Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Nasdaq's Fees at Rule 7014(f), 67019-67023 [2016-23490]
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Federal Register / Vol. 81, No. 189 / Thursday, September 29, 2016 / Notices
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–MIAX–
2016–32 and should be submitted on or
before October 20, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Brent J. Fields,
Secretary.
[FR Doc. 2016–23497 Filed 9–28–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78912; File No. SR–
NASDAQ–2016–130]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend
Nasdaq’s Fees at Rule 7014(f)
September 23, 2016.
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Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on
September 16, 2016, 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 the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
Exchange’s fees at Rule 7014(f) to: (i)
14 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Change the criteria required to receive
the rebates provided by the Lead Market
Maker (‘‘LMM’’) Program; (ii) change the
rebates offered by the LMM Program;
and (iii) rename the program the
Designated Liquidity Provider (‘‘DLP’’)
Program, as described further below.
While these amendments are effective
upon filing, the Exchange has
designated the proposed amendments to
be operative on October 3, 2016.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://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 and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to: (i) Change the criteria
required to receive the rebates provided
by the LMM Program; (ii) change the
rebates offered by the LMM Program;
and (iii) rename the program the
Designated Liquidity Provider Program.
The LMM Program is designed to
provide incentives to market makers to
make markets in certain exchangetraded products (‘‘ETPs’’). To achieve
this goal, Nasdaq provides credits to a
designated LMM for execution of a
Qualified Security. Under Rule
7014(f)(1), a Qualified Security is
defined as an exchange-traded fund or
index-linked security listed on Nasdaq
pursuant to Nasdaq Rules 5705
(Exchange Traded Funds: Portfolio
Depository Receipts and Index Fund
Shares), 5710 (Securities Linked to the
Performance of Indexes and
Commodities, Including Currencies),
5720 (Trust Issued Receipts), 5735
(Managed Fund Shares), or 5745
(NextShares), and it must have at least
one LMM.
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67019
An LMM is a registered Nasdaq
market maker for a Qualified Security
that has committed to maintain
minimum performance standards. An
LMM is selected by Nasdaq based on
several factors including, but not
limited to, experience with making
markets in exchange-traded funds and
index-linked securities, adequacy of
capital, willingness to promote Nasdaq
as a marketplace, issuer preference,
operational capacity, support personnel,
and history of adherence to Nasdaq
rules and securities laws. Nasdaq may
limit the number of LMMs in a security,
or modify a previously established limit,
upon prior written notice to members.
Rule 7014(f)(4) sets forth the criteria
required, and the rebates and reduced
fees provided, by the LMM Program.
Currently, there are three tiers based on
the amount of time an LMM is at the
national best bid and offer (‘‘NBBO’’).
Specifically, if an LMM is above 15% to
20% at the NBBO, it qualifies for: (i) A
Displayed Liquidity Rebate (for
executions $1 per share and above) of
$0.0040 per executed share; (ii) a
Displayed Liquidity Rebate (for
executions less than $1 per share) of
$0.0000 per executed share; and (iii) a
maximum fee of $0.0005 per executed
share for participation in the Halt,
Opening, and Closing Crosses.3 If an
LMM is above 20% to 50% at the
NBBO, it qualifies for: (i) A Displayed
Liquidity Rebate (for executions $1 per
share and above) of $0.0043 per
executed share; (ii) a Displayed
Liquidity Rebate (for executions less
than $1 per share) of $0.0000 per
executed share; and (iii) a maximum fee
of $0.0000 per executed share for
participation in the Halt, Opening, and
Closing Crosses. Last, if an LMM is
above 50% at the NBBO, it qualifies for:
(i) A Displayed Liquidity Rebate (for
executions $1 per share and above) of
$0.0046 per executed share; (ii) a
Displayed Liquidity Rebate (for
executions less than $1 per share) of
$0.0000 per executed share; and (iii) a
maximum fee of $0.0000 per executed
share for participation in the Halt,
Opening, and Closing Crosses.
The Exchange is proposing to amend
the rebates and criteria under the
program to also take into consideration
certain characteristics of the individual
ETP.
3 A member participating in the Halt Cross would
otherwise be assessed a fee of $0.0010 per share
executed (see Rule 7018(f)). A member participating
in the Opening Cross would otherwise be assessed
a fee of no less than $0.0008 per share executed (see
Rule 7018(e)). A member participating in the
Closing Cross would otherwise be assessed a fee of
no less than $0.0008 per share executed (see Rule
7018(d)).
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Federal Register / Vol. 81, No. 189 / Thursday, September 29, 2016 / Notices
First Change
The purpose of the first change is to
amend the criteria required to receive
the rebates provided by the LMM
Program to better align the behavior
required to qualify for rebates with the
nature of the rebates provided.
Specifically, in lieu of the current
criteria, the Exchange is proposing to
require all LMMs, which will be
renamed DLPs as part of this filing and
will be noted as such when discussed
below,4 to be at the NBBO at least 20%
of the time in the assigned ETP in any
given month in order to qualify for a
Basic Rebate. In order to receive New
Product Support Initiatives [sic],
discussed below, a DLP must be at the
NBBO at least 20% of the time in the
assigned ETP in any given month, the
ETP itself must have a three month
average daily volume (‘‘ADV’’) 5 of less
than 500,000, and the ETP must be less
than 36 months old. Thus, not only
must the DLP contribute to market
quality in the ETP by quoting at the
NBBO, but the ETP itself must have
relatively low volume. Last, to be
eligible for new Additional Tape C ETP
Incentives, discussed below, the average
time the DLP is at the NBBO for each
assigned ETP must average at least 20%,
and the average liquidity provided by
the DLP for each assigned ETP must
average at least 5% of the liquidity
provided on Nasdaq in the respective
ETP.6
Second Change
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The purpose of the second change is
to modify the incentives provided by
4 As discussed in detail below, the Exchange is
proposing to rename the LMM program as the
Designated Liquidity Provider program. As a
consequence, LMMs will be renamed DLPs. For
purposes of this filing, the use of the term DLP is
synonymous with the term LMM.
5 The Exchange is defining average daily volume,
for purposes of the DLP Program, to mean the total
consolidated volume reported to all consolidated
transaction reporting plans, for each individual
security, by all exchanges and trade reporting
facilities during a month divided by the number of
trading days during the month. If a security is not
listed for a full month, the number of trading days
will only include the days in which the security is
listed.
