Order Granting a Limited Exemption From Rule 102 of Regulation M Concerning NASDAQ Stock Market LLC's New Product Support Incentives Pursuant to Regulation M Rule 102(e), 76975-76977 [2016-26646]

Download as PDF Federal Register / Vol. 81, No. 214 / Friday, November 4, 2016 / Notices Week of November 21, 2016—Tentative There are no meetings scheduled for the week of November 21, 2016. Week of November 28, 2016—Tentative Dated: November 2, 2016. Glenn Ellmers, Policy Coordinator, Office of the Secretary. [FR Doc. 2016–26827 Filed 11–2–16; 4:15 pm] BILLING CODE 7590–01–P Tuesday, November 29, 2016 9:00 A.M. Briefing on Uranium Recovery (Public Meeting) (Contact: Samantha Crane: 301–415–6380) SECURITIES AND EXCHANGE COMMISSION [Release No. 34–79200] This meeting will be webcast live at the Web address—https://www.nrc.gov/. There are no meetings scheduled for the week of December 5, 2016. Order Granting a Limited Exemption From Rule 102 of Regulation M Concerning NASDAQ Stock Market LLC’s New Product Support Incentives Pursuant to Regulation M Rule 102(e) Week of December 12, 2016—Tentative October 31, 2016. Week of December 5, 2016—Tentative Thursday, December 15, 2016 asabaliauskas on DSK3SPTVN1PROD with NOTICES 9:30 A.M. Briefing on Equal Employment Opportunity, Affirmative Employment, and Small Business (Public Meeting) (Contact: Larniece Moore McKoy: 301–415–1942) This meeting will be webcast live at the Web address—https://www.nrc.gov/. * * * * * The schedule for Commission meetings is subject to change on short notice. For more information or to verify the status of meetings, contact Glenn Ellmers at 301–415–0442 or via email at Glenn.Ellmers@nrc.gov. * * * * * The NRC Commission Meeting Schedule can be found on the Internet at: https://www.nrc.gov/public-involve/ public-meetings/schedule.html. * * * * * The NRC provides reasonable accommodation to individuals with disabilities where appropriate. If you need a reasonable accommodation to participate in these public meetings, or need this meeting notice or the transcript or other information from the public meetings in another format (e.g. braille, large print), please notify Kimberly Meyer, NRC Disability Program Manager, at 301–287–0739, by videophone at 240–428–3217, or by email at Kimberly.Meyer-Chambers@ nrc.gov. Determinations on requests for reasonable accommodation will be made on a case-by-case basis. * * * * * Members of the public may request to receive this information electronically. If you would like to be added to the distribution, please contact the Nuclear Regulatory Commission, Office of the Secretary, Washington, DC 20555 (301– 415–1969), or email Brenda.Akstulewicz@nrc.gov or Patricia.Jimenez@nrc.gov. VerDate Sep<11>2014 17:52 Nov 03, 2016 Jkt 241001 On September 23, 2016, NASDAQ Stock Market LLC (‘‘Exchange’’ or ‘‘NASDAQ’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a proposal to amend NASDAQ Rule 7014(f) to, among other things, change their Lead Market Maker Program (now renamed the ‘‘Designated Liquidity Provider (‘‘DLP’’) Program’’) to include a new rebate, the New Product Support Incentive (‘‘NPSI’’).1 Under the NPSI, the Exchange will pay a higher rebate to market makers that act as DLPs in newly launched exchange-traded products (‘‘ETPs’’) that meet certain conditions.2 The proposal became effective upon filing pursuant to Section 19(b)(3)(A)(ii) of the Securities Exchange Act of 1934, as amended (‘‘Exchange Act’’).3 Specifically, the Exchange will pay an NPSI rebate to a DLP of $0.0070 per executed share in the first year from the ETP’s launch, on a decreasing scale until the NPSI is phased out as the ETP ages, terminating three years from the ETP’s launch.4 In contrast, the largest 1 Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Amend Nasdaq’s Fees at Rule 7014(f), Exchange Act Release No. 78912 (Sep. 23, 2016); 81 FR 67019 (Sep. 29, 2016) (‘‘NPSI Release’’). 2 ETPs eligible to be qualified securities for the DLP Program are exchange-traded funds or indexlinked securities 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). In addition, the ETPs must have at least one DLP. Further, to qualify for the NPSI, the DLP must be at the national best bid or offer at least 20% of the time on average in the assigned ETP, the ETP must have a three-month ADV of less than 500,000, and the ETP must be less than 36 months old. See NASDAQ Rule 7014(f)(1) and (4). Collectively, securities for which rebates under the NPSI are made are referred to in this order as ‘‘NPSI Securities.’’ 3 15 U.S.C. 78s(b)(3)(A)(ii). See also NPSI Release. 