Federal Register / Vol. 75, No. 218 / Friday, November 12, 2010 / Notices 69489 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3The liquidity would, as discussed below, 

emanate from members that have a low order to 

execution ratio. 4The Commission has recently expressed its 

concern that a significant percentage of the orders 

of individual investors are executed at over the 

counter (‘‘OTC’’) markets, that is, at off-exchange 

markets; and that a significant percentage of the 

orders of institutional investors are executed in 

dark pools. Securities Exchange Act Release No. 

61358 (January 14, 2010), 75 FR 3594 (January 21, 

2010) (Concept Release on Equity Market Structure, 

‘‘Concept Release’’). See also Mary L. Schapiro, 

Strengthening Our Equity Market Structure (Speech 

at the Economic Club of New York, Sept. 7, 2010) 

(‘‘Schapiro Speech,’’ available on the Commission 

Web site) (comments of Commission Chairman on 

what she viewed as a troubling trend of reduced 

participation in the equity markets by individual 

investors). 

5 In the January 2010 Concept Release, the 

Commission noted that dark pools and internalizing 

broker-dealers executed approximately 25.4% of 

share volume. See Concept Release, Figure 6. In her 

September 2010 speech, Chairman Schapiro 

referenced that figure and the fact that it continued 

to grow: ‘‘today, nearly 30 percent of volume in 

U.S.-listed equities is executed in venues that do 

not display their liquidity or make it generally 

available to the public. The percentage executed by 

these dark, non-public markets is increasing nearly 

every month.’’ Schapiro Speech. 

6The Commission has recognized the strong 

policy preference under the Act in favor of price 

transparency and displayed markets. The 

Commission published the Concept Release to 

invite public comment on a wide range of market 

structure issues, including high frequency trading 

and un-displayed, or ‘‘dark,’’ liquidity. See Concept 

Release. Moreover, Chairman Schapiro identified 

‘‘two concerns that go to the core of our equity 

market structure: First, whether the quality of price 

discovery has declined, and second, whether these 

changes in our market structure could undermine 

the fair and level playing field essential to investor 

protection, capital formation and vibrant capital 

markets generally.’’ Schapiro Speech. 

7Subsequent to initial port designation, a member 

may add or remove designated ports for ISP use no 

later than the first trading day of the month when 

the desired change is to become effective. 

8The term ‘‘System Securities’’ is defined as all 

securities listed on NASDAQ and all securities 

subject to the Consolidated Tape Association Plan 

and the Consolidated Quotation Plan. Rule 4751(b). 9See Proposed Rule 7014(d)(2). 10See Proposed Rule 7014(d)(1). 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63270; File No. SR– 

NASDAQ–2010–141] 

Self-Regulatory Organizations; The 

NASDAQ Stock Market LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change To Add New 

Rule 7014 To Enable NASDAQ 

Members To Qualify for a Monthly Fee 

Credit 

November 8, 2010. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’) 1 and Rule 19b–4 thereunder,2

notice is hereby given that on October 

26, 2010, The NASDAQ Stock Market 

LLC (‘‘NASDAQ’’ or the ‘‘Exchange’’) 

filed with the Securities and Exchange 

Commission (the ‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been prepared by the Exchange. 

The Commission is publishing this 

notice to solicit comments on the 

proposed rule change from interested 

persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

NASDAQ proposes to add new Rule 

7014 (Investor Support Program) to 

enable NASDAQ members to qualify for 

a monthly fee credit. 

The text of the proposed rule change 

is available at http:// 

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. The text of 

these statements may be examined at 

the places specified in Item III below, 

and is set forth in Sections A, B, and C 

below. NASDAQ has prepared 

summaries, set forth in Sections A, B, 

and C below, of the most significant 

aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

NASDAQ is adding new Rule 7014 to 

establish an Investor Support Program 

(‘‘ISP’’), which would enable NASDAQ 

members to earn a monthly fee credit for 

providing additional liquidity to 

NASDAQ and increasing the NASDAQtraded volume of what are generally 

considered to be retail and institutional 

investor orders in exchange-traded 

securities.3 The goal of the ISP is to 

incentivize members to provide such 

targeted liquidity to the Nasdaq Market 

Center.4 Maintaining and increasing the 

proportion of orders in exchange-listed 

securities executed on a registered 

exchange (rather than relying on any of 

the available off-exchange execution 

methods) 5 would help raise investors’ 

confidence in the fairness of their 

transactions and would benefit all 

investors by deepening NASDAQ’s 

liquidity pool, supporting the quality of 

price discovery, promoting market 

transparency and improving investor 

protection.6

The first step for a NASDAQ member 

wishing to participate in the ISP is to 

designate one or more of its NASDAQ 

ports for ISP use.7 Orders entered 

through ISP-designated ports will be 

used for ISP credit calculations. 