6 For example, assume a DLP has 20 assignments.
If a DLP quotes at the NBBO 50% of the time in
10 of the ETPs and in the remaining 10 ETPs quotes
at the NBBO 40% of the time, the average for the
purposes of this calculation will be 45%. Nasdaq
will calculate the liquidity provided by the DLP as
a percent of liquidity provided in each assigned
ETP on Nasdaq. Nasdaq will then average these
percentages across symbols. For example, if the DLP
is 10% of the added liquidity in 10 of the ETPs and
4% of the added liquidity in the remaining 10 ETPs
the average for this calculation will be 7%. In this
instance the DLP will have met the criteria on
average for the additional incentive, even though it
failed to meet the criteria for all 20 ETPs
individually.
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the program. As discussed above, the
Exchange currently provides rebates and
reduced fees if an LMM meets the
minimum criteria of a tier. In lieu of the
current incentives, the Exchange is
adopting three new incentives that it
believes are more targeted to improving
market quality in ETPs.
First, the Exchange is proposing to
provide Basic Rebates to DLPs that
qualify under the proposed ‘‘Basic
Rebates’’ criteria of being at the NBBO
at least 20% of the time on average in
any given month in a particular ETP.
The Basic Rebates are available for each
of a DLP’s assigned ETPs that it
qualified for under the performance
criteria. The Basic Rebates vary based
on the level of ADV the ETP has in a
given month. Specifically, a DLP will
receive: (i) A rebate of $0.0047 per
executed share of displayed liquidity in
an ETP that has ADV less than 500,000
during the month; (ii) a rebate of
$0.0042 per executed share of displayed
liquidity in an ETP that has ADV
between 500,000 and 5 million during
the month; and (iii) a rebate of $0.0036
per executed share of displayed
liquidity in an ETP that has ADV greater
than 5 million during the month. Thus,
the new rebate schedule takes into
consideration the nature of the market
in the individual ETP, with the
Exchange providing the greatest
incentive to DLPs to participate in the
program in ETPs that have the lowest
volumes.
Second, the Exchange is proposing
New Product Support Incentives to
incentivize DLPs to support trading in
newly-launched ETPs.7 The New
Product Support Incentives are
provided in lieu of the Basic Rebates.
Like the Basic Rebates, the New Product
Support Initiatives [sic] are only
available in the assigned ETPs that the
DLP qualifies for under the New
Product Support Incentives performance
criteria. The proposed incentives are
based on the length of time since the
ETP was launched,8 providing declining
levels of rebate as the ETP matures. In
particular, the Exchange is proposing to
offer to all DLPs that qualify under the
7 Because the New Product Support Incentives
implicates Rule 102 of Regulation M, the
Commission is separately considering a limited,
conditional exemption for issuers whose securities
are subject to the New Product Support Initiative
[sic].
8 The Exchange considers an ETP’s launch date to
be the inception date of the ETP. For example, if
an ETP launched on August 17, 2016, then the ETP
is considered a new product with a fund inception
date of August 17, 2016. Nasdaq will offer an
enhanced rebate of ($0.0070) on the ETP up through
July 2017 (assuming the ADV threshold
requirement of the New Product Support Incentives
was not breached).
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New Product Support Incentives criteria
a rebate of $0.0070 per executed share
of displayed liquidity in the ETP in a
newly-launched ETP with ADV less
than 500,000 up to 12 months from the
ETP’s product inception date, a rebate of
$0.0065 per executed share of displayed
liquidity in the ETP for the period 12 to
24 months from the product inception
date, and a rebate of $0.0055 per
executed share of displayed liquidity in
the ETP for the period 24 to 36 months
from the product inception date. For
purposes of calculating the number of
months under the rule, the first partial
month an ETP is launched will count as
one month.
Third, the Exchange is proposing
Additional Tape C ETP incentives.
Specifically, the Exchange is proposing
to offer DLPs that qualify under the
Additional Tape C ETP Incentive
criteria three tiers of rebates for each
displayed share that adds liquidity in
Tape C ETPs that meet the criteria of
Rule 7014(f)(1)(A).9 These rebates are
provided in addition to other rebates or
fees provided under Rules 7018 and
7014, including the proposed Basic
Rebates or New Product Support
Incentives. Eligibility for each tier is
based on the number of ETPs the DLP
is assigned under the program.
Specifically, an eligible DLP that has at
least 10 ETPs assigned to them during
a given month will receive a rebate of
$0.0003 per share executed in a Tape C
ETP. An eligible DLP that has at least 25
assigned ETPs will receive a rebate of
$0.0004 per share executed in a Tape C
ETP in lieu of the $0.0003 per share
executed rebate. An eligible DLP that
has at least 50 assigned ETPs will
receive a rebate of $0.0005 per share
executed in a Tape C ETP in lieu of the
$0.0003 and $0.0004 per share executed
rebates. Thus, the Exchange is providing
incentive to members to participate as
DLPs in a significant number of ETPs.
The Exchange is also providing a DLP
that qualifies under the Additional Tape
C ETP Incentive criteria yet has fewer
than 10 ETPs assigned to them the
ability to qualify for a $0.0001 per share
executed rebate in Tape C ETPs that
meet the criteria of Rule 7014(f)(1)(A) if
it increases the number of ETPs for
which it is a DLP by 100%. A DLP is
only eligible for the first 100% increase
and will not receive additional $0.0001
per share executed rebates for
subsequent 100% increases to the
number of assigned ETPs. For example,
if an existing DLP has three assigned
ETPs and thereafter is approved as a
DLP for three additional ETPs, the DLP
9 Rule 7014(f)(1)(A) sets forth the ETPs that may
be included in the program.
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would receive an additional $0.0001 per
share executed rebate for each displayed
share that adds liquidity in a Tape C
ETP that meets the criteria of Rule
7014(f)(1)(A). A new DLP will be
considered a 100% increase and also
receive the one-time $0.0001 per share
executed rebate in Tape C ETPs that
meets the criteria of Rule 7014(f)(1)(A)
in the DLP Program upon receiving their
first ETP assignment. Thus, a newlyapproved DLP will receive the
additional $0.0001 per share executed
rebate in Tape C ETPs as described
above when it is initially assigned an
ETP under the DLP Program if the total
number of ETPs assigned is less than
ten, but the newly-approved DLP would
not be eligible for additional $0.0001
per share executed rebates for
subsequent 100% increases to the
number of assigned ETPs.