4 NASDAQ Rule 7014(f)(5)(B). The rebate decreases to $0.0065 per executed share in the second year and $0.0055 per executed share in the PO 00000 Frm 00065 Fmt 4703 Sfmt 4703 76975 rebate that a DLP can collect under the DLP Program’s ‘‘Basic Rebate’’ for a nonNPSI ETP is $0.0047 per executed share.5 NASDAQ represents that the NPSI is designed for the purpose of incentivizing DLPs to support trading in newly launched ETPs.6 With the implementation of the NPSI, issuers of newly launched ETPs that choose to list on NASDAQ are automatically enrolled in the NPSI and would indirectly benefit from this liquidity support, which is intended to incentivize market makers to engage in more quotation and trading activity than might otherwise be undertaken in the absence of payments under the NPSI in order to help facilitate the distribution of newly launched ETPs. As such, the Commission believes that participating in the NPSI could constitute an indirect attempt by the issuer to induce a bid for or purchase of a covered security during a restricted period potentially in violation of Rule 102 of Regulation M.7 NASDAQ represents that the NPSI may incentivize DLPs to support trading in newly launched ETPs.8 The Commission has provided limited, conditional exemptions from Rule 102 for issuers to participate in a number of similar programs, such as the NASDAQ MQP, which also involved an indirect attempt by the issuer to induce a bid for or a purchase of a covered security during a restricted period.9 Like third. After the third year, no rebate is paid under the NPSI. These rebates collectively are referred to in this order as ‘‘NPSI Rebates.’’ 5 See NASDAQ Rule 7014(f)(4)–(5)(A). In addition to the Basic Rebate and NPSI, a DLP in qualifying ETPs can also receive the ‘‘Additional Tape C ETP Incentive,’’ which provides $0.0003 to $0.0005 per executed share, depending on how many ETPs the DLP is assigned to and other conditions are met. See NASDAQ Rule 7014(f)(5)(C). 6 NPSI Release. 7 17 CFR 242.102. The Commission notes in this regard the focus of the NPSI on newly launched ETPs. Cf. Order Instituting Proceedings to Determine Whether to Approve or Disapprove Proposed Rule Changes Relating to Market Maker Incentive Programs for Certain Exchange-Traded Products, Exchange Act Release No. 67411 (Jul. 11, 2012), 77 FR 42052 (Jul. 17, 2012) (regarding the similar NASDAQ Market Quality Program (‘‘MQP’’), stating that ‘‘[t]he Commission believes that issuer payments made under the SRO Proposals would constitute an indirect attempt by the issuer of a covered security to induce a purchase or bid in a covered security during a restricted period in violation of Rule 102’’ and noting that ‘‘under the NASDAQ Proposal, the issuer payments would ‘be used for the purpose of incentivizing one or more Market Makers in the MQP Security,’ which could induce bids or purchases for the issuer’s security during a restricted period’’). 8 NPSI Release. 9 See Order Granting a Limited Exemption from Rule 102 of Regulation M Concerning the NASDAQ Stock Market LLC Market Quality Program Pilot Pursuant to Regulation M Rule 102(e), Exchange Act Rel. No. 69196 (Mar. 20, 2013); 78 FR 18410 (Mar. 26, 2013); Order Granting a Limited E:\FR\FM\04NON1.SGM Continued 04NON1 76976 Federal Register / Vol. 81, No. 214 / Friday, November 4, 2016 / Notices the NPSI, these programs are designed to incentivize market makers to make markets in specific securities. The Commission’s exemptions for these programs are intended to ensure that investors purchasing ETPs that are being quoted or traded as a result of incentive payments are notified in advance of the potential consequences of such payments on the prices and liquidity of such ETPs. The Commission believes that it is appropriate to exempt issuers from Rule 102 to permit participation in the NPSI with similar disclosure to investors. The Commission believes that potential investors in NPSI Securities should be provided with sufficient information regarding the potential impact of the NPSI on the price and liquidity of the ETPs, particularly given the temporary and limited nature of each ETP’s enrollment in the program. Accordingly, the Commission is granting a limited exemption from Rule 102 of Regulation M solely to permit issuers to participate indirectly in the NPSI Rebates, subject to certain conditions described below. Rule 102 of Regulation M asabaliauskas on DSK3SPTVN1PROD with NOTICES Rule 102 of Regulation M prohibits issuers, selling security holders, or any affiliated purchaser of such persons, directly or indirectly, from bidding