[Federal Register Volume 79, Number 33 (Wednesday, February 19, 2014)]
[Notices]
[Pages 9553-9558]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-03561]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71530; File No. SR-NASDAQ-2014-015]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to
the Qualified Market Maker Incentive Program and NBBO Setter Incentive
Program Under Rule 7014, and the Schedule of Fees and Rebates Under
Rule 7018
February 12, 2014.
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 January 31, 2014, The NASDAQ Stock Market LLC (``NASDAQ'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') a proposed rule change as described in Items I, II and
III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
NASDAQ is proposing to make changes to the Qualified Market Maker
(``QMM'') Incentive Program and NBBO Setter Incentive Program under
Rule 7014, and the schedule of fees and rebates for execution and
routing of orders under Rule 7018. NASDAQ will begin assessing the fees
effective February 3, 2014.
The text of the proposed rule change is available at NASDAQ's
principal office, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, NASDAQ 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.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
NASDAQ is proposing several changes to the QMM Incentive Program
and NBBO Setter Incentive Program under Rule 7014, and to its schedule
of fees and credits applicable to execution and routing of orders under
Rule 7018, which is described in detail below.
QMM Incentive Program
A QMM is a member that makes a significant contribution to market
quality by providing liquidity at the NBBO in a large number of stocks
for a significant portion of the day. In addition, the member must
avoid imposing the burdens on NASDAQ and its market participants that
may be associated with excessive rates of entry of orders away from the
inside and/or order cancellation. The designation reflects the QMM's
commitment to provide meaningful and consistent support to market
quality and price discovery by extensive quoting at the NBBO in a large
number of securities. In return for its contributions, certain
financial benefits are provided to a QMM with respect to a particular
MPID (a ``QMM MPID''), as described under Rule 7014(e). These benefits
include a lower rate charged for executions of orders in securities
priced at $1 or more per share that access liquidity on the NASDAQ
Market Center and that are entered through a QMM MPID.\3\ The current
charge assessed on a member for removing liquidity on NASDAQ is $0.0030
per share executed, irrespective of the security's listing venue (i.e.,
NASDAQ, NYSE, or other).\4\ QMM MPIDs, however, receive a lower charge
of $0.0029 per share executed, also irrespective of the securities
listing
[[Page 9554]]
venue. NASDAQ is proposing to limit the reduced charged [sic] provided
to QMM MPID orders that remove liquidity to only securities listed on
venues other than NASDAQ (i.e., NYSE or other). When NASDAQ adopted the
current rate, it noted that the changes it was making were intended to
encourage members to promote price discovery and market quality by
quoting at the NBBO for a significant portion of each day in a large
number of securities, thereby benefitting NASDAQ and other investors by
committing capital to support the execution of orders.\5\ NASDAQ notes
that the program with respect to NASDAQ-listed has not been successful
in providing material improvement in market quality in such securities
and believes that applying the current default rate of $0.0030 should
not affect the quality of the market given current market conditions.
---------------------------------------------------------------------------
\3\ Rule 7014(e)(3) further requires, however, that after the
first month in which an MPID becomes a QMM MPID, the QMM's volume of
liquidity added, provided, and/or routed through the QMM MPID during
the month (as a percentage of Consolidated Volume) is not less than
0.05% lower than the volume of liquidity added, provided, and/or
routed through such QMM MPID during the first month in which the
MPID qualified as a QMM MPID (as a percentage of Consolidated
Volume).
\4\ NASDAQ provides lower charges for removing liquidity from
the NASDAQ Market Center, as described in Rule 7018(a).
\5\ Securities Exchange Act Release No. 70361 (September 10,
2013), 78 FR 56962 (September 16, 2013) (SR-NASDAQ-2013-114); see
also Securities Exchange Act Release No. 68905 (February 12, 2013),
78 FR 11716 (February 19, 2013) (SR-NASDAQ-2013-023).
---------------------------------------------------------------------------
NBBO Setter Incentive Program
The NBBO Setter Incentive Program provides incentive to members to
set the NBBO or quote at the NBBO on NASDAQ, thus improving the quality
of the market. Under Rule 7014(f) and unlike other members, a QMM may
not receive both an Investor Support Program (``ISP'') credit and NBBO
Setter Incentive credit, but rather receives only the greater credit of
the two. The Exchange is proposing to expand the limitation on
receiving only the greater of an ISP credit or NBBO Setter Incentive
Program credit under Rule 7014(f) to all members. Specifically, the
Exchange is deleting text in Rule 7014(f) that limits only QMMs to a
single credit under the programs and is adding text to apply the
limitation to all members that participate in the programs. As a
consequence, members that are eligible to receive credits under both
programs will only receive the larger credit of the two.