Third Change
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The purpose of the third change is to
change the name of the program. The
Lead Market Maker Program had
previously been named the Designated
Liquidity Provider Program. In 2015, the
Exchange changed the name of the
program to the Lead Market Maker
program and, accordingly, changed
references to ‘‘Designated Liquidity
Providers’’ and ‘‘DLPs’’ to ‘‘Lead Market
Makers’’ and ‘‘LMMs,’’ respectively.10
At the time, the Exchange noted that the
term Lead Market Maker was more
descriptive of who was eligible for the
program (i.e., market makers), as
opposed to a Designated Liquidity
Provider, which could lead a market
participant to believe that any market
participant was eligible to qualify for
the program. After receiving industry
feedback, the Exchange now believes
that the name Designated Liquidity
Provider is, in fact, not confusing to
market participants. Moreover, the
Exchange notes that the rule explicitly
defines an LMM (now DLP) as a
‘‘registered Nasdaq market maker.’’ 11
Consequently, Nasdaq is changing the
name of the program back to the
‘‘Designated Liquidity Provider
Program.’’ As was the case when the
Exchange renamed the program in 2015,
the proposed change in the program’s
name and terminology does not impact
the operation of the program.12
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
10 See Securities Exchange Act Release No. 75389
(July 8, 2015), 80 FR 41133 (July 14, 2015) (SR–
NASDAQ–2015–071).
11 See Rule 7014(f)(2).
12 Supra note 10.
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of the Act,13 in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5)
of the Act,14 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 the Exchange operates or
controls, and is designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest; and
are not designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.
First Change
The Exchange believes that amending
the criteria required for a DLP to be
eligible for the rebates by better aligning
the behavior required to qualify for
rebates with the nature of the rebates
provided is reasonable because the
Exchange must from time to time assess
the effectiveness of the incentives it
provides to market participants in
return for the beneficial behavior
required to receive the incentive. In this
case, the Exchange is amending the
program to include more targeted
incentives and is applying not only the
current NBBO-based criteria, but also
other measures of beneficial market
participation and ETP market quality.
Specifically, the Exchange is applying
an average daily volume standard to
determine if an ETP qualifies for the
New Product Support Incentives, which
ties the availability of the incentive to
a certain relatively low level of ADV
thus ensuring that the ETP’s market
quality needs improvement. As used in
the DLP Program, ADV is, for each
individual security, the total
consolidated volume reported to all
consolidated transaction reporting plans
by all exchanges and trade reporting
facilities during a month divided by the
number of trading days during the
month.
The Exchange is also applying a
measure of average liquidity provided in
the DLP’s assigned ETPs to qualify for
the Additional Tape C ETP Incentives,
which requires the DLP to, on average,
provide at least 5% of the liquidity
provided on Nasdaq in their assigned
13 15
14 15
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U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
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67021
ETPs. The Exchange believes that the
proposed ETP liquidity criteria of the
Additional Tape C ETP Incentive tier
ensures that the DLP is providing an
adequate level of liquidity in an ETP in
addition to quoting at the NBBO in all
of its assigned ETPs at an average at
least 20% of the time in each ETP.
The Exchange believes that the
proposed eligibility criteria are an
equitable allocation and are not unfairly
discriminatory because the Exchange
will apply the same criteria to all DLPs.
The Exchange also believes that the
proposed eligibility criteria are an
equitable allocation and are not unfairly
discriminatory among Exchange
members because any member may
become a market maker and take the
steps necessary to also become a DLP,
including meeting the proposed
minimum criteria under Rule 7014(f)(4).
The DLP Program is limited to Exchange
market makers because of their unique
role in the markets, including their
obligation to provide liquidity in the
securities in which they are registered.15
Thus, the DLP Program is a further
extension of the market maker’s role in
providing liquidity in specific
securities, to the benefit of all market
participants.
Second Change
The Exchange believes that the
proposed new rebates are reasonable
because they are better designed to
provide incentives to DLPs to improve
the market in ETPs that are in need of
improved market quality. With respect
to the Basic Rebates, the Exchange is
providing three tiers of rebates, ranging
from $0.0036 to $0.0047 per executed
share of displayed liquidity in the ETP.
The current Displayed Liquidity Rebate
(for executions $1 per share and above)
ranges from $0.0040 to $0.0046 per
share executed. Thus, the levels of the
rebates currently offered and proposed
are comparable.
The Exchange believes that the
proposed rebates provided under the
New Product Support Incentives are
reasonable because they provide
significant incentive in return for
critical support of new ETPs. Generally,
new ETPs launch with low volume, yet
improve significantly over time. Low
volume leads to less liquid markets for
participants seeking to transact in these
newly-listed securities. Consequently,
the Exchange is proposing to provide
incentives that decrease over time,
beginning with a rebate to qualifying
DLPs of $0.0070 during the first twelve
months post ETP launch, $0.0065
15 See Rule 4613 for a description of Exchange
market maker obligations.
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during the second twelve-month period,
and $0.0055 for the third twelve-month
period. The Exchange believes that
these graduated rebates will provide
adequate incentive to DLPs to support
trading in new ETPs until they have
reached a level of maturity where such
support is not needed.
The Exchange believes that the
proposed Additional Tape C ETP
rebates are reasonable because they
provide additional incentive to DLPs to
register in ETPs. Increasing the number
of DLPs that any given ETP has will
improve market quality in the ETP,
since DLPs have performance
requirements designed to improve
market quality in the assigned ETP. The
rebates are tied to the number of ETPs
a DLP that meets the proposed
eligibility criteria under Rule 7014(f)(4)
is assigned, increasing in conjunction
with the number of assigned ETPs.
Moreover, the Exchange is providing a
one-time $0.0001 per executed share
rebate in Tape C ETPs to both existing
and newly-approved DLPs that have less
than ten ETPs assigned, but increase the
number of ETPs assigned by 100%. The
Exchange believes that this one-time
rebate may provide incentive to DLPs to
increase the number of ETPs assigned
significantly, and also incentivize
market makers who are not DLPs to
participate in the program thereby
promoting greater participation in the
program to the benefit of all market
participants transacting in the DLP
Program ETPs.