for, purchasing, or attempting to induce any person to bid for or purchase a covered security 10 during the applicable restricted period in connection with a distribution of securities effected by or on behalf of an issuer or selling security holder, except as specifically permitted in the rule.11 As mentioned above, the Commission believes that issuers participating in the NPSI could constitute an indirect attempt to induce a bid for or purchase of a covered security during the applicable restricted period. Accordingly, absent exemptive relief, issuers of NPSI Securities (‘‘NPSI Exemption from Rule 102 of Regulation M Concerning the NYSE Arca, Inc.’s Exchange Traded Product Incentive Program Pilot Pursuant to Regulation M Rule 102(e), Exchange Act Rel. No. 69707 (Jun. 6, 2013); 78 FR 35330 (Jun. 12, 2013); Order Granting a Limited Exemption from Rule 102 of Regulation M Concerning the NYSE Arca, Inc.’s Crowd Participant Program Pilot, Exchange Act Rel. No. 71805 (Mar. 26, 2014); 79 FR 18365 (Apr. 1, 2014); and Order Granting a Limited Exemption from Rule 102 of Regulation M Concerning the BATS Exchange, Inc.’s Pilot Supplemental Competitive Liquidity Provider Program, Exchange Act Rel. No. 72693 (Jul. 28, 2014); 79 FR 44875 (Aug. 1, 2014). 10 Covered security is defined as any security that is the subject of a distribution, or any reference security. 17 CFR 242.100(b). 11 17 CFR 242.102(a). VerDate Sep<11>2014 17:52 Nov 03, 2016 Jkt 241001 Issuers’’) that list on NASDAQ while the NPSI is in effect may violate Rule 102. On the basis of the conditions set out below, which in general are designed to help inform investors about the potential impact of the NPSI to potential investors of NPSI Securities, 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 Rule 102 of Regulation M solely to permit NPSI Issuers to list NPSI Securities on NASDAQ while the NPSI is in effect and thus, to participate indirectly in the payment of the NPSI Rebates to DLPs.12 This limited exemption is conditioned on the NPSI Issuer, or sponsor if applicable, making specific disclosures, as set forth below. The disclosures are designed to alert potential investors that the trading market for NPSI Securities may be affected by these payments. Specifically, these disclosures are designed to inform potential investors about the potential impact of the NPSI on the natural market forces of supply and demand prior to making an investment decision in these newly launched securities products. These disclosures are expected to promote greater investor protection by helping to ensure that investors adequately informed as to this potential impact. We also note that, to the extent that information about the NPSI is material, disclosure of this kind may already be required by the federal securities laws. Conclusion It is therefore ordered, pursuant to Rule 102(e) of Regulation M, that NPSI Issuers are hereby exempted from Rule 102 of Regulation M solely to permit NPSI Issuers to participate in the NPSI as set forth in NASDAQ Rule 7014(f), subject to the condition that the NPSI Issuer (or the sponsor, if applicable) shall make the following disclosures in a press release, as well as prominently and continuously on its Web site, for each specific ETP that it intends to list, or has listed, on NASDAQ: (1) At the beginning of the restricted period, as defined in Rule 100 of Regulation M,13 for the NPSI Security, the following disclosure shall be continuously provided until the disclosure in (2) below is required: ‘‘[Specific ETP name] intends to list on NASDAQ on or around [anticipated date]. Once listed, [Specific ETP] is 12 Rule 102(e) allows the Commission to grant an exemption from the provision of Rule 102, either unconditionally or on specified terms and conditions, to any transaction or class of transactions, or to any security or class of securities. 13 17 CFR 242.100(b). PO 00000 Frm 00066 Fmt 4703 Sfmt 4703 automatically eligible for NASDAQ’s New Product Support Incentives Rebate (‘‘NPSI Rebate’’), which is a payment made to certain market makers depending on how actively they quote and trade [Specific ETP]. Market makers quoting and trading [Specific ETP] on NASDAQ will receive such payments for up to three years from the launch date for [Specific ETP] if they meet the requirements for such payments.’’; (2) Immediately after launch, or immediately at the beginning of the period in which a market maker’s trading activity can qualify for an NPSI Rebate in an NPSI Security, as applicable, the following disclosure shall be continuously maintained and updated until