Document ID: SEC-2016-1283-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market, LLC
Posted Date: 2016-07-25T04:00Z

[Federal Register Volume 81, Number 142 (Monday, July 25, 2016)]
[Notices]
[Pages 48487-48490]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-17443]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78354; File No. SR-NASDAQ-2016-102]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Nasdaq Rule 7018

July 19, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 13, 2016, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``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 the 
Substance of the Proposed Rule Change

    Nasdaq is proposing changes to amend Nasdaq Rule 7018(a) to: (i) 
Amend the consolidated volume (``Consolidated Volume'') requirement for 
a credit tier for providing liquidity in securities of all three Tapes; 
(ii) delete a credit tier for providing liquidity in securities of all 
three Tapes; and (iii) provide a new credit for providing liquidity in 
securities of all three Tapes.
    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
    The purpose of the proposed rule change is to amend certain credits 
for the use of the order execution and routing services of the Nasdaq 
Market Center by members for all securities priced at $1 or more that 
it trades.
    Specifically, the Exchange proposes to amend Nasdaq Rule 
7018(a)(1), (2), and (3) to: (i) Amend the Consolidated Volume 
requirement for a credit tier for providing liquidity in securities of 
all three Tapes; \3\ (ii) delete a credit tier for providing liquidity 
in securities of all three Tapes; and (iii) provide a new credit for 
providing liquidity in securities of all three Tapes.
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    \3\ There are three Tapes, which are based on the listing venue 
of the security: Tape C securities are Nasdaq-listed; Tape A 
securities are New York Stock Exchange (``NYSE'')-listed; and Tape B 
securities are listed on exchanges other than Nasdaq and NYSE.
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First Change
    The purpose of the first change is to increase the Consolidated 
Volume requirement for accessing liquidity in an existing credit tier. 
Currently, the credit tier requires a member to access more than 0.65% 
of Consolidated Volume through one or more of its Nasdaq Market Center 
MPIDs, provided that the member also provides a daily average of

[[Page 48488]]