Amended Fees for Execution and Routing of Securities Listed on NASDAQ
(Tape C)
NASDAQ is proposing to modify certain charges assessed and credits
provided under Rule 7018(a)(1). First, under Rule 7018(a)(1), NASDAQ
assesses a charge of $0.0029 per share executed on members that enter
Market-on-Close (``MOC'') and/or Limit-on-Close (``LOC'') orders
executed in the NASDAQ Closing Cross, entered through a single MPID
that represent more than 0.06% of Consolidated Volume during the month.
NASDAQ originally introduced the discount charge because it believed
that members that participate in the NASDAQ Closing Cross to a
significant extent through the use of MOC and/or LOC orders are
frequently acting on behalf of institutional investor customers.\6\ At
the time, NASDAQ believed that members may have been giving NASDAQ
lower relative priority in their order routing decisions due to its
relatively high fees for accessing liquidity, as compared with lower
cost exchanges. As a consequence, liquidity providers on NASDAQ may
have been receiving larger orders that had already attempted to access
liquidity elsewhere, such that the order was more likely to have an
impact on the price of the stock. NASDAQ hoped that lowering the fees
for these members they would be encouraged [sic] to give greater
priority to NASDAQ in their routing decisions, thereby lowering their
cost and improving the execution experience of liquidity providers.
Moreover, NASDAQ hoped to encourage greater use of its Closing Cross
through the reduction in the charge. NASDAQ notes that [sic] reduced
rate has not materially improved the market in Tape C securities and
therefore is proposing to increase the charged assessed from $0.0029 to
$0.0030 per share executed.
---------------------------------------------------------------------------
\6\ Securities Exchange Act Release No. 68421 (December 13,
2012), 77 FR 75232 (December 19, 2012) (SR-NASDAQ-2012-135).
---------------------------------------------------------------------------
Second, NASDAQ is proposing to increase the charge assessed a
member that enters a TFTY order \7\ that executes on a venue other than
NASDAQ OMX BX (``BX'') or NASDAQ OMX PSX (``PSX''). Currently, NASDAQ
assesses a charge of $0.0005 per share executed for such TFTY orders
and NASDAQ is proposing to increase the charge to $0.0007 per share
executed. Third, NASDAQ is proposing to increase the charge for QDRK,
or QCST orders \8\ that execute in a venue other than the NASDAQ Market
Center. NASDAQ currently assesses a charge of $0.0005 per share
executed for such QDRK, or QCST orders and NASDAQ is proposing to
increase the charge to $0.0007 per share executed. Lastly, NASDAQ is
proposing to eliminate the $0.0011 per share credit provided to members
that enter QCST orders in NASDAQ-listed securities that execute on BX,
and provide no charge or credit for such orders. These changes will
reduce costs in a period of reduced trading volumes and are unlikely to
have a significant impact on members that use NASDAQ's routing
services, as the charges remain relatively low.
---------------------------------------------------------------------------
\7\ TFTY is a routing option under which orders check NASDAQ for
available shares only if so instructed by the entering firm and are
thereafter routed to destinations on the applicable routing table.
If shares remain un-executed after routing, they are posted to the
book. Once on the book, if the order is subsequently locked or
crossed by another market center, the System will not route the
order to the locking or crossing market center.
\8\ QDRK is a routing option under which orders check NASDAQ for
available shares and simultaneously route the remaining shares to
destinations on the applicable routing table that are not posting
Protected Quotations within the meaning of Regulation NMS. If shares
remain un-executed after routing, they are posted on the book. Once
on the book, if the order is subsequently locked or crossed by
another market center, NASDAQ will not route the order to the
locking or crossing market center.
QCST is a routing option under which orders check NASDAQ for
available shares and simultaneously route the remaining shares to
destinations on the applicable routing table that are not posting
Protected Quotations within the meaning of Regulation NMS and to
certain, but not all, exchanges. If shares remain un-executed after
routing, they are posted on the book. Once on the book, if the order
is subsequently locked or crossed by another market center, NASDAQ
will not route the order to the locking or crossing market center.
