[Federal Register Volume 79, Number 72 (Tuesday, April 15, 2014)]
[Notices]
[Pages 21328-21331]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-08527]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71925; File No. SR-NASDAQ-2014-031]
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 Under Rule 7014, and the
Schedule of Fees and Rebates Under Rule 7018
April 10, 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 April 2, 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
NASDAQ is proposing to make changes to the Qualified Market Maker
(``QMM'') Incentive Program under Rule 7014, and the schedule of fees
and rebates for execution and routing of orders under Rule 7018. The
changes will be implemented effective April 2, 2014.
The text of the proposed rule change is available at
nasdaq.cchwallstreet.com, 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
under Rule 7014 and to the schedule of fees and credits applicable to
execution and routing of orders under Rule 7018, which are described in
detail below.
QMM Incentive Program
NASDAQ is adding a new QMM eligibility requirement to the QMM
Incentive Program under Rule 7014(d). A QMM is a member that makes a
significant contribution to market quality by providing liquidity at
the National Best Bid or Offer (``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
[[Page 21329]]
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). Currently, a
member may be designated as a QMM with respect to one or more of its
MPIDs if the member is not assessed any ``Excess Order Fee'' under Rule
7018 during the month, and through such MPID the member quotes at the
NBBO at least 25% of the time during regular market hours in an average
of at least 1,000 securities per day during the month.\3\ NASDAQ is
proposing to now require a member to also execute at least 0.30% of
Consolidated Volume \4\ in an MPID in a month to qualify as a QMM, in
addition to the existing QMM eligibility requirements under Rule
7014(d). Adding the 0.30% Consolidated Volume requirement furthers the
goals of the program to promote price discovery and market quality by
requiring the member to not only add to the quality of the markets in
the price of its orders relative to the NBBO, but also to add a certain
level of liquidity as well. A liquidity provider that executes
substantive volume demonstrates its willingness to stand ready to buy
or sell securities (i.e., to provide liquidity) by consummating
transactions. The requirement outlined above is intended to ensure that
QMMs remain bona fide liquidity providers, in addition to participants
that actively quote at the NBBO.
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\3\ Rule 7014(d).
\4\ Consolidated Volume is defined as: The total consolidated
volume reported to all consolidated transaction reporting plans by
all exchanges and trade reporting facilities during a month,
excluding executed orders with a size of less than one round lot.
For purposes of calculating Consolidated Volume and the extent of a
member's trading activity, expressed as a percentage of or ratio to
Consolidated Volume, the date of the annual reconstitution of the
Russell Investments Indexes shall be excluded from both total
Consolidated Volume and the member's trading activity. See Rule
7014(h)(5).
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Amended Fees for Execution and Routing of Securities Listed on NASDAQ
(Tape C)
NASDAQ is proposing to reduce the credits provided to members that
enter orders that provide non-displayed liquidity (other than
Supplemental Orders) in NASDAQ-listed securities. Currently, NASDAQ
provides a credit of $0.0017 per share executed for midpoint orders if
the member provides an average daily volume of 5 million or more shares
through midpoint orders during the month, and a credit of $0.0014 per
share executed for midpoint orders if the member provides an average
daily volume of less than 5 million shares through midpoint orders
during the month. For other non-displayed orders, NASDAQ provides a
credit of $0.0010 per share executed if the member provides an average
daily volume of 1 million or more shares per day through midpoint
orders or other non-displayed orders during the month, and a credit of
$0.0005 per share executed for other non-displayed orders. NASDAQ is
proposing to reduce the credit to a member that provides an average
daily volume of 1 million or more shares per day through midpoint
orders or other non-displayed orders during the month from $0.0010 per
share executed to $0.0005 per share executed. NASDAQ is also proposing
to eliminate the $0.0005 per share executed credit currently provided
for other non-displayed orders and to provide no credit or fee for such
orders. NASDAQ recognizes the special role that it plays as the listing
market for securities listed on the NASDAQ stock market and seeks to
encourage displayed quotation as much as possible for these securities.
By reducing the financial incentive to provide non-displayed liquidity,
NASDAQ believes it may increase the incentive to provide displayed
liquidity, thereby increasing the pool of available liquidity. This has
various beneficial effects, not least of which is improved price
stability.
Fees for Execution in the Opening Cross
NASDAQ is proposing to add a new eligibility requirement to the fee
cap on Opening Cross executions under Rule 7018(e). Currently, members
that participate in the Opening Cross are assessed fees for their
executions in the cross up to a maximum of $20,000. The fee cap is
designed to balance the need to assess fees for executions, yet also
promote liquidity in the Opening Cross. NASDAQ is proposing to require
that, to be eligible for the $20,000 fee cap, a member must add at
least one million shares of liquidity to the market, on average, per
month. NASDAQ believes that the primary impact of this change will be
to encourage firms that currently have a relatively large presence in
the opening cross, but a disproportionately small presence during the
continuous market, to increase their participation in the continuous
market in order to continue to receive the benefit afforded by the cap.