termination of the NPSI Rebate, and shall, as necessary, be supplemented with the disclosure in (3) below: ‘‘The [Specific ETP name] is listed on NASDAQ. As such, it is enrolled in NASDAQ’s New Product Support Incentives Rebate (‘‘NPSI Rebate’’), which is a payment made to certain market makers depending on how actively they quote and trade [Specific ETP]. The [Specific ETP] has participated in the NPSI Rebate since [date], and will no longer be eligible to participate in the program on [date], which is three years from the launch date (unless the program is terminated or modified before then or if [Specific ETP] becomes too liquid to participate in the NPSI before then). Certain market makers quoting and trading [Specific ETP] on NASDAQ will be eligible to receive NPSI Rebates until that date, unless, again, the program is terminated or modified before then or if [Specific ETP] becomes too liquid to participate in the NPSI before then. The payment of the NPSI Rebates is intended to help provide liquidity support for newly launched exchange-traded products by generating more quotes and trading than might otherwise exist absent these payments. Investors should be aware that when these payments cease, there may be an adverse impact on the price and liquidity of [Specific ETP], which could adversely impact a purchaser’s subsequent sale of the security.’’; and (3) No less than 30 days before the expected termination date, or as soon as practicable after the NPSI Issuer becomes aware or should become aware that the NPSI Security will no longer be eligible to participate in the NPSI and before the end of such eligibility, the following disclosure shall be added to the disclosure required in (2) above: ‘‘UPDATE: [Specific ETP] is expected to no longer qualify for the NPSI rebates on [or around] [date]. This may impact the price or liquidity of [Specific ETP], which could adversely impact a E:\FR\FM\04NON1.SGM 04NON1 Federal Register / Vol. 81, No. 214 / Friday, November 4, 2016 / Notices purchaser’s subsequent sale of the security.’’ This exemptive relief shall terminate upon the event of any material change to the NPSI, including a change to the types of securities permitted to participate in the program or to the terms or amount of the payments made pursuant to the NPSI.14 Further, this exemptive relief 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 exemptive relief is limited solely to the issuer’s indirect participation in the payment of the NPSI Rebates as set forth in NASDAQ Rule 7014(f)(5)(B) for an NPSI Security, and does not extend to any other activities of the issuer, any other security of the issuer or sponsor, or any other issuers.15 In addition, persons relying on this exemption are directed to the anti-fraud and anti-manipulation provisions of the Exchange Act, particularly Sections 9(a) and 10(b), and Rule 10b-5 thereunder. Responsibility for compliance with these and any other applicable provisions of the federal securities laws must rest with the persons relying on this exemption. This order does not represent Commission views with respect to any other question that the proposed activities may raise, including, but not limited to the adequacy of the disclosure required by federal securities laws and rules, and 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.16 Brent J. Fields, Secretary. [FR Doc. 2016–26646 Filed 11–3–16; 8:45 am] asabaliauskas on DSK3SPTVN1PROD with NOTICES 14 Accordingly, we expect NASDAQ to contact staff in the Office of Trading Practices in the Division of Trading and Markets before making any material change to the NPSI. 15 Other activities, such as ETF redemptions, are not covered by this exemptive relief. 16 17 CFR 200.30–3(a)(6). 17:52 Nov 03, 2016 Jkt 241001 [Release No. 34–79201; File No. SR– NYSEArca–2016–120] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Relating to the Listing and Trading of Shares of the ForceShares Daily 4X US Market Futures Long Fund and ForceShares Daily 4X US Market Futures Short Fund Under Commentary .02 to NYSE Arca Equities Rule 8.200 October 31, 2016. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on October 17, 2016, NYSE Arca, Inc. (the ‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to list and trade shares of the following under Commentary .02 to NYSE Arca Equities Rule 8.200 (‘‘Trust Issued Receipts’’): ForceShares Daily 4X US Market Futures Long Fund and ForceShares Daily 4X US Market Futures Short Fund. The proposed rule change is available on the Exchange’s Web site at www.nyse.