at least 2 million shares of liquidity in all securities during the 
month. The Exchange is proposing to increase the required Consolidated 
Volume requirement to more than 0.80%. The current credit will remain 
as $0.0029 per share executed. The Consolidated Volume requirement will 
be increased as stated above for all three Tapes.
    Increasing the Consolidated Volume criteria will require members to 
access more liquidity to receive the $0.0029 per share executed credit 
tier, but the Exchange believes that the members that want to avail 
themselves of this credit tier will be able to meet the increased 
Consolidated Volume requirement. Increasing the amount of liquidity 
accessed should be beneficial to other members as more of their resting 
limit orders may be accessed by members seeking to attain this credit 
tier.
Second Change
    The purpose of the second change is to delete the credit tier of 
$0.0030 per share executed for a member with shares of liquidity 
provided in all securities during the month representing more than 
0.20% of Consolidated Volume during the month, through one or more of 
its Nasdaq Market Center MPIDs and that qualifies for the additional 
$0.05 per contract credit under Note c(3) of Nasdaq Options Market 
(``NOM'') Chapter XV Section 2(1) in securities of all three Tapes.
    No market participants qualified for this credit tier recently, 
thus rendering it ineffective as acting as an incentive. However, since 
the Exchange is limited in the amount of credits that it can provide to 
market participants and even though no market participants currently 
qualify for this credit tier, this can easily shift from month to month 
so Nasdaq is proposing to delete it. Nasdaq must be selective in 
providing credits to members, and allocates credits to where it 
believes it will receive the best result in terms of improvement to 
market quality. The Exchange believes that eliminating this credit tier 
for all three Tapes is the only way to ensure that it will not going 
forward impact the overall balance of credits and fees.
Third Change
    The purpose of the third change is to provide an additional credit 
to members that provide liquidity. Currently, the Exchange provides 
several credits under Rules 7018(a)(1), (2), and (3), each of which 
apply to securities of a different Tape, in return for market-improving 
behavior. The Exchange is proposing to add a new credit tier of $0.0027 
per share executed for a member that has shares of liquidity provided 
in all securities during the month representing more than 0.10% of 
Consolidated Volume during the month, through one or more of its Nasdaq 
Market Center MPIDs, and that adds Customer,\4\ Professional,\5\ 
Firm,\6\ Non-NOM Market Maker \7\ and/or Broker-Dealer \8\ liquidity in 
Non-Penny Pilot Options of 0.40% or more of total industry average 
daily volume (``ADV'') in the customer clearing range for Equity and 
exchange-traded fund (``ETF'') option contracts per day in a month on 
the NOM.
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    \4\ The term ``Customer'' or (``C'') applies to any transaction 
that is identified by a Participant for clearing in the Customer 
range at The Options Clearing Corporation (``OCC'') which is not for 
the account of broker or dealer or for the account of a 
``Professional'' (as that term is defined in Chapter I, Section 
1(a)(48)).
    \5\ The term ``Professional'' or (``P'') means any person or 
entity that (i) is not a broker or dealer in securities, and (ii) 
places more than 390 orders in listed options per day on average 
during a calendar month for its own beneficial account(s) pursuant 
to Chapter I, Section 1(a)(48). All Professional orders shall be 
appropriately marked by Participants.
    \6\ The term ``Firm'' or (``F'') applies to any transaction that 
is identified by a Participant for clearing in the Firm range at 
OCC.
    \7\ The term ``NOM Market Maker'' or (``M'') is a Participant 
that has registered as a Market Maker on NOM pursuant to Chapter 
VII, Section 2, and must also remain in good standing pursuant to 
Chapter VII, Section 4. In order to receive NOM Market Maker pricing 
in all securities, the Participant must be registered as a NOM 
Market Maker in at least one security.
    \8\ The term ``Broker-Dealer'' or (``B'') applies to any 
transaction which is not subject to any of the other transaction 
fees applicable within a particular category.
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    As a general principle, the Exchange chooses to offer credits to 
members in return for market improving behavior. Under Rule 7018(a), 
the various credits the Exchange provides for members require them to 
significantly contribute to market quality by providing certain levels 
of Consolidated Volume through one or more of its Nasdaq Market Center 
MPIDs, and volume on NOM. The Exchange believes that by adding more in 
Non-Penny names on NOM that the market for these options on NOM will 
improve and the Exchange seeks to encourage such behavior.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\9\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\10\ in particular, in that it provides 
for the equitable allocation of reasonable dues, fees, and other 
charges among members and issuers and other persons using any facility 
or system which the Exchange operates or controls, and is not designed 
to permit unfair discrimination between customers, issuers, brokers, or 
dealers.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4) and (5).
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First Change
    The Exchange believes that this proposed amendment to the 
requirements of an existing credit tier provided in securities of all 
three Tapes is reasonable because it amends a measure of activity with 
another, both of which represent a significant contribution to that 
market. Specifically, the Exchange is increasing the requirement that a 
member with shares of liquidity accessed in all securities through one 
or more of its Nasdaq Market Center MPIDs representing more than 0.65% 
of Consolidated Volume during the month. The Exchange is proposing to 
increase the monthly Consolidated Volume requirement from more than 
0.65% to more than 0.80%. The member must also provide a daily average 
of at least 2 million shares of liquidity in all securities through one 
or more of its Nasdaq Market Center MPIDs during the month along with 
the required shares of liquidity accessed.
    The Exchange believes that the proposed amendment to the 
requirements of an existing credit tier provided in securities of all 
three Tapes is an equitable allocation and is not unfairly 
discriminatory because the Exchange will apply the same $0.0029 per 
share executed credit to all similarly situated members. Thus, if a 
member meets the requirements, it will receive the credit. Also, and as 
previously discussed, Nasdaq believes that although increasing the 
Consolidated Volume criteria will require members to access more 
liquidity to receive the $0.0029 per share executed credit tier, 
members seeking to achieve this credit tier will be able to meet the 
increased Consolidated Volume requirement. Increasing the amount of 
liquidity accessed should be beneficial to other members as their 
resting limit orders may be accessed by members seeking to attain this 
credit tier.
Second Change
    The Exchange believes that the proposed changes to delete a credit 
tier for a member with shares of liquidity provided in all securities 
during the month representing more than 0.20% of Consolidated Volume 
during the month, through one or more of its Nasdaq Market Center MPIDs 
and that qualifies for the additional $0.05 per contract credit under 
Note c(3) of NOM Chapter XV Section 2(1) in securities of all three 
Tapes is reasonable because the Exchange must, from time to time, 
adjust the level of credits provided, and