---------------------------------------------------------------------------
Amended Fees for Execution and Routing of Securities Listed on NYSE
(Tape A)
NASDAQ is proposing to modify certain charges assessed and credits
provided under Rule 7018(a)(2). Specifically, NASDAQ is proposing to
amend fees assessed for routing orders in New York Stock Exchange, Inc.
(``NYSE'') -listed securities. First, NASDAQ is proposing to increase
the charge assessed a member that enters a TFTY order that executes on
a venue other than NYSE, NASDAQ OMX BX or NASDAQ OMX PSX. Currently,
NASDAQ assesses a charge of $0.0005 per share executed for such TFTY
orders and NASDAQ is proposing to increase the charge to $0.0007 per
share executed. Second, NASDAQ is proposing to increase the charge for
QDRK, or QCST orders that execute in a venue other than the NASDAQ
Market Center. NASDAQ currently assesses a charge of $0.0005 per share
executed for such QDRK, or QCST orders and NASDAQ is proposing to
increase the charge to $0.0007 per share executed. Third, NASDAQ is
proposing to eliminate the $0.0011 per share credit provided to members
that enter QCST orders in NYSE-listed securities that execute on NASDAQ
OMX BX, and provide no charge or credit for such orders. Lastly, the
Exchange is proposing to eliminate the $0.0004 credit provided for DOTI
orders that orders [sic] that execute in NASDAQ OMX BX, and provide no
charge or credit for such orders. These changes
[[Page 9555]]
will reduce costs in a period of reduced trading volumes and are
unlikely to have a significant impact on members that use NASDAQ's
routing services, as the charges remain relatively low.
Amended Fees for Execution and Routing of Securities Listed on
Exchanges Other Than NASDAQ and NYSE (Tape B)
NASDAQ is proposing to modify certain charges assessed and credits
provided under Rule 7018(a)(3). Specifically, NASDAQ is proposing to
amend fees assessed for routing orders in securities listed on
exchanges other than NASDAQ or NYSE. First, NASDAQ is proposing to
increase the charge assessed a member that enters a TFTY order that
executes on a venue other than NASDAQ OMX BX or NASDAQ OMX PSX.
Currently, NASDAQ assesses a charge of $0.0005 per share executed for
such TFTY orders and NASDAQ is proposing to increase the charge to
$0.0007 per share executed. Second, NASDAQ is proposing to increase the
charge for QDRK, or QCST orders that execute in a venue other than the
NASDAQ Market Center. NASDAQ currently assesses a charge of $0.0005 per
share executed for such QDRK, or QCST orders and NASDAQ is proposing to
increase the charge to $0.0007 per share executed. Third, NASDAQ is
proposing to eliminate the $0.0011 per share credit provided to members
that enter QCST orders in securities listed on exchanges other than
NASDAQ or NYSE that execute on NASDAQ OMX BX, and provide no charge or
credit for such orders. Lastly, the Exchange is proposing to eliminate
the $0.0004 credit provided for DOTI orders that orders [sic] that
execute in NASDAQ OMX BX, and provide no charge or credit for such
orders. These changes will reduce costs in a period of reduced trading
volumes and are unlikely to have a significant impact on members that
use NASDAQ's routing services, as the charges remain relatively low.
Amended Fees for Execution in the Closing, Opening and IPO/Halt Crosses
The Exchange is proposing to charge a fee for all other quotes and
orders executed in the NASDAQ Closing Cross, other than MOC and LOC
orders. Currently, the Exchange assesses a fee of $0.0010 per share
executed \9\ for MOC and LOC orders that execute in the Closing Cross,
and charges no fee for all other quotes and orders executed in the
Closing Cross. The Exchange is proposing to assess a fee of $0.0002 per
share executed for all other quotes and orders executed in the NASDAQ
Closing Cross, other than MOC and LOC orders. This change will help the
Exchange recapture some of the costs it incurs operating the cross
system, while maintaining relatively low fees for the execution of
orders in the Closing Cross.
---------------------------------------------------------------------------
\9\ Except as provided in Rule 7018(d)(2), which provides that
High Volume MPIDs pay a discounted fee of $0.0001 per share executed
with respect to executions of ``Market-On-Close'' and ``Limit-on-
Close'' orders when the same High Volume MPID is on both sides of
the trade.
---------------------------------------------------------------------------
The Exchange is proposing to charge a fee for all other quotes and
orders executed in the Nasdaq Opening Cross, other than MOC, LOC, Good-
till-Cancelled (``GTC''), and Immediate-or-Cancel (``IOC'') orders.