Subsection (b) of Rule 7014 describes 

how the ISP credit will be calculated. 

The ISP credit formula provides for a 

monthly credit of 3 cents per 100 shares 

of displayed liquidity provided through 

an ISP-designated port to the extent that 

such liquidity results in an increase 

(compared with August 2010) in the 

overall level of liquidity that the 

member provides to NASDAQ measured 

as a proportion of the consolidated 

share volume traded by all market 

participants across all trading venues. 

To this end, a member’s ‘‘Baseline 

Participation Ratio’’ is determined by 

measuring the number of shares in 

liquidity-providing orders entered by 

the member (through any NASDAQ 

port) and executed on NASDAQ and 

dividing this number by the 

consolidated (across all trading venues) 

share volume of System Securities 8

traded in August 2010.9 To determine 

whether a member added liquidity to 

NASDAQ in a given month, NASDAQ 

would perform the same calculation on 

a monthly basis for the then-current 

month and compare the resulting ratio 

to the Baseline Participation Ratio. If the 

member’s then-current month’s ratio is 

higher than the Baseline Participation 

Ratio, then the member’s ‘‘Added 

Liquidity’’ for that month would be 

calculated by multiplying the difference 

between the two ratios by such month’s 

consolidated average daily share volume 

of System Securities traded across all 

venues (if the result is a negative 

number, then Added Liquidity would be 

deemed zero).10 To determine the 

amount of the ISP credit, NASDAQ 

would multiply $0.0003 by the lower of: 

(1) The number of shares of displayed 

liquidity provided in orders entered by 

the member thorough its ISP-designated 

ports and executed in the Nasdaq 

Market Center during the given month, 

or (2) the amount of Added Liquidity for 

the given month. Any ISP credit issued 

pursuant to Rule 7014 will be in 

addition to (and will not replace) any 

other credit or rebate for which a 

member may qualify. 

Subsection (c) contains requirements 

designed to limit ISP credit eligibility to 

targeted orders. This is accomplished by 

establishing a maximum ratio (set at 10) 

of (i) liquidity-providing orders placed 

from all of given member’s ISPdesignated ports to (ii) liquidityproviding orders placed from such 

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69490 Federal Register / Vol. 75, No. 218 / Friday, November 12, 2010 / Notices 

11See Nasdaq Rule 4751(f)(4), (g)(3) and (h)(1) 

and (5). 12 15 U.S.C. 78f. 13 15 U.S.C. 78f(b)(4) and (5). 14See Section 6(b)(5) of the Act, 15 U.S.C. 

78f(b)(5). 

15See Section 6(b)(4) of the Act, 15 U.S.C. 

78f(b)(4). 

16See, e.g., Concept Release (discusses the 

various venues where trades are executed). 

17 15 U.S.C. 78s(b)(3)(a)(ii). 

18The text of the proposed rule change is 

available on the Commission’s Web site at http:// 

www.sec.gov/rules/sro.shtml. 

member’s ISP-designated ports and 

actually executed (at least partially) in 

the Nasdaq Market Center. If in a given 

month this ratio is 10 or higher for a 

given member (usually because the 

member cancelled a large portion of the 

orders placed), then the member would 

not receive ISP credit for that month. In 

calculating the ratio, NASDAQ will 

exclude pegged, odd-lot and System 

Hours and Market Hours Immediate-orCancel orders,11 and will not doublecount in the event of multiple partial 

executions of a single order. 

The rule sets 10 million shares daily 

on average as the minimum qualifying 

volume of shares in executed liquidityproviding orders entered from a 

member’s ISP-designated ports. This is 

done to attract firms with substantive 

amounts or retail and institutional order 

flow that may provide such targeted 

liquidity to NASDAQ. If, in a given 

month, this daily average is lower than 

10 million shares, the member would 

not qualify for ISP credit. It is expected 

that both the execution ratio and the 

volume minimum would serve to 

encourage members to enter orders that 

are likely to be executed. 

