQP; and (iv) any limit on the number of MQP Market Makers
permitted to register in an MQP Security. New Rule 5950(a)(2)(D)
requires the Exchange to provide notification on its Web site when
it receives notification that an MQP Company (on behalf of an MQP
Security) or an MQP Market Maker intends to withdraw from the MQP,
including the date of actual withdrawal or termination from the MQP.
Rule 5950(b)(1) requires the MQP Company to disclose on a product-
specific Web site for each product, that the MQP Security is in the
MQP and to provide a link to the Exchange's MQP Web site. The
Exchange will also post monthly reports concerning the efficacy of
the MQP program to its Web site.
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[[Page 40525]]
NASDAQ also believes that the potential market quality improvements
of the MQP will be reduced if Broker-Dealers APs and non-AP Broker-
Dealers do not receive the requested exemption. NASDAQ asserts that the
MQP incentives are designed to encourage market markers to participate
in the Program and that it is desirable for as many market participants
as possible to participate in the Program. The Commission recognizes
that broker-dealers that have to choose between participating in the
MQP and having the ability to rely on the SIA Exemption may determine
for business reasons that they would prefer to benefit from the SIA
Exemption and thus would decline to participate in the MQP.\11\
Therefore, we understand how the absence of an exemption from Section
11(d)(1) could serve to reduce the number of MQP Market Makers in the
Program.
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\11\ NASDAQ reports that Broker-Dealer APs and Non-AP Broker-
Dealers believe that participating in the MQP in the absence of
requested relief may ``present an unacceptable level of risk that
may keep some market participants out of the Program.'' Request
Letter, note 82. We choose not to speculate about the risk that
these broker-dealers perceive, but we note that, even in the absence
of exemption granted herein, a broker-dealer that receives MQP
credits derived from sales of MQP Securities but that does not
extend or maintain credit, or arrange for the extension or
maintenance of credit, on shares of new issue MQP Securities for
which the broker-dealer participated in the distribution within the
preceding 30 days would not violate Exchange Act Section 11(d)(1).
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The Commission finds that it is appropriate in the public interest,
and is consistent with the protection of investors, to grant a limited
exemption from Section 11(d)(1) of the Exchange Act and Rule 11d1-2
thereunder to Broker-Dealer APs and Non-AP Broker-Dealers who
participate in the MQP. The Program is intended to improve market
quality by promoting enhanced liquidity, reduced spreads, and reduced
cost of investing in MQP Securities. The Commission believes that
granting the exemption will encourage a larger number of MQP Market
Makers to participate in the program and that a larger number of MQP
Market Makers should create greater potential for the market quality
improvements the Program aims for. The Exchange determines to pay an
MQP Credit only if an MQP Market Maker maintains a quality market in an
MQP Security meeting certain spread and liquidity standards and that
MQP payments are not intended to promote the sale of MQP Securities.
The Commission believes that the portion of the MQP Credit attributable
to sales of MQP Securities--approximately 25% of the MQP Credit, with
the remainder attributable to purchases and quotations--may create a
modest incentive for MQP Market Makers to promote the sale of MQP
Securities, while creating an overall incentive for MQP Market Makers
to enhance market quality. The Commission does not believe that this
combination of incentives will provide the kind of ``share-pushing''
incentive with which Congress was concerned when it enacted Section
11(d). The required Web site disclosures \12\ will also help Market
Makers' customers understand the Program's effect on MQP Market Makers'
incentives and thus will help investors to make informed decisions
despite the potential additional sales pressure Market Makers may
assert as a result of the MQP.
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\12\ See note 10, supra.
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Conclusion
It is therefore ordered, that Broker-Dealer APs and Non-AP Broker-
Dealers who participate in the MQP, may rely on the SIA Exemption
pertaining to Section 11(d)(1) and Rule 11d1-2 thereunder,\13\ subject
to the conditions provided in that exemption, notwithstanding that
Broker-Dealer APs and Non-AP Broker-Dealers may receive MQP Credits
derived in part from the sale of MQP Securities as described in your
request.
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\13\ See note 7, supra.
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This exemption expires when the Program terminates, and is subject
to modification or revocation at any time the Commission determines
that such action is necessary or appropriate in furtherance of the
purposes of the Exchange Act. This order does not represent Commission
views with respect to any other question that the proposed activities
may raise or the applicability of other federal or state laws and rules
to the proposed activities.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(62).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-16075 Filed 7-3-13; 8:45 am]
BILLING CODE 8011-01-P