The Exchange believes that all of the
proposed rebates are an equitable
allocation and are not unfairly
discriminatory because the Exchange
will provide the same rebate to all
similarly situated DLPs. The Exchange
believes that limiting securities eligible
for the program to ETPs that are new or
have relatively low volumes is an
equitable allocation and is not unfairly
discriminatory because these securities
are the most in need of improved market
quality. Moreover, the New Product
Support Incentives are reduced over
time as the ETP matures and the market
in the ETP improves, eventually ending
36 months after the ETPs inception date.
Thus, the New Product Support
Incentives are of limited duration, with
the ETPs eligible for New Product
Support Incentives treated like other
ETPs of the DLP Program once they
reach the 36 month from product
inception limit of these incentives. The
Exchange also believes that the
proposed rebates are an equitable
allocation and are not unfairly
discriminatory among Exchange
members because, as noted above, any
member may become an Exchange
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market maker and take the steps
necessary to also become a DLP,
including meeting the proposed
minimum criteria under Rule 7014(f)(4).
As noted above, the DLP Program is
limited to Exchange market makers
because of their unique role in the
markets, including their obligation to
provide liquidity in the securities that
they are registered in. Thus, the DLP
Program is a further extension of the
market maker’s role in providing
liquidity in specific securities.
Third Change
The Exchange believes that the
proposed change in the name of the
program and its terminology further
perfects the mechanism of a free and
open market and a national market
system, and, in general, promotes public
interest because it reverts the program to
its long-standing former name and
terminology. As noted, the Exchange is
making the change in response to
industry feedback, which noted a
preference for the prior name and
terminology, and did not believe that it
would be confusing. In support of this
last point, the Exchange notes that the
rule clearly indicates that it applies to
only registered Nasdaq market makers.
Thus, the Exchange believes that
reverting the name of the program and
its terminology is consistent with
further perfecting the mechanism of a
free and open market and a national
market system.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. In terms of
inter-market competition, the Exchange
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, the Exchange 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. Because competitors are
free to modify their own fees in
response, and because market
participants may readily adjust their
order routing practices, the Exchange
believes that the degree to which fee
changes in this market may impose any
burden on competition is extremely
limited.
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In this instance, the Exchange is
proposing to modify the incentives
provided to market makers for
participation in the DLP program in an
effort to improve the program by
providing more targeted incentives to
improve market quality in ETPs that are
in need of such improvement the most.
The Exchange uses incentives, such as
the rebates of the DLP program, to
incentivize market participants to
improve the market. The Exchange
must, from time to time, assess the
effectiveness of incentives and adjust
them when they are not as effective as
the Exchange believes they could be.
Moreover, the Exchange is ultimately
limited in the amount of rebates it may
offer. The proposed new criteria and
incentives are reflective of such an
analysis.
The Exchange notes that participation
in the DLP program is entirely voluntary
and, to the extent that registered market
makers determine that the rebates are
not in line with the level of marketimproving behavior the Exchange
requires, a DLP may elect to deregister
as such with no penalty. The Exchange
notes that it is raising the minimum
criteria required for a DLP to receive a
rebate under the program, and thus
there is a risk that a DLP may not
qualify for any of the incentives under
the amended program if it provides the
same level market participation.
The Exchange does not believe that
the change places an unnecessary
burden on competition because the
increase in the minimum criteria is
relatively small and the level of rebate
a DLP may receive is significantly
higher in lower volume ETPs under the
Basic Rebates. In sum, if the changes
proposed herein are unattractive to
market makers, it is likely that the
Exchange will lose participation in the
DLP program as a result. As noted
above, the Exchange is continuing to
limit eligibility for the program to
Exchange market makers. The Exchange
believes that Exchange market makers
are best positioned to provide market
improvement in DLP Program ETPs in
light of their unique function in the
markets. Moreover, any Exchange
member may elect to take the steps
necessary to become an Exchange
market maker and therefore become
eligible for the program if they choose.
Thus, the Exchange does not believe
that the proposal represents a burden on
competition among Exchange members,
or that the proposal will impair the
ability of members or competing order
execution venues to maintain their
competitive standing in the financial
markets.
E:\FR\FM\29SEN1.SGM
29SEN1
Federal Register / Vol. 81, No. 189 / Thursday, September 29, 2016 / Notices
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.16
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: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) 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:
mstockstill on DSK3G9T082PROD with NOTICES
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–2016–130 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NASDAQ–2016–130. 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
16 15
U.S.C. 78s(b)(3)(A)(ii).
VerDate Sep<11>2014
18:51 Sep 28, 2016
Jkt 238001
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–2016–130 and should be
submitted on or before October 20,
2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Brent J. Fields,
Secretary.
[FR Doc. 2016–23490 Filed 9–28–16; 8:45 am]
BILLING CODE P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78925; File No. SR–FINRA–
2016–023]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Order Granting
Approval of Proposed Rule Change
Relating to TRACE Reporting and
Dissemination of CMO Transactions
September 23, 2016.
I. Introduction
On June 27, 2016, the Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’) filed with the Securities and
Exchange Commission (‘‘Commission’’),
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a
proposed rule change related to Trade
Reporting and Compliance Engine
(‘‘TRACE’’) reporting and dissemination
of transactions in Collateralized
Mortgage Obligations (‘‘CMOs’’).3 The
proposed rule change was published for
comment in the Federal Register on July
6, 2016.4 The Commission received
17 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 The term ‘‘Collateralized Mortgage Obligation’’
is defined in FINRA Rule 6710(dd).
4 See Securities Exchange Act Release No. 78196
(June 29, 2016), 81 FR 44065 (‘‘Notice’’).
1 15
PO 00000
Frm 00105
Fmt 4703
Sfmt 4703
67023
three comments in response to the
proposal.5 FINRA responded to the
comments on September 14, 2016.6
FINRA extended the time period within
which the Commission shall approve
the proposed rule change, disapprove
the proposed rule change, or institute
proceedings to determine whether the
proposed rule change should be
disapproved to September 23, 2016.7
This order grants approval of the
proposed rule change.