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 it is designed to promote 

just and equitable principles of trade, to 

remove impediments to and perfect the 

mechanism of a free and open market, 

and, in general, to protect investors and 

the public interest. The rule change 

establishes a program that enables 

NASDAQ members to earn a monthly 

fee credit for increasing the NASDAQtraded volume of what are generally 

retail and institutional investor orders 

in exchange-traded securities. The goal 

of the program is to encourage members 

to enter such orders in the Nasdaq 

Market Center. 

While the program distinguishes 

among orders, such distinctions ‘‘are not 

designed to permit unfair 

discrimination’’ 14 but, rather, are 

intended to promote submission of 

liquidity-providing orders to NASDAQ, 

which would benefit all NASDAQ 

members and all investors. Maintaining 

and increasing the proportion of retail 

and institutional orders in exchangelisted securities executed on a registered 

national securities exchange (rather than 

relying on any of the available offexchange execution methods) would 

help raise investors’ confidence in the 

fairness of their transactions and would 

benefit all investors by deepening 

NASDAQ’s liquidity pool, supporting 

the quality of price discovery, 

promoting market transparency and 

improving investor protection. 

Furthermore, setting a minimum 

monthly volume of eligible ISP orders as 

a condition for any fee credit eligibility 

(and therefore establishing a minimum 

threshold amount for any monthly 

credit) is not designed to discriminate 

unfairly, but rather to attract targeted 

retail and institutional investor 

liquidity. Likewise, the program is 

consistent with the Act’s requirement 

‘‘for the equitable allocation of 

reasonable dues, fees, and other 

charges.’’ 15 As explained in the 

immediately preceding paragraphs, 

members who choose to increase the 

volume of ISP-eligible liquidityproviding orders that they submit to 

NASDAQ would be benefitting all 

investors, and therefore an additional 

credit, as contemplated in the proposed 

program, is equitable. 

Finally, NASDAQ notes that the 

intense competition among several 

national securities exchanges and 

numerous OTC venues effectively 

guarantees that fees and credits for the 

execution of trades in NMS securities 

remain equitable and are not unfairly 

discriminatory.16

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. 

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.17 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. 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 e-mail to rulecomments@sec.gov. Please include File 

Number SR–NASDAQ–2010–141 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–2010–141. This 

file number should be included on the 

subject line if e-mail 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, 18 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, on official business 

days between the hours of 10 a.m. and 

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Federal Register / Vol. 75, No. 218 / Friday, November 12, 2010 / Notices 69491 

19 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 62955 

(September 20, 2010), 75 FR 58456 (‘‘Notice’’). 

4See Securities Exchange Act Release No. 59282 

(January 22, 2009), 74 FR 5009 (January 28, 2009) 

(NYSE–2008–119). 

5See NYSE Rule 1600(d)(1)(B). 

6See proposed NYSE Rule 1600(d)(1)(C)(iii). 

7See Notice, supra note 3. 

8 In approving the proposed rule change, the 

Commission has considered its impact on 

efficiency, competition, and capital formation. See 

15 U.S.C. 78c(f). 

9 15 U.S.C. 78f(b)(5). 

10 15 U.S.C. 78s(b)(2). 

11 17 CFR 200.30–3(a)(12). 

3 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–2010–141 and 

should be submitted on or before 

December 3, 2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.19

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–28545 Filed 11–10–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63266; File No. SR–NYSE– 

2010–67] 

Self-Regulatory Organizations; Order 

Approving Proposed Rule Change by 

New York Stock Exchange LLC 

Changing the NYBX Order Execution 

Sequence 

November 5, 2010. 

I. Introduction 

On September 9, 2010, the New York 

Stock Exchange LLC (‘‘Exchange’’ or 

‘‘NYSE’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’) a 

proposed rule change, pursuant to 

Section 19(b)(1) of the Securities 

Exchange Act of 1934 (‘‘Act’’) 1 and Rule 

19b–4 thereunder,2 to change the 

execution of algorithm of the New York 

Block Exchange (‘‘NYBX’’ or the 

‘‘Facility’’), an electronic trading facility 

of the NYSE. The proposed rule change 

was published for comment in the 

Federal Register on September 24, 

2010.3 The Commission received no 

comments on the proposal. This order 

approves the proposed rule change. 