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 BILLING CODE 8011–01–P VerDate Sep<11>2014 SECURITIES AND EXCHANGE COMMISSION In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. 1 15 U.S.C. 78s(b)(1). U.S.C. 78a. 3 17 CFR 240.19b–4. 2 15 PO 00000 Frm 00067 Fmt 4703 Sfmt 4703 76977 A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to list and trade shares (‘‘Shares’’) of the following under Commentary .02 to NYSE Arca Equities Rule 8.200, which governs the listing and trading of Trust Issued Receipts (‘‘TIRs’’): 4 ForceShares Daily 4X US Market Futures Long Fund (‘‘Fund’’ or ‘‘Long Fund’’) and ForceShares Daily 4X US Market Futures Short Fund (‘‘Fund’’ or ‘‘Short Fund’’ and, together with the Long Fund, the ‘‘Funds’’).5 Each of the Funds is a commodity pool that is a series of the ForceShares Trust (‘‘Trust’’), a Delaware statutory trust. The Funds’ sponsor is ForceShares LLC (the ‘‘Sponsor’’). ALPS Distributors, Inc. is the marketing agent for the Funds’ Shares (‘‘Marketing Agent’’). U.S. Bank National Association is the Funds’ custodian (‘‘Custodian’’), which, in such capacity, holds the Funds’ ‘‘Cash Equivalents’’ (as described below) and/or cash pursuant to a custodial agreement. The Custodian is also the registrar and transfer agent for the Funds’ Shares. The Long Fund’s primary investment objective is to seek daily investment results, before fees and expenses, that correspond to approximately four times (400%) the daily performance, and the Short Fund’s primary investment objective is to seek daily investment results, before fees and expenses, that correspond to approximately four times 4 Commentary .02 to NYSE Arca Equities Rule 8.200 applies to TIRs that invest in ‘‘Financial Instruments.’’ The term ‘‘Financial Instruments,’’ as defined in Commentary .02(b)(4) to NYSE Arca Equities Rule 8.200, means any combination of investments, including cash; securities; options on securities and indices; futures contracts; options on futures contracts; forward contracts; equity caps, collars and floors; and swap agreements. 5 On July 27, 2015, the Trust submitted to the Commission its draft registration statement on Form S–1 under the Securities Act of 1933 (15 U.S.C. 77a) (‘‘Securities Act’’). The Jumpstart Our Business Startups Act, enacted on April 5, 2012, added Section 6(e) to the Securities Act. Section 6(e) of the Securities Act provides that an ‘‘emerging growth company’’ may confidentially submit to the Commission a draft registration statement for confidential, non-public review by the Commission staff prior to public filing, provided that the initial confidential submission and all amendments thereto shall be publicly filed not later than 21 days before the date on which the issuer conducts a road show, as such term is defined in Securities Act Rule 433(h)(4). An emerging growth company is defined in Section 2(a)(19) of the Securities Act as an issuer with less than $1,000,000,000 total annual gross revenues during its most recently completed fiscal year. The Funds meet the definition of an emerging growth company and consequently have filed their Form S–1 registration statement on a confidential basis with the Commission. E:\FR\FM\04NON1.SGM 04NON1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 81, Number 214 (Friday, November 4, 2016)]
[Notices]
[Pages 76975-76977]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-26646]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79200]


Order Granting a Limited Exemption From Rule 102 of Regulation M 
Concerning NASDAQ Stock Market LLC's New Product Support Incentives 
Pursuant to Regulation M Rule 102(e)

October 31, 2016.
    On September 23, 2016, NASDAQ Stock Market LLC (``Exchange'' or 
``NASDAQ'') filed with the Securities and Exchange Commission 
(``Commission'') a proposal to amend NASDAQ Rule 7014(f) to, among 
other things, change their Lead Market Maker Program (now renamed the 
``Designated Liquidity Provider (``DLP'') Program'') to include a new 
rebate, the New Product Support Incentive (``NPSI'').\1\ Under the 
NPSI, the Exchange will pay a higher rebate to market makers that act 
as DLPs in newly launched exchange-traded products (``ETPs'') that meet 
certain conditions.\2\ The proposal became effective upon filing 
pursuant to Section 19(b)(3)(A)(ii) of the Securities Exchange Act of 
1934, as amended (``Exchange Act'').\3\
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    \1\ Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change to Amend Nasdaq's Fees at Rule 7014(f), Exchange Act 
Release No. 78912 (Sep. 23, 2016); 81 FR 67019 (Sep. 29, 2016) 
(``NPSI Release'').