Currently, the Exchange assesses a fee of $0.0005 per share executed
for the net number of buy and sell shares up to a maximum of $15,000
per firm per month for MOC and LOC, GTC, and IOC orders that execute in
the Opening Cross, and charges no fee for all other quotes and orders
executed in the Opening Cross. The Exchange is proposing to assess a
fee of $0.0002 per share executed for all other quotes and orders
executed in the NASDAQ Closing [sic] Cross, other than MOC, LOC, GTC,
and IOC orders. The Exchange is also proposing to increase the fee
assessed for MOC, LOC, GTC, and IOC orders executed in the Opening
Cross from $0.0005 per share executed, to $0.0010 per share executed
for the net number of buy and sell shares up to a maximum of $15,000
per firm per month. These changes will help the Exchange recapture some
of the costs it incurs operating the cross system and will simplify the
Exchange's fee schedule, while maintaining relatively low fees for the
execution of orders in the Opening Cross.
The Exchange is proposing to increase the fee assessed for quotes
and orders executed in the NASDAQ IPO/Halt Cross. Currently, the
Exchange assesses a fee on all quotes and orders executed in the IPO/
Halt Cross of $0.0005 per share executed. The Exchange is proposing to
increase this fee to $0.0010 per share executed. The increased fee will
help the Exchange recapture some of the costs it incurs operating the
cross system and will simplify the Exchange's fee schedule, while
maintaining relatively low fees for the execution of orders in the IPO/
Halt Cross.
Amended Fees for Designated Liquidity Providers
The Exchange is proposing to amend language in Rule 7018(i), which
concerns the applicability of fees and credits for execution of a
Qualified Security \10\ by one of its Designated Liquidity Providers
(``DLP''). As defined in Rule 7018(i)(2), a DLP is a registered NASDAQ
market maker for a Qualified Security that has committed to maintain
minimum performance standards.\11\ Under Rule 7018(i), a DLP is
assessed a charge for removing liquidity from NASDAQ and a credit for
adding liquidity thereto in its Qualified Securities. The charge and
credit is meant to apply to DLPs in their Qualified Securities, to the
exclusion of other charges and credits for execution under the rules.
As currently drafted, only charges and credits provided under the
preceding paragraphs of Rule 7018 are excluded from applying to DLPs in
their Qualified Securities. The rebate programs under Rule 7014,
however, are not excluded from applying to DLPs in their Qualified
Securities. The Exchange is proposing to add language to Rule 7018(i)
that also excludes the rebate programs under Rule 7014 from applying to
DLPs in their Qualified Securities.
---------------------------------------------------------------------------
\10\ Rule 7018(i)(1) defines Qualified Security as an exchange-
traded fund or index-linked security listed on Nasdaq pursuant to
Nasdaq Rules 5705, 5710, or 5720, and it has at least one Designated
Liquidity Provider.
\11\ The rule further provides that a DLP shall be selected by
NASDAQ based on 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. Moreover, the rule permits NASDAQ to limit the number of
Designated Liquidity Providers in a security, or modify a previously
established limit, upon prior written notice to members.
---------------------------------------------------------------------------
The Exchange is also proposing to eliminate the current charge
assessed DLPs for entering an order that executes in the NASDAQ Market
Center or attempts to execute in the NASDAQ Market Center prior to
routing. NASDAQ assesses DLPs a charge of $0.003 per share executed for
securities priced at $1 or more per share for an order that executes in
the NASDAQ Market Center or attempts to execute in the NASDAQ Market
Center prior to routing. For such orders in securities priced at less
than $1 per share, the normal execution fees under 7018(a) apply.
NASDAQ is proposing to eliminate this charge so that the normal charges
apply to all orders that a DLP enters in one of its Qualified
Securities that executes in the NASDAQ Market Center or attempts to
execute in the NASDAQ Market Center prior to routing. As a consequence,
DLPs will be eligible to receive reduced fees for such orders under
other provisions of Rule 7018.
[[Page 9556]]
Lastly, NASDAQ is proposing to eliminate the cap on the credit
provided to DLPs under Rule 7018(i). Currently, NASDAQ limits the
credit a DLP may receive to 10 million shares average daily volume and
applies normal credits under 7018(a) to shares greater than 10 million
average daily volume and nondisplayed liquidity. NASDAQ is deleting the
limitation in its entirety, which may promote greater participation in
the program.