II. Description of the Proposed Rule
Change
Historically, FINRA has utilized
TRACE to collect from its members and
publicly disseminate information on
secondary, over-the-counter transactions
in corporate debt securities, Agency
Debt Securities,8 and certain primary
market transactions. For certain other
asset types, FINRA utilized TRACE to
collect transaction information, but
until recently, did not disseminate such
information publicly. FINRA has been
working to phase-in the dissemination
of transaction information for these
previously non-disseminated asset
types. To date, FINRA has implemented
dissemination of Agency Pass-Through
Mortgage-Backed Securities and SBABacked ABS; 9 TRACE-Eligible
5 See letters to Brent J. Fields, Secretary,
Commission, from Mike Nicholas, Chief Executive
Officer, BDA, dated July 27, 2016 (‘‘BDA Letter’’);
Lynn Martin, President and Chief Operating Officer,
ICE Data Services, dated July 27, 2016 (‘‘ICE
Letter’’); and Chris Killian, Managing Director,
Securitization, SIFMA, dated July 27, 2016
(‘‘SIFMA Letter’’).
6 See letter to Brent J. Fields, Secretary,
Commission, from Alexander Ellenberg, Associate
General Counsel, Regulatory Policy and Oversight,
FINRA, dated September 14, 2016 (‘‘FINRA
Response Letter’’).
7 See letter to Katherine England, Assistant
Director, Division of Trading and Markets,
Commission, from Alexander L. Ellenberg,
Assistant General Counsel, Regulatory Policy and
Oversight, FINRA, dated August 9, 2016 (extending
to September 9, 2016); letter to Katherine England,
Assistant Director, Division of Trading and Markets,
Commission, from Alexander L. Ellenberg,
Associate General Counsel, Regulatory Policy and
Oversight, FINRA, dated September 2, 2016
(extending to September 23, 2016).
8 The term ‘‘Agency Debt Security’’ is defined in
FINRA Rule 6710(l).
9 On November 12, 2012, FINRA began
disseminating transactions in Agency Pass-Through
Mortgage-Backed Securities traded TBA. See
Securities Exchange Act Release No. 66829 (April
18, 2012), 77 FR 24748 (April 25, 2012) (approving
SR–FINRA–2012–020); FINRA’s Regulatory Notice
12–26 (May 2012) and Regulatory Notice 12–48
(November 2012). On July 22, 2013, FINRA began
disseminating transactions in Agency Pass-Through
Mortgage-Backed Securities traded in Specified
Pool Transactions and SBA-Backed ABS traded
TBA or in Specified Pool Transactions. See
Securities Exchange Act Release No. 68084 (October
23, 2012), 77 FR 65436 (October 26, 2012)
(approving SR–FINRA–2012–042); FINRA’s
Regulatory Notice 12–56 (December 2012). The
E:\FR\FM\29SEN1.SGM
Continued
29SEN1
]]>Agencies
[Federal Register Volume 81, Number 189 (Thursday, September 29, 2016)]
[Notices]
[Pages 67019-67023]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-23490]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-78912; File No. SR-NASDAQ-2016-130]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Nasdaq's Fees at Rule 7014(f)
September 23, 2016.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on September 16, 2016, 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 the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the Exchange's fees at Rule 7014(f)
to: (i) Change the criteria required to receive the rebates provided by
the Lead Market Maker (``LMM'') Program; (ii) change the rebates
offered by the LMM Program; and (iii) rename the program the Designated
Liquidity Provider (``DLP'') Program, as described further below. While
these amendments are effective upon filing, the Exchange has designated
the proposed amendments to be operative on October 3, 2016.
The text of the proposed rule change is available on the Exchange's
Web site at https://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 and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to: (i) Change the
criteria required to receive the rebates provided by the LMM Program;
(ii) change the rebates offered by the LMM Program; and (iii) rename
the program the Designated Liquidity Provider Program.
The LMM Program is designed to provide incentives to market makers
to make markets in certain exchange-traded products (``ETPs''). To
achieve this goal, Nasdaq provides credits to a designated LMM for
execution of a Qualified Security. Under Rule 7014(f)(1), a Qualified
Security is defined as an exchange-traded fund or index-linked security
listed on Nasdaq pursuant to Nasdaq Rules 5705 (Exchange Traded Funds:
Portfolio Depository Receipts and Index Fund Shares), 5710 (Securities
Linked to the Performance of Indexes and Commodities, Including
Currencies), 5720 (Trust Issued Receipts), 5735 (Managed Fund Shares),
or 5745 (NextShares), and it must have at least one LMM.
An LMM is a registered Nasdaq market maker for a Qualified Security
that has committed to maintain minimum performance standards. An LMM is
selected by Nasdaq based on several factors including, but not limited
to, experience with making markets in exchange-traded funds and index-
linked securities, adequacy of capital, willingness to promote Nasdaq
as a marketplace, issuer preference, operational capacity, support
personnel, and history of adherence to Nasdaq rules and securities
laws. Nasdaq may limit the number of LMMs in a security, or modify a
previously established limit, upon prior written notice to members.
Rule 7014(f)(4) sets forth the criteria required, and the rebates
and reduced fees provided, by the LMM Program. Currently, there are
three tiers based on the amount of time an LMM is at the national best
bid and offer (``NBBO''). Specifically, if an LMM is above 15% to 20%
at the NBBO, it qualifies for: (i) A Displayed Liquidity Rebate (for
executions $1 per share and above) of $0.0040 per executed share; (ii)
a Displayed Liquidity Rebate (for executions less than $1 per share) of
$0.0000 per executed share; and (iii) a maximum fee of $0.0005 per
executed share for participation in the Halt, Opening, and Closing
Crosses.\3\ If an LMM is above 20% to 50% at the NBBO, it qualifies
for: (i) A Displayed Liquidity Rebate (for executions $1 per share and
above) of $0.0043 per executed share; (ii) a Displayed Liquidity Rebate
(for executions less than $1 per share) of $0.0000 per executed share;
and (iii) a maximum fee of $0.0000 per executed share for participation
in the Halt, Opening, and Closing Crosses. Last, if an LMM is above 50%
at the NBBO, it qualifies for: (i) A Displayed Liquidity Rebate (for
executions $1 per share and above) of $0.0046 per executed share; (ii)
a Displayed Liquidity Rebate (for executions less than $1 per share) of
$0.0000 per executed share; and (iii) a maximum fee of $0.0000 per
executed share for participation in the Halt, Opening, and Closing
Crosses.