    \2\ ETPs eligible to be qualified securities for the DLP Program 
are exchange-traded funds or index-linked securities 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). In addition, the ETPs must have 
at least one DLP. Further, to qualify for the NPSI, the DLP must be 
at the national best bid or offer at least 20% of the time on 
average in the assigned ETP, the ETP must have a three-month ADV of 
less than 500,000, and the ETP must be less than 36 months old. See 
NASDAQ Rule 7014(f)(1) and (4). Collectively, securities for which 
rebates under the NPSI are made are referred to in this order as 
``NPSI Securities.''
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii). See also NPSI Release.
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    Specifically, the Exchange will pay an NPSI rebate to a DLP of 
$0.0070 per executed share in the first year from the ETP's launch, on 
a decreasing scale until the NPSI is phased out as the ETP ages, 
terminating three years from the ETP's launch.\4\ In contrast, the 
largest rebate that a DLP can collect under the DLP Program's ``Basic 
Rebate'' for a non-NPSI ETP is $0.0047 per executed share.\5\ NASDAQ 
represents that the NPSI is designed for the purpose of incentivizing 
DLPs to support trading in newly launched ETPs.\6\
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    \4\ NASDAQ Rule 7014(f)(5)(B). The rebate decreases to $0.0065 
per executed share in the second year and $0.0055 per executed share 
in the third. After the third year, no rebate is paid under the 
NPSI. These rebates collectively are referred to in this order as 
``NPSI Rebates.''
    \5\ See NASDAQ Rule 7014(f)(4)-(5)(A). In addition to the Basic 
Rebate and NPSI, a DLP in qualifying ETPs can also receive the 
``Additional Tape C ETP Incentive,'' which provides $0.0003 to 
$0.0005 per executed share, depending on how many ETPs the DLP is 
assigned to and other conditions are met. See NASDAQ Rule 
7014(f)(5)(C).
    \6\ NPSI Release.
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    With the implementation of the NPSI, issuers of newly launched ETPs 
that choose to list on NASDAQ are automatically enrolled in the NPSI 
and would indirectly benefit from this liquidity support, which is 
intended to incentivize market makers to engage in more quotation and 
trading activity than might otherwise be undertaken in the absence of 
payments under the NPSI in order to help facilitate the distribution of 
newly launched ETPs. As such, the Commission believes that 
participating in the NPSI could constitute an indirect attempt by the 
issuer to induce a bid for or purchase of a covered security during a 
restricted period potentially in violation of Rule 102 of Regulation 
M.\7\ NASDAQ represents that the NPSI may incentivize DLPs to support 
trading in newly launched ETPs.\8\
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    \7\ 17 CFR 242.102. The Commission notes in this regard the 
focus of the NPSI on newly launched ETPs. Cf. Order Instituting 
Proceedings to Determine Whether to Approve or Disapprove Proposed 
Rule Changes Relating to Market Maker Incentive Programs for Certain 
Exchange-Traded Products, Exchange Act Release No. 67411 (Jul. 11, 
2012), 77 FR 42052 (Jul. 17, 2012) (regarding the similar NASDAQ 
Market Quality Program (``MQP''), stating that ``[t]he Commission 
believes that issuer payments made under the SRO Proposals would 
constitute an indirect attempt by the issuer of a covered security 
to induce a purchase or bid in a covered security during a 
restricted period in violation of Rule 102'' and noting that ``under 
the NASDAQ Proposal, the issuer payments would `be used for the 
purpose of incentivizing one or more Market Makers in the MQP 
Security,' which could induce bids or purchases for the issuer's 
security during a restricted period'').
    \8\ NPSI Release.
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    The Commission has provided limited, conditional exemptions from 
Rule 102 for issuers to participate in a number of similar programs, 
such as the NASDAQ MQP, which also involved an indirect attempt by the 
issuer to induce a bid for or a purchase of a covered security during a 
restricted period.\9\ Like

[[Page 76976]]

the NPSI, these programs are designed to incentivize market makers to 
make markets in specific securities. The Commission's exemptions for 
these programs are intended to ensure that investors purchasing ETPs 
that are being quoted or traded as a result of incentive payments are 
notified in advance of the potential consequences of such payments on 
the prices and liquidity of such ETPs. The Commission believes that it 
is appropriate to exempt issuers from Rule 102 to permit participation 
in the NPSI with similar disclosure to investors.