2. Statutory Basis
NASDAQ believes that the proposed rule change is consistent with
the provisions of Section 6 of the Act,\12\ in general, and with
Sections 6(b)(4) and 6(b)(5) of the Act,\13\ in particular, in that it
provides for the equitable allocation of reasonable dues, fees and
other charges among members and issuers and other persons using any
facility or system which NASDAQ operates or controls, and is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78f.
\13\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
The Exchange believes that the changes to the QMM Program are
reasonable because they serve to maintain an incentive structure
designed to benefit all market participants by encouraging quoting at
or near the NBBO in a wide range of securities that are not listed on
NASDAQ, while also removing the incentive with respect to NASDAQ-listed
securities priced at $1 or more per share that access liquidity on the
NASDAQ Market Center. As noted, the QMM program is intended to
encourage members to promote price discovery and market quality by
quoting at the NBBO for a significant portion of each day in a large
number of securities, thereby benefitting NASDAQ and other investors by
committing capital to support the execution of orders. NASDAQ's
observation has been that the lower charge of the program has not
materially increased the quality of the market in the NASDAQ Market
Center with respect to NASDAQ-listed securities. As such, NASDAQ
believes that applying the normal rate in the absence of the desired
improvement in the market at the lower rate is an equitable allocation
of a reasonable fee. Moreover, NASDAQ believes that the removal of the
reduced fee is not unfairly discriminatory because it applies the
default rate to Tape C securities, while maintaining a lower incentive
rate in securities in Tape A and B securities, where the reduced fee
has been effective in improving the market in such securities in
NASDAQ. NASDAQ believes that the current market quality in Tape C
securities in the NASDAQ Market Center should continue, notwithstanding
the elimination of the reduced charge. Accordingly, NASDAQ's proposed
change is designed to maintain the benefits associated with the QMM
program while reducing its cost, thereby making the program sustainable
in the longer term.
The changes to the NBBO Setter Incentive program are consistent
with a fair allocation of a reasonable fee and not unfairly
discriminatory because they are intended to encourage members to add
liquidity at prices that benefit all NASDAQ market participants and the
NASDAQ market itself, and enhance price discovery, by establishing a
new NBBO or allowing NASDAQ to join the NBBO established by another
trading center. As the rule is currently written, only QMMs are
precluded from receiving both a credits under the NBBO Setter Incentive
program and the ISP. NASDAQ believes that it is an equitable allocation
of a reasonable fee to extend the restriction on receiving multiple
credits currently imposed on QMMs to all members because both QMMs and
non-QMM members participating in the NBBO Setter Incentive program and
ISP are providing the same market improvement under the two programs.
Likewise, the Exchange believes that removing the distinction between
QMMs and non-QMM members is not unfairly discriminatory because the
change eliminates a distinction currently made in the rules applied to
members that provide the same improvement to market quality under the
ISP and NBBO Setter Incentive program.
The proposed increase to the charge assessed on members with MOC
and/or LOC orders in securities listed on NASDAQ, which are executed in
the NASDAQ Closing Cross and entered through a single MPID that
represents more than 0.06% of Consolidated Volume during the month is
reasonable because it aligns the fee assessed with the default rate
assessed for orders that execute in the NASDAQ Market Center. NASDAQ
notes that current lower charge is designed to attract buyers to the
NASDAQ Closing Cross and to incentivize members to use MOC and LOC
orders, thereby providing a deep market and greater participation in
the Closing Cross. NASDAQ is increasing the charge to cover costs
associated with maintaining and improving the Closing Cross system.
Accordingly, NASDAQ believes it is reasonable to assess the default fee
of $0.0030 per share executed of a NASDAQ-listed security on members
that remove liquidity in the NASDAQ Closing Cross. Moreover, NASDAQ
believes that the fee is equitably allocated because all members with
MOC and/or LOC orders in Tape C securities listed on NASDAQ that are
executed in the NASDAQ Closing Cross and entered through a single MPID
that represents more than 0.06% of Consolidated Volume during the month
are assessed the same charge. The Exchange believes that increasing the
charge does not discriminate unfairly because it is a modest increase
tied to the benefit derived from participating in the Closing Cross.