---------------------------------------------------------------------------
\3\ A member participating in the Halt Cross would otherwise be
assessed a fee of $0.0010 per share executed (see Rule 7018(f)). A
member participating in the Opening Cross would otherwise be
assessed a fee of no less than $0.0008 per share executed (see Rule
7018(e)). A member participating in the Closing Cross would
otherwise be assessed a fee of no less than $0.0008 per share
executed (see Rule 7018(d)).
---------------------------------------------------------------------------
The Exchange is proposing to amend the rebates and criteria under
the program to also take into consideration certain characteristics of
the individual ETP.
[[Page 67020]]
First Change
The purpose of the first change is to amend the criteria required
to receive the rebates provided by the LMM Program to better align the
behavior required to qualify for rebates with the nature of the rebates
provided. Specifically, in lieu of the current criteria, the Exchange
is proposing to require all LMMs, which will be renamed DLPs as part of
this filing and will be noted as such when discussed below,\4\ to be at
the NBBO at least 20% of the time in the assigned ETP in any given
month in order to qualify for a Basic Rebate. In order to receive New
Product Support Initiatives [sic], discussed below, a DLP must be at
the NBBO at least 20% of the time in the assigned ETP in any given
month, the ETP itself must have a three month average daily volume
(``ADV'') \5\ of less than 500,000, and the ETP must be less than 36
months old. Thus, not only must the DLP contribute to market quality in
the ETP by quoting at the NBBO, but the ETP itself must have relatively
low volume. Last, to be eligible for new Additional Tape C ETP
Incentives, discussed below, the average time the DLP is at the NBBO
for each assigned ETP must average at least 20%, and the average
liquidity provided by the DLP for each assigned ETP must average at
least 5% of the liquidity provided on Nasdaq in the respective ETP.\6\
---------------------------------------------------------------------------
\4\ As discussed in detail below, the Exchange is proposing to
rename the LMM program as the Designated Liquidity Provider program.
As a consequence, LMMs will be renamed DLPs. For purposes of this
filing, the use of the term DLP is synonymous with the term LMM.
\5\ The Exchange is defining average daily volume, for purposes
of the DLP Program, to mean the total consolidated volume reported
to all consolidated transaction reporting plans, for each individual
security, by all exchanges and trade reporting facilities during a
month divided by the number of trading days during the month. If a
security is not listed for a full month, the number of trading days
will only include the days in which the security is listed.
\6\ For example, assume a DLP has 20 assignments. If a DLP
quotes at the NBBO 50% of the time in 10 of the ETPs and in the
remaining 10 ETPs quotes at the NBBO 40% of the time, the average
for the purposes of this calculation will be 45%. Nasdaq will
calculate the liquidity provided by the DLP as a percent of
liquidity provided in each assigned ETP on Nasdaq. Nasdaq will then
average these percentages across symbols. For example, if the DLP is
10% of the added liquidity in 10 of the ETPs and 4% of the added
liquidity in the remaining 10 ETPs the average for this calculation
will be 7%. In this instance the DLP will have met the criteria on
average for the additional incentive, even though it failed to meet
the criteria for all 20 ETPs individually.
---------------------------------------------------------------------------
Second Change
The purpose of the second change is to modify the incentives
provided by the program. As discussed above, the Exchange currently
provides rebates and reduced fees if an LMM meets the minimum criteria
of a tier. In lieu of the current incentives, the Exchange is adopting
three new incentives that it believes are more targeted to improving
market quality in ETPs.
First, the Exchange is proposing to provide Basic Rebates to DLPs
that qualify under the proposed ``Basic Rebates'' criteria of being at
the NBBO at least 20% of the time on average in any given month in a
particular ETP. The Basic Rebates are available for each of a DLP's
assigned ETPs that it qualified for under the performance criteria. The
Basic Rebates vary based on the level of ADV the ETP has in a given
month. Specifically, a DLP will receive: (i) A rebate of $0.0047 per
executed share of displayed liquidity in an ETP that has ADV less than
500,000 during the month; (ii) a rebate of $0.0042 per executed share
of displayed liquidity in an ETP that has ADV between 500,000 and 5
million during the month; and (iii) a rebate of $0.0036 per executed
share of displayed liquidity in an ETP that has ADV greater than 5
million during the month. Thus, the new rebate schedule takes into
consideration the nature of the market in the individual ETP, with the
Exchange providing the greatest incentive to DLPs to participate in the
program in ETPs that have the lowest volumes.
Second, the Exchange is proposing New Product Support Incentives to
incentivize DLPs to support trading in newly-launched ETPs.\7\ The New
Product Support Incentives are provided in lieu of the Basic Rebates.
Like the Basic Rebates, the New Product Support Initiatives [sic] are
only available in the assigned ETPs that the DLP qualifies for under
the New Product Support Incentives performance criteria. The proposed
incentives are based on the length of time since the ETP was
launched,\8\ providing declining levels of rebate as the ETP matures.
In particular, the Exchange is proposing to offer to all DLPs that
qualify under the New Product Support Incentives criteria a rebate of
$0.0070 per executed share of displayed liquidity in the ETP in a
newly-launched ETP with ADV less than 500,000 up to 12 months from the
ETP's product inception date, a rebate of $0.0065 per executed share of
displayed liquidity in the ETP for the period 12 to 24 months from the
product inception date, and a rebate of $0.0055 per executed share of
displayed liquidity in the ETP for the period 24 to 36 months from the
product inception date. For purposes of calculating the number of
months under the rule, the first partial month an ETP is launched will
count as one month.
---------------------------------------------------------------------------
\7\ Because the New Product Support Incentives implicates Rule
102 of Regulation M, the Commission is separately considering a
limited, conditional exemption for issuers whose securities are
subject to the New Product Support Initiative [sic].
\8\ The Exchange considers an ETP's launch date to be the
inception date of the ETP. For example, if an ETP launched on August
17, 2016, then the ETP is considered a new product with a fund
inception date of August 17, 2016. Nasdaq will offer an enhanced
rebate of ($0.0070) on the ETP up through July 2017 (assuming the
ADV threshold requirement of the New Product Support Incentives was
not breached).
---------------------------------------------------------------------------
Third, the Exchange is proposing Additional Tape C ETP incentives.