II. Description of the Proposal 

The NYBX is an electronic facility of 

the Exchange for the trading of 

undisplayed orders in NYSE-listed 

securities.4 NYSE Rule 1600 governs the 

operation of the NYBX. 

When an order enters the Facility, the 

Facility scans its own book, the NYSE’s 

Display Book (‘‘DBK’’) (both displayed 

and undisplayed orders), and the 

protected quotations of automated 

trading centers to identify marketable 

contraside interest.5 Following this 

review, if marketable contraside interest 

exists and the applicable minimum 

triggering volume threshold of the 

incoming order is met, the Facility will 

commence a sequential process for 

executing the incoming order. As part of 

this process, the full remaining size of 

the incoming order will be routed back 

and forth between the Facility and the 

DBK at each price point, even though 

only a small portion of the order might 

be filled at a particular price point. This 

‘‘oversizing’’ allows any CCS interest in 

the DBK, which the Facility is not aware 

of, to be triggered at each price point. 

During the sequential routing process, 

portions of the incoming order will be 

routed away to hit protected quotations 

of automated trading centers as 

necessary to avoid trade throughs. 

The NYSE proposes to change the 

order execution method from the 

current sequential, ‘‘oversizing’’ process 

to a simultaneous process. When a 

market evaluation indicates that 

sufficient marketable liquidity exists to 

meet the incoming order’s minimum 

trading volume threshold, the Facility 

will divide the incoming order into 

separate orders that will be routed 

simultaneously to execute against 

marketable contraside liquidity in the 

DBK and/or other automated trading 

centers up to the price of the incoming 

order. The orders routed to the DBK will 

no longer be oversized. The remainder 

of the original order will execute, to the 

extent possible, against contraside 

interest in the Facility at the same or 

better prices. Using this approach, any 

orders sent by the Facility to the DBK 

would not trigger any CCS interest. In 

addition, the Exchange is proposing to 

amend the Facility’s order-routing 

algorithm to route away to hit the 

protected quotations of automated 

trading centers even in some cases 

where it would not be necessary to do 

so to avoid a trade through.6

The Exchange states that the proposal 

is designed to allow a NYBX order to 

better capture the available contra side 

liquidity revealed during the Facility’s 

initial market evaluation. According to 

the NYSE, some NYBX orders currently 

are not able to execute against available 

contra side liquidity, because of ‘‘the 

disappearance or the adjustment of a 

substantial portion of the available 

contra side liquidity that shows up on 

the initial market evaluation, before the 

NYBX order is able to execute against 

that liquidity.’’ 7

III. Discussion 

After careful review, the Commission 

finds that the proposed rule change is 

consistent with the requirements of the 

Act and the rules and regulations 

thereunder are applicable to a national 

securities exchange.8 In particular, the 

Commission believes that the proposed 

rule change is consistent with Section 

6(b)(5) of the Act,9 which requires, 

among other things, that an exchange 

have rules designed to promote just and 

equitable principles of trade; to foster 

cooperation and coordination with 

persons engaged in regulating, clearing, 

settling, processing information with 

respect to, and facilitating transactions 

in securities; to remove impediments to 

and perfect the mechanism of a free and 

open market and a national market 

system; and, in general, to protect 

investors and the public interest. 

The Commission believes that the 

proposal is reasonably designed to 

increase the fill rates of NYBX orders in 

a manner consistent with Regulation 

NMS, by capturing a higher percentage 

of the marketable contra side liquidity 

that may be available for execution, as 

revealed by the Facility’s initial market 

evaluation. The proposal should also 

benefit market participants whose 

orders are displayed at automated 

trading centers, by increasing their fill 

rates against NYBX orders. Accordingly, 

the Commission finds that the proposal 

is reasonably designed to remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system, and is 

also consistent with the protection of 

investors and the public interest. 

IV. Conclusion 

It is therefore ordered, that pursuant 

to Section 19(b)(2) of the Act,10 that the 

proposed rule change (SR–NYSE–2010– 

67) be, and it hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.11

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–28542 Filed 11–10–10; 8:45 am] 

BILLING CODE 8011–01–P 

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