NASDAQ believes that the increase in the charge for TFTY orders
that execute in venues other than NASDAQ OMX BX, NASDAQ OMX PSX, and in
the case of Tape A securities, also venues other than NYSE is
reasonable because the Exchange is raising the fee [sic] modest amount
to account for costs associated with routing such orders to other
venues. In this regard, NASDAQ notes that the fee is lower than fees
assessed for routing and execution of other orders in securities of
each of the three Tapes. NASDAQ believes that the proposed increase is
equitably allocated because it will apply to all members that receive
an execution in a TFTY order in the venues noted above. Lastly, the
Exchange believes that the proposed fee increase is not unfairly
discriminatory because it represents a modest increase in the charge
assessed, which continues to be lower than the charges assessed for the
execution of TFTY orders at other venues.
The increase in the charge for QDRK, or QCST orders in securities
of all three Tapes that execute in a venue other than the NASDAQ Market
Center is reasonable because it represents a modest increase in the fee
to account for increased costs associated with routing orders to other
venues than NASDAQ. The proposed increase in the charge is equitably
allocated because all members that enter QDRK or QCST orders in any
security of the Tapes that executes in another venue [sic]. The
proposed increase in the charge is not unfairly discriminatory because
it raises an already significantly reduced rate for certain routed
orders that execute in a venue other than the NASDAQ Market Center as
compared to charges assessed for other routed orders.
The elimination of the $0.0011 per share credit provided to members
entering QCST orders that execute in BX is reasonable because NASDAQ is
merely eliminating the credit provided for such an execution, and in
its place assessing no charge. A QCST order
[[Page 9557]]
simultaneously accesses the NASDAQ book and routes to other venues,
including BX.\14\ Elimination of the credit is equitably allocated and
not unfairly discriminatory because all members that receive a QCST
execution on BX will continue to receive the benefit of reduced fees
for such executions in a security of any of the three Tapes. NASDAQ
notes that the proposed elimination of the credit balances the desire
to provide certain incentives with the costs the Exchange incurs in
providing such incentives, which ultimately affect the ability to
sustain them.
---------------------------------------------------------------------------
\14\ Rule 4758(a)(1)(A)(xiii).
---------------------------------------------------------------------------
The elimination of the $0.0004 per share credit provided to members
entering DOTI orders that execute on BX is reasonable because NASDAQ is
merely eliminating the credit provided for such an execution, and in
its place is assessing no charge. A DOTI order attempts to execute
against orders in the NASDAQ book at a price equal to or better than
the NBBO. If unfilled, the order will then route to BX where it will
also attempt to execute at the NBBO or better. If still unfilled, the
order will route to NYSE or NYSE Amex where the order will remain until
it is executed or cancelled. Elimination of the credit is equitably
allocated and not unfairly discriminatory because all members that
receive a DOTI order execution on BX will continue to receive the
benefit of reduced fees for such executions. NASDAQ notes that the
proposed elimination of the credit balances the desire to provide
certain incentives with the costs the Exchange incurs in providing such
incentives, which ultimately affect the ability to sustain them.
NASDAQ believes that the changes to the fees assessed for
participation the NASDAQ Opening, Closing and IPO/Halt Crosses are
consistent with a fair allocation of a reasonable fee and not unfairly
discriminatory. NASDAQ believes that the fees are reasonable because
supporting the crosses requires capital investment to maintain a system
that facilitates an orderly auction process. Specifically, NASDAQ is
proposing a modest fee increase for MOC, LOC, GTC and IOC orders
executed in the Opening Cross, which will bring the charge in line with
the charge assessed for MOC and LOC orders that are executed in the
Closing Cross. Similarly, NASDAQ is proposing to assess a new charge on
orders that execute in the Opening and Closing Crosses for orders that
are not MOC, LOC, GTC or IOC, with respect to the Opening Cross, and
not MOC and LOC orders with respect to the Closing Cross. The Exchange
is also modestly increasing the charge assessed for all orders that
execute in an IPO/Halt Cross. The proposed fees are equitably allocated
because they apply a fee on all members that benefit from participation
in the Opening, Closing and IPO/Halt Crosses, and are based on the type
of order entered and contribution to market quality. Similarly, the
proposed fees are not unfairly discriminatory because they are based on
the type of order executed in the cross and the benefit to market
quality that such orders provide.