Specifically, the Exchange is proposing to offer DLPs that qualify
under the Additional Tape C ETP Incentive criteria three tiers of
rebates for each displayed share that adds liquidity in Tape C ETPs
that meet the criteria of Rule 7014(f)(1)(A).\9\ These rebates are
provided in addition to other rebates or fees provided under Rules 7018
and 7014, including the proposed Basic Rebates or New Product Support
Incentives. Eligibility for each tier is based on the number of ETPs
the DLP is assigned under the program. Specifically, an eligible DLP
that has at least 10 ETPs assigned to them during a given month will
receive a rebate of $0.0003 per share executed in a Tape C ETP. An
eligible DLP that has at least 25 assigned ETPs will receive a rebate
of $0.0004 per share executed in a Tape C ETP in lieu of the $0.0003
per share executed rebate. An eligible DLP that has at least 50
assigned ETPs will receive a rebate of $0.0005 per share executed in a
Tape C ETP in lieu of the $0.0003 and $0.0004 per share executed
rebates. Thus, the Exchange is providing incentive to members to
participate as DLPs in a significant number of ETPs.
---------------------------------------------------------------------------
\9\ Rule 7014(f)(1)(A) sets forth the ETPs that may be included
in the program.
---------------------------------------------------------------------------
The Exchange is also providing a DLP that qualifies under the
Additional Tape C ETP Incentive criteria yet has fewer than 10 ETPs
assigned to them the ability to qualify for a $0.0001 per share
executed rebate in Tape C ETPs that meet the criteria of Rule
7014(f)(1)(A) if it increases the number of ETPs for which it is a DLP
by 100%. A DLP is only eligible for the first 100% increase and will
not receive additional $0.0001 per share executed rebates for
subsequent 100% increases to the number of assigned ETPs. For example,
if an existing DLP has three assigned ETPs and thereafter is approved
as a DLP for three additional ETPs, the DLP
[[Page 67021]]
would receive an additional $0.0001 per share executed rebate for each
displayed share that adds liquidity in a Tape C ETP that meets the
criteria of Rule 7014(f)(1)(A). A new DLP will be considered a 100%
increase and also receive the one-time $0.0001 per share executed
rebate in Tape C ETPs that meets the criteria of Rule 7014(f)(1)(A) in
the DLP Program upon receiving their first ETP assignment. Thus, a
newly-approved DLP will receive the additional $0.0001 per share
executed rebate in Tape C ETPs as described above when it is initially
assigned an ETP under the DLP Program if the total number of ETPs
assigned is less than ten, but the newly-approved DLP would not be
eligible for additional $0.0001 per share executed rebates for
subsequent 100% increases to the number of assigned ETPs.
Third Change
The purpose of the third change is to change the name of the
program. The Lead Market Maker Program had previously been named the
Designated Liquidity Provider Program. In 2015, the Exchange changed
the name of the program to the Lead Market Maker program and,
accordingly, changed references to ``Designated Liquidity Providers''
and ``DLPs'' to ``Lead Market Makers'' and ``LMMs,'' respectively.\10\
At the time, the Exchange noted that the term Lead Market Maker was
more descriptive of who was eligible for the program (i.e., market
makers), as opposed to a Designated Liquidity Provider, which could
lead a market participant to believe that any market participant was
eligible to qualify for the program. After receiving industry feedback,
the Exchange now believes that the name Designated Liquidity Provider
is, in fact, not confusing to market participants. Moreover, the
Exchange notes that the rule explicitly defines an LMM (now DLP) as a
``registered Nasdaq market maker.'' \11\ Consequently, Nasdaq is
changing the name of the program back to the ``Designated Liquidity
Provider Program.'' As was the case when the Exchange renamed the
program in 2015, the proposed change in the program's name and
terminology does not impact the operation of the program.\12\
---------------------------------------------------------------------------
\10\ See Securities Exchange Act Release No. 75389 (July 8,
2015), 80 FR 41133 (July 14, 2015) (SR-NASDAQ-2015-071).
\11\ See Rule 7014(f)(2).
\12\ Supra note 10.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\13\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\14\ 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 the Exchange operates or controls, and is
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest; and are not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
First Change
The Exchange believes that amending the criteria required for a DLP
to be eligible for the rebates by better aligning the behavior required
to qualify for rebates with the nature of the rebates provided is
reasonable because the Exchange must from time to time assess the
effectiveness of the incentives it provides to market participants in
return for the beneficial behavior required to receive the incentive.
In this case, the Exchange is amending the program to include more
targeted incentives and is applying not only the current NBBO-based
criteria, but also other measures of beneficial market participation
and ETP market quality. Specifically, the Exchange is applying an
average daily volume standard to determine if an ETP qualifies for the
New Product Support Incentives, which ties the availability of the
incentive to a certain relatively low level of ADV thus ensuring that
the ETP's market quality needs improvement. As used in the DLP Program,
ADV is, for each individual security, the total consolidated volume
reported to all consolidated transaction reporting plans by all
exchanges and trade reporting facilities during a month divided by the
number of trading days during the month.
The Exchange is also applying a measure of average liquidity
provided in the DLP's assigned ETPs to qualify for the Additional Tape
C ETP Incentives, which requires the DLP to, on average, provide at
least 5% of the liquidity provided on Nasdaq in their assigned ETPs.
The Exchange believes that the proposed ETP liquidity criteria of the
Additional Tape C ETP Incentive tier ensures that the DLP is providing
an adequate level of liquidity in an ETP in addition to quoting at the
NBBO in all of its assigned ETPs at an average at least 20% of the time
in each ETP.
The Exchange believes that the proposed eligibility criteria are an
equitable allocation and are not unfairly discriminatory because the
Exchange will apply the same criteria to all DLPs. The Exchange also
believes that the proposed eligibility criteria are an equitable
allocation and are not unfairly discriminatory among Exchange members
because any member may become a market maker and take the steps
necessary to also become a DLP, including meeting the proposed minimum
criteria under Rule 7014(f)(4). The DLP Program is limited to Exchange
market makers because of their unique role in the markets, including
their obligation to provide liquidity in the securities in which they
are registered.\15\ Thus, the DLP Program is a further extension of the
market maker's role in providing liquidity in specific securities, to
the benefit of all market participants.
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\15\ See Rule 4613 for a description of Exchange market maker
obligations.
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Second Change
The Exchange believes that the proposed new rebates are reasonable
because they are better designed to provide incentives to DLPs to
improve the market in ETPs that are in need of improved market quality.