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    \9\ See Order Granting a Limited Exemption from Rule 102 of 
Regulation M Concerning the NASDAQ Stock Market LLC Market Quality 
Program Pilot Pursuant to Regulation M Rule 102(e), Exchange Act 
Rel. No. 69196 (Mar. 20, 2013); 78 FR 18410 (Mar. 26, 2013); Order 
Granting a Limited Exemption from Rule 102 of Regulation M 
Concerning the NYSE Arca, Inc.'s Exchange Traded Product Incentive 
Program Pilot Pursuant to Regulation M Rule 102(e), Exchange Act 
Rel. No. 69707 (Jun. 6, 2013); 78 FR 35330 (Jun. 12, 2013); Order 
Granting a Limited Exemption from Rule 102 of Regulation M 
Concerning the NYSE Arca, Inc.'s Crowd Participant Program Pilot, 
Exchange Act Rel. No. 71805 (Mar. 26, 2014); 79 FR 18365 (Apr. 1, 
2014); and Order Granting a Limited Exemption from Rule 102 of 
Regulation M Concerning the BATS Exchange, Inc.'s Pilot Supplemental 
Competitive Liquidity Provider Program, Exchange Act Rel. No. 72693 
(Jul. 28, 2014); 79 FR 44875 (Aug. 1, 2014).
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    The Commission believes that potential investors in NPSI Securities 
should be provided with sufficient information regarding the potential 
impact of the NPSI on the price and liquidity of the ETPs, particularly 
given the temporary and limited nature of each ETP's enrollment in the 
program. Accordingly, the Commission is granting a limited exemption 
from Rule 102 of Regulation M solely to permit issuers to participate 
indirectly in the NPSI Rebates, subject to certain conditions described 
below.

Rule 102 of Regulation M

    Rule 102 of Regulation M prohibits issuers, selling security 
holders, or any affiliated purchaser of such persons, directly or 
indirectly, from bidding for, purchasing, or attempting to induce any 
person to bid for or purchase a covered security \10\ during the 
applicable restricted period in connection with a distribution of 
securities effected by or on behalf of an issuer or selling security 
holder, except as specifically permitted in the rule.\11\ As mentioned 
above, the Commission believes that issuers participating in the NPSI 
could constitute an indirect attempt to induce a bid for or purchase of 
a covered security during the applicable restricted period. 
Accordingly, absent exemptive relief, issuers of NPSI Securities 
(``NPSI Issuers'') that list on NASDAQ while the NPSI is in effect may 
violate Rule 102.
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    \10\ Covered security is defined as any security that is the 
subject of a distribution, or any reference security. 17 CFR 
242.100(b).
    \11\ 17 CFR 242.102(a).
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    On the basis of the conditions set out below, which in general are 
designed to help inform investors about the potential impact of the 
NPSI to potential investors of NPSI Securities, 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 Rule 102 
of Regulation M solely to permit NPSI Issuers to list NPSI Securities 
on NASDAQ while the NPSI is in effect and thus, to participate 
indirectly in the payment of the NPSI Rebates to DLPs.\12\
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    \12\ Rule 102(e) allows the Commission to grant an exemption 
from the provision of Rule 102, either unconditionally or on 
specified terms and conditions, to any transaction or class of 
transactions, or to any security or class of securities.
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    This limited exemption is conditioned on the NPSI Issuer, or 
sponsor if applicable, making specific disclosures, as set forth below. 
The disclosures are designed to alert potential investors that the 
trading market for NPSI Securities may be affected by these payments. 
Specifically, these disclosures are designed to inform potential 
investors about the potential impact of the NPSI on the natural market 
forces of supply and demand prior to making an investment decision in 
these newly launched securities products. These disclosures are 
expected to promote greater investor protection by helping to ensure 
that investors adequately informed as to this potential impact. We also 
note that, to the extent that information about the NPSI is material, 
disclosure of this kind may already be required by the federal 
securities laws.