NASDAQ believes that the proposed exclusion of the availability of
credits provided under Rule 7014 to DLPs in Qualified Securities is
consistent with a fair allocation of a reasonable fee because the
program is designed to supersede other pricing applicable to the
execution of securities provided in Rule 7018, and extension of the
exclusion to the rebate programs under 7014 is consistent with the
nature of the program. As described above, the DLP is specifically
designed to apply to NASDAQ market makers in certain Qualified
Securities. DLPs receive specific credits and charges based on the
nature of their transactions in their Qualified Securities.
Accordingly, NASDAQ believes that it limiting the benefits a DLP
receives to the DLP program is reasonable and a fair allocation of
credits. Likewise, the Exchange believes that removing the distinction
between Rule 7018 credits and charges, and those provided under Rule
7014 is not unfairly discriminatory because it is consistent with the
exclusive nature of the DLP program.
The Exchange also believes that eliminating the charge assessed
DLPs for entering an order that executes in the NASDAQ Market Center or
attempts to execute in the NASDAQ Market Center prior to routing is
reasonable because it permits DLPs to achieve a better rate for such a
routed orders to the extent that the order is eligible for a lower
charge under other provisions of the fee schedule, thus making
participation in the program more attractive. The Exchange believes the
elimination of the charge is an equitable allocation of the fee because
it will make DLPs eligible to achieve reduced rates in the same manner
as other members are under Rule 7018. NASDAQ believes that elimination
of the charge is not unfairly discriminatory because it allows DLPs to
receive a benefit that other members currently enjoy.
Lastly, the elimination of the cap on the credit provided in Rule
7018(i) is reasonable and an equitable allocation of the credit because
it is designed to promote greater participation in the program thereby
improving market quality in Qualified Securities, which benefits all
market participant in NASDAQ. Similarly, NASDAQ does not believe that
the removal of the credit cap is unfairly discriminatory because the
greater participation in the DLP program that the change is designed to
encourage will benefit all market participants to the extent that the
change is effective.
B. Self-Regulatory Organization's Statement on Burden on Competition
NASDAQ does not believe that the proposed rule change will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended.\15\ NASDAQ notes
that it operates in a highly competitive market in which market
participants can readily favor competing venues if they deem fee levels
at a particular venue to be excessive, or rebate opportunities
available at other venues to be more favorable. In such an environment,
NASDAQ must continually adjust its fees to remain competitive with
other exchanges and with alternative trading systems that have been
exempted from compliance with the statutory standards applicable to
exchanges. Because competitors are free to modify their own fees in
response, and because market participants may readily adjust their
order routing practices, NASDAQ believes that the degree to which fee
changes in this market may impose any burden on competition is
extremely limited. In this instance, although the change to the QMM
program may limit the benefits of the program in NASDAQ-listed
securities, the incentive program in question remains in place and is
itself reflective of the need for exchanges to offer significant
financial incentives to attract order flow. The changes to routing fees
and credits do not impose a burden on competition because NASDAQ's
routing services are optional and are the subject of competition from
other exchanges and broker-dealers that offer routing services, as well
as the ability of members to develop their own routing capabilities.
The new and increased fees for execution in the NASDAQ crosses are
reflective of a need to support and improve NASDAQ systems, which in
turn benefit market quality and ultimately, competition. Finally, the
changes to DLP program are reflective of the need for the Exchange to
offer incentives to market participants balanced with the need to keep
costs
[[Page 9558]]
associated with providing the incentives at a level that will ensure
the sustainability of the programs. NASDAQ is eliminating a charge
under the program that will allow DLPs to be eligible to receive
reduced rates for removing liquidity. NASDAQ is also removing a fee
[sic] cap, which may attract more participation in the program. The DLP
program is entirely voluntary, and as a consequence members may elect
to participate in other incentive programs under which they may receive
benefits for improving the market. In sum, if the changes proposed
herein are unattractive to market participants, it is likely that
NASDAQ will lose market share as a result. Accordingly, NASDAQ does not
believe that the proposed changes will impair the ability of members or
competing order execution venues to maintain their competitive standing
in the financial markets.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing change has become effective pursuant to Section
19(b)(3)(A) of the Act,\16\ and paragraph (f) \17\ of Rule 19b-4,
thereunder. At any time within 60 days of the filing of the proposed
rule change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------
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 (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NASDAQ-2014-015 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2014-015. 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 (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NASDAQ-2014-015, and should
be submitted on or before March 12, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
---------------------------------------------------------------------------
\18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-03561 Filed 2-18-14; 8:45 am]
BILLING CODE 8011-01-P