With respect to the Basic Rebates, the Exchange is providing three
tiers of rebates, ranging from $0.0036 to $0.0047 per executed share of
displayed liquidity in the ETP. The current Displayed Liquidity Rebate
(for executions $1 per share and above) ranges from $0.0040 to $0.0046
per share executed. Thus, the levels of the rebates currently offered
and proposed are comparable.
The Exchange believes that the proposed rebates provided under the
New Product Support Incentives are reasonable because they provide
significant incentive in return for critical support of new ETPs.
Generally, new ETPs launch with low volume, yet improve significantly
over time. Low volume leads to less liquid markets for participants
seeking to transact in these newly-listed securities. Consequently, the
Exchange is proposing to provide incentives that decrease over time,
beginning with a rebate to qualifying DLPs of $0.0070 during the first
twelve months post ETP launch, $0.0065
[[Page 67022]]
during the second twelve-month period, and $0.0055 for the third
twelve-month period. The Exchange believes that these graduated rebates
will provide adequate incentive to DLPs to support trading in new ETPs
until they have reached a level of maturity where such support is not
needed.
The Exchange believes that the proposed Additional Tape C ETP
rebates are reasonable because they provide additional incentive to
DLPs to register in ETPs. Increasing the number of DLPs that any given
ETP has will improve market quality in the ETP, since DLPs have
performance requirements designed to improve market quality in the
assigned ETP. The rebates are tied to the number of ETPs a DLP that
meets the proposed eligibility criteria under Rule 7014(f)(4) is
assigned, increasing in conjunction with the number of assigned ETPs.
Moreover, the Exchange is providing a one-time $0.0001 per executed
share rebate in Tape C ETPs to both existing and newly-approved DLPs
that have less than ten ETPs assigned, but increase the number of ETPs
assigned by 100%. The Exchange believes that this one-time rebate may
provide incentive to DLPs to increase the number of ETPs assigned
significantly, and also incentivize market makers who are not DLPs to
participate in the program thereby promoting greater participation in
the program to the benefit of all market participants transacting in
the DLP Program ETPs.
The Exchange believes that all of the proposed rebates are an
equitable allocation and are not unfairly discriminatory because the
Exchange will provide the same rebate to all similarly situated DLPs.
The Exchange believes that limiting securities eligible for the program
to ETPs that are new or have relatively low volumes is an equitable
allocation and is not unfairly discriminatory because these securities
are the most in need of improved market quality. Moreover, the New
Product Support Incentives are reduced over time as the ETP matures and
the market in the ETP improves, eventually ending 36 months after the
ETPs inception date. Thus, the New Product Support Incentives are of
limited duration, with the ETPs eligible for New Product Support
Incentives treated like other ETPs of the DLP Program once they reach
the 36 month from product inception limit of these incentives. The
Exchange also believes that the proposed rebates are an equitable
allocation and are not unfairly discriminatory among Exchange members
because, as noted above, any member may become an Exchange market maker
and take the steps necessary to also become a DLP, including meeting
the proposed minimum criteria under Rule 7014(f)(4). As noted above,
the DLP Program is limited to Exchange market makers because of their
unique role in the markets, including their obligation to provide
liquidity in the securities that they are registered in. Thus, the DLP
Program is a further extension of the market maker's role in providing
liquidity in specific securities.
Third Change
The Exchange believes that the proposed change in the name of the
program and its terminology further perfects the mechanism of a free
and open market and a national market system, and, in general, promotes
public interest because it reverts the program to its long-standing
former name and terminology. As noted, the Exchange is making the
change in response to industry feedback, which noted a preference for
the prior name and terminology, and did not believe that it would be
confusing. In support of this last point, the Exchange notes that the
rule clearly indicates that it applies to only registered Nasdaq market
makers. Thus, the Exchange believes that reverting the name of the
program and its terminology is consistent with further perfecting the
mechanism of a free and open market and a national market system.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. In terms of inter-market
competition, the Exchange 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, the Exchange 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. Because
competitors are free to modify their own fees in response, and because
market participants may readily adjust their order routing practices,
the Exchange believes that the degree to which fee changes in this
market may impose any burden on competition is extremely limited.
In this instance, the Exchange is proposing to modify the
incentives provided to market makers for participation in the DLP
program in an effort to improve the program by providing more targeted
incentives to improve market quality in ETPs that are in need of such
improvement the most. The Exchange uses incentives, such as the rebates
of the DLP program, to incentivize market participants to improve the
market. The Exchange must, from time to time, assess the effectiveness
of incentives and adjust them when they are not as effective as the
Exchange believes they could be. Moreover, the Exchange is ultimately
limited in the amount of rebates it may offer. The proposed new
criteria and incentives are reflective of such an analysis.
The Exchange notes that participation in the DLP program is
entirely voluntary and, to the extent that registered market makers
determine that the rebates are not in line with the level of market-
improving behavior the Exchange requires, a DLP may elect to deregister
as such with no penalty. The Exchange notes that it is raising the
minimum criteria required for a DLP to receive a rebate under the
program, and thus there is a risk that a DLP may not qualify for any of
the incentives under the amended program if it provides the same level
market participation.
The Exchange does not believe that the change places an unnecessary
burden on competition because the increase in the minimum criteria is
relatively small and the level of rebate a DLP may receive is
significantly higher in lower volume ETPs under the Basic Rebates. In
sum, if the changes proposed herein are unattractive to market makers,
it is likely that the Exchange will lose participation in the DLP
program as a result. As noted above, the Exchange is continuing to
limit eligibility for the program to Exchange market makers. The
Exchange believes that Exchange market makers are best positioned to
provide market improvement in DLP Program ETPs in light of their unique
function in the markets. Moreover, any Exchange member may elect to
take the steps necessary to become an Exchange market maker and
therefore become eligible for the program if they choose. Thus, the
Exchange does not believe that the proposal represents a burden on
competition among Exchange members, or that the proposal will impair
the ability of members or competing order execution venues to maintain
their competitive standing in the financial markets.
[[Page 67023]]
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.\16\
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\16\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) 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 rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2016-130 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2016-130. 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-2016-130 and should
be submitted on or before October 20, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-23490 Filed 9-28-16; 8:45 am]
BILLING CODE P