[[Page 48489]]

the criteria required to receive them, to provide the most efficient 
allocation of credits in terms of market improving behavior.
    Specifically, with regard to the eliminated $0.0030 per share 
executed credit tier, as discussed previously, Nasdaq observed that no 
market participants qualified for this credit tier recently, thus 
rendering it ineffective as acting as an incentive. The Exchange is 
limited in the amount of credits that it can provide to market 
participants so even though no market participants currently qualified 
for this credit tier, this can easily shift from month to month. Nasdaq 
must be selective in providing credits to members, and allocates 
credits to where it believes it will receive the best result in terms 
of improvement to market quality. The Exchange believes that it is 
reasonable to eliminate this credit tier as the only way to ensure that 
it will not going forward impact the overall balance of credits and 
fees.
    The Exchange believes that the proposed change to delete the credit 
tier described above in Rule 7018(a) is an equitable allocation and is 
not unfairly discriminatory because the Exchange will eliminate the 
same credit for all similarly situated members. The credits Nasdaq 
provides are designed to improve market quality for all market 
participants, and Nasdaq allocates its credits in a manner that it 
believes are the most likely to achieve that result. Elimination of the 
existing credit tier under the rule is an equitable allocation and is 
not unfairly discriminatory because no participants qualified under 
this credit tier, therefore, its elimination will not impact any 
members.
Third Change
    The Exchange believes that the proposed rule change to add a new 
credit tier of $0.0027 per share executed is reasonable because it is 
consistent with other credits that the Exchange provides to members 
that provide liquidity. As discussed previously, as a general principle 
the Exchange chooses to offer credits to members in return for market 
improving behavior. Under Rule 7018(a), the various credits the 
Exchange provides for members require them to significantly contribute 
to market quality by providing certain levels of Consolidated Volume 
through one or more of its Nasdaq Market Center MPIDs, and volume on 
NOM. The proposed credit will be provided to members that not only 
contribute to the Exchange by providing more than 0.10% of Consolidated 
Volume through one or more of its Nasdaq Market Center MPIDs during the 
month, but also adds Customer, Professional, Firm, Non-NOM Market Maker 
and/or Broker-Dealer liquidity in Non-Penny Pilot Options of 0.40% or 
more of total industry ADV in the customer clearing range for Equity 
and ETF option contracts per day in a month on the NOM.
    The Exchange believes that the proposed new credit tier is 
reasonable because although it provides for a lower credit than some 
other NOM-linked credit tiers, it also has a corresponding lower 
Consolidated Volume threshold of 0.10%. Also, the proposed new credit 
tier specifically requires adding liquidity in Non-Penny Pilot 
Options.\11\ Currently, the credit tier referencing the NOM fee 
schedule that is being deleted in the Second Change (described above) 
also has a Non-Penny liquidity component as part of the criteria, so 
using liquidity in Non-Penny Pilot Options as a tiering criteria is not 
novel.
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    \11\ See NOM Chapter XV, Note c(3)(b) to Section 2(1), which 
also supports members to add Customer, Professional, Firm, Non-NOM 
Market Maker and/or Broker-Dealer liquidity in Non-Penny Pilot 
Options.
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    The Exchange believes that the proposed $0.0027 per share executed 
credit is an equitable allocation and is not unfairly discriminatory 
because the Exchange will apply the same credit to all similarly 
situated members. Thus, if a member meets the requirements, it will 
receive the credit. A member achieving this credit tier will be 
providing liquidity in less liquid options classes (i.e., Non-Penny 
names). The Exchange believes that by adding more in Non-Penny names on 
NOM that the market for these options on NOM will improve and the 
Exchange seeks to encourage such behavior.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. In terms of inter-market 
competition, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive, or rebate opportunities available at other venues to be more 
favorable. In such an environment, the Exchange must continually adjust 
its fees to remain competitive with other exchanges and with 
alternative trading systems that have been exempted from compliance 
with the statutory standards applicable to exchanges. Because 
competitors are free to modify their own fees in response, and because 
market participants may readily adjust their order routing practices, 
the Exchange believes that the degree to which fee changes in this 
market may impose any burden on competition is extremely limited.
    In this instance, the changes to the credits provided for the use 
of the order execution and routing services of the Nasdaq Market Center 
by members for all securities priced at $1 or more that it trades are 
reflective of the intense competition among trading venues in capturing 
order flow. Moreover, the proposed changes do not impose a burden on 
competition because Exchange membership is optional and is also the 
subject of competition from other trading venues. For these reasons, 
the Exchange does not believe that any of the proposed changes will 
impair the ability of members or competing order execution venues to 
maintain their competitive standing in the financial markets. Moreover, 
because there are numerous competitive alternatives to the use of the 
Exchange, it is likely that the Exchange will lose market share as a 
result of the changes if they are unattractive to market participants.

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)(ii) of the Act.\12\ 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.
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    \12\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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

[[Page 48490]]

     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2016-102 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2016-102. 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-2016-102, and should 
be submitted on or before August 15, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-17443 Filed 7-22-16; 8:45 am]
 BILLING CODE 8011-01-P