Document ID: SEC-2014-0388-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: National Stock Exchange, Inc.
Posted Date: 2014-03-10T04:00Z

[Federal Register Volume 79, Number 46 (Monday, March 10, 2014)]
[Notices]
[Pages 13353-13359]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-05030]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71641; File No. SR-NSX-2014-05]

Self-Regulatory Organizations; National Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Its Fee and Rebate Schedule To Adopt a New Pricing Model and Make 
Other Conforming Changes

March 4, 2014.
    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 February 25, 2014, National Stock Exchange, Inc. 
(``NSX[supreg]'' or the ``Exchange'') filed with the Securities and 
Exchange Commission (``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 
comment 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

    The Exchange is proposing to amend its Fee and Rebate Schedule (the 
``Fee Schedule'') issued pursuant to Exchange Rule 16.1 to: (i) Change 
the Fee Schedule applicable to executions occurring on the Exchange 
through the Auto Ex mode of order interaction (``Auto Ex Mode'') \3\ 
and the Order Delivery mode of order interaction (``Order Delivery 
Mode'') \4\ from the current fee and rebate structure to one that 
provides for fees for adding liquidity and rebates for removing 
liquidity (a ``taker/maker'' pricing model); (ii) in connection with 
the changes to the fee and rebate structure, eliminate the volume tiers 
and variable and fixed fees and rebates under Section I. of the current 
Fee Schedule (Auto Ex Mode) and eliminate the volume tiers and rebates 
for adding liquidity in Order Delivery Mode under Section II. of the 
current Fee Schedule; and (iii) eliminate the rebate of $0.0015 per 
executed share for Double Play Orders \5\ routed to and executed on the 
CBOE Stock Exchange, Inc. (``CBSX''). The Exchange also proposes to 
delete the Explanatory Endnotes and move the content of certain 
Endnotes to the text of the Fee Schedule.
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    \3\ See Exchange Rule 11.13 (Proprietary and Agency Orders; 
Modes of Order Interaction), paragraph (b)(1).
    \4\ See Exchange Rule 11.13(b)(2).
    \5\ Exchange Rule 11.11(c)(10) defines a Double Play order as a 
market or limit order that, upon entry, routes to designated away 
Trading Centers which are approved by the Exchange from time to time 
without first exposing the order to the NSX Book. A Double Play 
Order that is not executed in full after routing away receives a new 
time stamp upon return to the Exchange and is ranked and maintained 
in the NSX Book in accordance with Rule 11.14(a).
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.nsx.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange 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 these 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
    As part of its continuous assessment of the U.S. equity securities 
markets and the competitive environment in which it operates, the 
Exchange has in recent months undertaken a series of changes to its Fee 
Schedule with the goal of maximizing the effectiveness of its business 
model, providing incentives to Equity Trading Permit (``ETP'') Holders 
\6\ to access the Exchange through both Auto Ex Mode and Order Delivery 
Mode, and to continue providing a high-quality and cost-effective 
execution venue.\7\ The Exchange believes that,

[[Page 13354]]

while these changes to the Fee Schedule have been salutary and have 
responded to the needs of both the Exchange and its customers, the 
evolving competitive environment impels additional changes to the 
Exchange's fee and rebate structure.
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    \6\ Exchange Rule 1.5 defines ``ETP'' as the Equity Trading 
Permit issued by the Exchange for effecting approved securities 
transactions on the Exchange's trading facilities.
    \7\ See Exchange Act Release No. 71332 (January 16, 2014); 79 FR 
3900 (January 23, 2014); (SR-NSX-2014-01) (adopting a single pricing 
structure for Order Delivery Mode, establishing new rebates based on 
average daily volume (``ADV'') adding liquidity using Order Delivery 
Mode, eliminating Quotation Update Fees in securities priced above 
$1.00 applicable to Order Delivery Users; eliminating the Order 
Delivery Notification Fee in securities priced above $1.00, and 
eliminating the market data revenue rebate to Order Delivery Users). 
See also Exchange Act Release No. 70890 (November 15, 2013); 78 FR 
69900 (November 21, 2013) (SR-NSX-2013-21) (among other amendments, 
changing fees and rebates for executions in Auto Ex Mode, providing 
an enhanced rebate for adding liquidity in Tape B securities, and 
eliminating the Order Delivery Notification fee and quotation update 
fee in securities priced below $1.00).
---------------------------------------------------------------------------