The improvement in available liquidity will, in turn, benefit all
market participants.
2. Statutory Basis
NASDAQ believes that the proposed rule change is consistent with
the provisions of Section 6 of the Act,\5\ in general, and with
Sections 6(b)(4) and 6(b)(5) of the Act,\6\ 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.
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\5\ 15 U.S.C. 78f.
\6\ 15 U.S.C. 78f(b)(4) and (5).
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The proposed new eligibility requirement under the QMM Incentive
Program is reasonable because it furthers the goal of the program,
namely, to promote price discovery and market quality by adding a
requirement that a member provide a certain level of Consolidated
Volume through its MPIDs. The new Consolidated Volume requirement
promotes market liquidity, which NASDAQ believes is an appropriate
application of the program and the favorable pricing it provides to
liquidity providers that qualify for the program. The proposed new
eligibility requirement is consistent with an equitable allocation of
fees and is not unfairly discriminatory because the pricing applies
equally to all NASDAQ members that are QMMs. Moreover, the favorable
pricing of the incentive program is designed to encourage meaningful
improvement to the market by ensuring liquidity providers are active
and providing order activity that promotes price discovery and market
stability. As a consequence, although some members may no longer
qualify for the program due to the new requirement, NASDAQ believes
that the new requirement is not unfairly discriminatory because such
liquidity providers may elect to direct increased order flow to NASDAQ
to meet the Consolidated Volume requirement.
The proposed reduction in the credits to members that enter orders
that provide non-displayed liquidity (other than Supplemental Orders)
in NASDAQ-listed securities is reasonable because NASDAQ is merely
reducing the credit provided for such executions, and in the case of
non-displayed liquidity that does not otherwise qualify for the other
credits of the rule, is providing no credit. NASDAQ notes that the
credits provided by the rule are given in lieu of assessing normal
fees, and accordingly provide incentive to market participants to enter
such orders. The proposed change balances the Exchange's desire to
provide certain incentives to market participants with the costs the
Exchange incurs in providing such incentives, which
[[Page 21330]]
ultimately affect the ability to sustain them. The proposed changes to
the credits provided to members that enter orders that provide non-
displayed liquidity (other than Supplemental Orders) in NASDAQ-listed
securities is consistent with an equitable allocation of fees and is
not unfairly discriminatory because the pricing, which is the same for
all NASDAQ participants, applies solely to members that opt to enter
such non-displayed orders in NASDAQ-listed securities. Moreover,
reducing the credits provided for such orders, yet providing greater
incentives for identical orders in non-NASDAQ listed securities is not
unfairly discriminatory because it is consistent with need to balance
the credits provided by the Exchange with the order activity of the
market.
The proposed new eligibility requirement for the $20,000 Opening
Cross fee cap is reasonable because it requires participants in the
Opening Cross to provide a certain level of liquidity to the market,
thus providing incentive to such participants to improve the market
throughout the trading day in order to gain the benefit of the fee cap.
As such, the proposed change is consistent with NASDAQ's ongoing
efforts to use pricing incentives to attract orders that NASDAQ
believes will improve market quality. The proposed new eligibility
requirement for the $20,000 Opening Cross fee cap is consistent with an
equitable allocation of fees and is not unfairly discriminatory because
the fee cap is available to all market participants that participate in
the Opening Cross and ties the benefit of the fee cap to market
activity that benefits all market participants.
Finally, NASDAQ notes that it operates in a highly competitive
market in which market participants can readily favor competing venues
if they deem fee levels at a particular venue to be excessive. 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. NASDAQ believes that the proposed rule change
reflects this competitive environment because it is designed to ensure
that the charges and credits for participation on NASDAQ reflect
changes in the cost of such participation to NASDAQ, and its desire to
attract order flow that improves the market for all participants.
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.\7\ The proposed
changes to fees are reflective of NASDAQ's efforts to use reduced fees
and credits to improve market quality and attract order flow. 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 and credits 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 eligibility requirement of the QMM program may limit the
benefits of the program in NASDAQ-listed securities to the extent
market makers no longer qualify, the incentive program remains in place
and with a qualification requirement that is reasonable and which
promotes improvement of market quality. Similarly, the changes to the
credits provided for certain non-displayed orders in NASDAQ-listed
securities and the eligibility for the Opening Cross fee cap do not
impose a burden on competition because the benefit provided in the form
of reduced fees are tied to reasonable requirements that are designed
to improve market quality. Moreover, reducing the credit provided for
certain non-displayed orders in NASDAQ-listed securities is consistent
with the Exchange's need to balance the costs of such pricing with the
benefit provided to 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.
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\7\ 15 U.S.C. 78f(b)(8).
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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 rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act.\8\
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\8\ 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 (http://www.sec.gov/rules/sro.shtml ); or
Send an email to [email protected]. Please include
File Number SR-NASDAQ-2014-031 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-2014-031. 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
[[Page 21331]]
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-2014-031, and
should be submitted on or before May 6, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2014-08527 Filed 4-14-14; 8:45 am]
BILLING CODE 8011-01-P