Conclusion

    It is therefore ordered, pursuant to Rule 102(e) of Regulation M, 
that NPSI Issuers are hereby exempted from Rule 102 of Regulation M 
solely to permit NPSI Issuers to participate in the NPSI as set forth 
in NASDAQ Rule 7014(f), subject to the condition that the NPSI Issuer 
(or the sponsor, if applicable) shall make the following disclosures in 
a press release, as well as prominently and continuously on its Web 
site, for each specific ETP that it intends to list, or has listed, on 
NASDAQ:
    (1) At the beginning of the restricted period, as defined in Rule 
100 of Regulation M,\13\ for the NPSI Security, the following 
disclosure shall be continuously provided until the disclosure in (2) 
below is required: ``[Specific ETP name] intends to list on NASDAQ on 
or around [anticipated date]. Once listed, [Specific ETP] is 
automatically eligible for NASDAQ's New Product Support Incentives 
Rebate (``NPSI Rebate''), which is a payment made to certain market 
makers depending on how actively they quote and trade [Specific ETP]. 
Market makers quoting and trading [Specific ETP] on NASDAQ will receive 
such payments for up to three years from the launch date for [Specific 
ETP] if they meet the requirements for such payments.'';
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    \13\ 17 CFR 242.100(b).
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    (2) Immediately after launch, or immediately at the beginning of 
the period in which a market maker's trading activity can qualify for 
an NPSI Rebate in an NPSI Security, as applicable, the following 
disclosure shall be continuously maintained and updated until 
termination of the NPSI Rebate, and shall, as necessary, be 
supplemented with the disclosure in (3) below: ``The [Specific ETP 
name] is listed on NASDAQ. As such, it is enrolled in NASDAQ's New 
Product Support Incentives Rebate (``NPSI Rebate''), which is a payment 
made to certain market makers depending on how actively they quote and 
trade [Specific ETP]. The [Specific ETP] has participated in the NPSI 
Rebate since [date], and will no longer be eligible to participate in 
the program on [date], which is three years from the launch date 
(unless the program is terminated or modified before then or if 
[Specific ETP] becomes too liquid to participate in the NPSI before 
then). Certain market makers quoting and trading [Specific ETP] on 
NASDAQ will be eligible to receive NPSI Rebates until that date, 
unless, again, the program is terminated or modified before then or if 
[Specific ETP] becomes too liquid to participate in the NPSI before 
then. The payment of the NPSI Rebates is intended to help provide 
liquidity support for newly launched exchange-traded products by 
generating more quotes and trading than might otherwise exist absent 
these payments. Investors should be aware that when these payments 
cease, there may be an adverse impact on the price and liquidity of 
[Specific ETP], which could adversely impact a purchaser's subsequent 
sale of the security.''; and
    (3) No less than 30 days before the expected termination date, or 
as soon as practicable after the NPSI Issuer becomes aware or should 
become aware that the NPSI Security will no longer be eligible to 
participate in the NPSI and before the end of such eligibility, the 
following disclosure shall be added to the disclosure required in (2) 
above: ``UPDATE: [Specific ETP] is expected to no longer qualify for 
the NPSI rebates on [or around] [date]. This may impact the price or 
liquidity of [Specific ETP], which could adversely impact a

[[Page 76977]]

purchaser's subsequent sale of the security.''
    This exemptive relief shall terminate upon the event of any 
material change to the NPSI, including a change to the types of 
securities permitted to participate in the program or to the terms or 
amount of the payments made pursuant to the NPSI.\14\ Further, this 
exemptive relief 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 exemptive 
relief is limited solely to the issuer's indirect participation in the 
payment of the NPSI Rebates as set forth in NASDAQ Rule 7014(f)(5)(B) 
for an NPSI Security, and does not extend to any other activities of 
the issuer, any other security of the issuer or sponsor, or any other 
issuers.\15\ In addition, persons relying on this exemption are 
directed to the anti-fraud and anti-manipulation provisions of the 
Exchange Act, particularly Sections 9(a) and 10(b), and Rule 10b-5 
thereunder. Responsibility for compliance with these and any other 
applicable provisions of the federal securities laws must rest with the 
persons relying on this exemption. This order does not represent 
Commission views with respect to any other question that the proposed 
activities may raise, including, but not limited to the adequacy of the 
disclosure required by federal securities laws and rules, and the 
applicability of other federal or state laws and rules to, the proposed 
activities.
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    \14\ Accordingly, we expect NASDAQ to contact staff in the 
Office of Trading Practices in the Division of Trading and Markets 
before making any material change to the NPSI.
    \15\ Other activities, such as ETF redemptions, are not covered 
by this exemptive relief.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(6).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-26646 Filed 11-3-16; 8:45 am]
 BILLING CODE 8011-01-P

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