    Accordingly, as set forth in greater detail below, the Exchange is 
proposing to restructure its fee and rebate programs for both Auto Ex 
Mode and Order Delivery Mode and adopt a model whereby ETP Holders 
adding liquidity, computed as a daily percentage of the ETP Holder's 
total consolidated volume (``TCV'') \8\ adding liquidity, will be 
assessed fees that will decline from $0.0018 per executed share to 
$0.0012 per executed share as the ETP Holder's percentage of TCV 
increases. The proposed fee structure will apply in both Auto Ex Mode 
and Order Delivery Mode. ETP Holders removing liquidity in securities 
priced at $1.00 and above will receive a rebate. For securities priced 
below $1.00, the Exchange proposes to retain its fee and rebate 
structure as it existed before the instant amendment.
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    \8\ The proposed amended Fee Schedule defines ``TCV'' as the 
total consolidated volume calculated as the volume reported by all 
exchanges and trade reporting facilities to a consolidated 
transaction reporting plan.
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    In proposing these amendments to the Fee Schedule, the Exchange is 
replicating certain aspects of the fee and rebate structure currently 
in effect at CBSX, including the volume tiers currently in use by CBSX 
for determining fees for providing liquidity. The CBSX fee and rebate 
schedule and all amendments thereto have been filed with the 
Commission.\9\ In addition, the Exchange believes that its proposal 
will further simplify and streamline the Exchange's Fee Schedule by 
providing for the same fees in both modes of order interaction. Thus, 
all ETP Holders will be subject to the same fee and rebate structure 
whether they are accessing the Exchange through Auto Ex Mode or Order 
Delivery Mode.
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    \9\ See, e.g., Exchange Act Release No. 66665 (March 27, 2012); 
77 FR 19741 (April 2, 2012) (SR-CBOE-2012-029).
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Fee and Rebate Structure Prior to the Proposed Changes
    Prior to the changes proposed in this rule filing, the Fee Schedule 
as of January 9, 2014 contained separate fee and rebate structures for 
executions occurring through Auto Ex Mode (as contained in Section I. 
of the former Fee Schedule) and Order Delivery Mode (as contained in 
Section II. of the former Fee Schedule). Within each of those separate 
fee and rebate structures, the Exchange established ADV tiers that 
provided rebates to ETP Holders for adding liquidity and assessed fees 
for removing liquidity. ETP Holders were also given a rebate to 50% of 
the Market Data Revenue (``MDR'') for ADV meeting certain volume tiers.
Section I. Fees and Rebates Applicable to Auto Ex Mode
    The fee and rebate structure for Auto Ex Mode under former Section 
I. of the Fee Schedule was as follows:
    Securities $1 and Above (All Tapes); \10\ Orders That Add and Take 
Liquidity \11\:
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    \10\ The term ``Tapes'' refers to the designation assigned in 
the Consolidated Tape Association (``CTA'') Plan for reporting 
trades with respect to securities in Networks A, B and C. Tape A 
securities are those listed on the New York Stock Exchange, Inc.; 
Tape B securities are listed on NYSE MKT, formerly NYSE Amex, and 
regional exchanges. Tape C securities are those listed on the NASDAQ 
Stock Market LLC.
    \11\ This section in the former Fee Schedule referenced former 
Explanatory Endnote (2), which provided that, except for Midpoint 
Peg Zero Display reserve orders (as specified in Rule 
11.11(c)(2)(B), only ``Displayed orders'' are eligible for a rebate, 
and Displayed Orders mean orders that are not ``Zero Display 
Orders'' (which means ``Zero Display reserve orders'' as specified 
in Rule 11.11(c)(2)(A)).
---------------------------------------------------------------------------

    Each ETP Holder was charged $0.0030 per share for any marketable 
order that removed liquidity unless the ETP Holder executed ADV of at 
least 25,000 shares of added liquidity in Auto Ex Mode during a 
calendar month.
    The ``Fixed Fee Schedule'' applied to each ETP Holder that executed 
ADV of at least 25,000 shares of added liquidity in Auto Ex Mode during 
a calendar month unless the ETP Holder elected to adopt the ``Variable 
Fee Schedule'' by sending an email indicating this preference to 
NSXTrading@NSX.com prior to 4:00 p.m. EST on the first trading day of 
the calendar month.
    For Tape B securities only, each ETP Holder that executed ADV of 
least 25,000 shares of added liquidity in Auto Ex Mode during a 
calendar month received a rebate of $0.0034 under the Fixed Fee 
Schedule per executed share.
    The former Section I. fee and rebate structure was as follows:

----------------------------------------------------------------------------------------------------------------
                                    Variable fee schedule                             Fixed fee schedule
                            ------------------------------------             -----------------------------------
   Tier           ADV          Rebate to add     Fee to remove      MDR %       Rebate to add     Fee to remove
                              liquidity (per    liquidity (per                 liquidity (per    liquidity (per
                                  share)            share)                         share)            share)
----------------------------------------------------------------------------------------------------------------
1........  0 & < 0.5                  $0.0024           $0.0030           -%           $0.0024           $0.0029
            million shares
            traded.
2........  >= 0.5 & < 1.5              0.0026            0.0030           50            0.0030            0.0029
            million shares
            traded.
3........  >= 1.5 & < 5.0              0.0027            0.0030           50            0.0031            0.0029
            million shares
            traded.
4........  >= 5.0 & < 10.0             0.0029            0.0029           50            0.0032            0.0028
            million shares
            traded.
5........  >=10.0 million              0.0031            0.0028           50            0.0033            0.0027
            shares traded.
----------------------------------------------------------------------------------------------------------------

    The former Fee Schedule provided that, for all Tapes, an ETP Holder 
posting a Midpoint Peg Zero Display Reserve Order received a fixed 
rebate of $0.0017 per executed share; these shares were to be included 
in the ADV calculation but were not eligible for additional rebates 
under Section I. Additionally, for all Tapes, an ETP Holder removing 
liquidity using a Midpoint-Seeker Order was charged a fixed fee of 
$0.0020 per executed share; these shares were to be included in the ADV 
calculation but not subject to additional fees under Section I.
    Securities under $1 (All Tapes) Orders that Add and Take Liquidity:
    For executions in securities priced under $1.00 through Auto Ex 
Mode, Section I. of the pre-amendment Fee Schedule provided for rebates 
to add liquidity and fees to remove liquidity as follows:

[[Page 13355]]

----------------------------------------------------------------------------------------------------------------
                                        Rebate to add liquidity  (per
     Tier               ADV                         share)                 Fee to remove liquidity  (per share)
----------------------------------------------------------------------------------------------------------------
1............  All.................  Lesser of: 0.25% of trade value      0.30% of trade value.
                                      \7\and 25% of the quote spread \8\.
----------------------------------------------------------------------------------------------------------------

Section II. Fees and Rebates Applicable in Order Delivery Mode
    The fee and rebate structure for Order Delivery Mode under former 
Section II. of the Fee Schedule was as follows:
    Securities $1 and Above (All Tapes):
    Each ETP Holder approved for use of Order Delivery Mode (``Order 
Delivery User'') executing ADV of added liquidity of at least 15 
million shares in Order Delivery Mode during a calendar month would 
receive a per share rebate as follows:

------------------------------------------------------------------------
                                                          Rebate to add
        Tier               ADV of added  liquidity       liquidity  (per
                                                             share)
------------------------------------------------------------------------
1...................  >= 15 million shares traded.....           $0.0005
2...................  >= 20 million shares traded.....            0.0013
3...................  >= 25 million shares traded.....            0.0017
------------------------------------------------------------------------

    Each Order Delivery User executing ADV of added liquidity in the 
following amounts through both Order Delivery Mode and Auto Ex Mode 
during a calendar month would receive a per share rebate on the shares 
executed through Order Delivery Mode, as well as any volume-based 
rebate for adding liquidity under Section I. above:

------------------------------------------------------------------------
                                                          Rebate to add
                                                         liquidity  (per
   Tier      Order delivery ADV       Auto Ex. ADV       share  executed
                                                            in  order
                                                         delivery mode)
------------------------------------------------------------------------
1........  >= 300,000-749,999...  >= 2 million shares            $0.0005
                                   traded.
2........  >= 750,000...........  >= 3 million shares             0.0010
                                   traded.
------------------------------------------------------------------------

    Additionally, the Fee Schedule provided that an Order Delivery User 
paid no fee for Order Delivery Notifications delivered by the System to 
that Order Delivery User for potential execution against a posted 
displayed or undisplayed order in any security priced at $1.00 and 
above.
    Securities Under $1 (All Tapes):
    For securities priced under $1.00, the Fee Schedule further 
provided that an Order Delivery User paid no fee for any Order Delivery 
Notification delivered by the System to that Order Delivery User for 
potential execution against a posted displayed or undisplayed order in 
any security priced below $1.00.
Section III. (Other Services) Fees and Rebates
    Section III A. of the pre-amendment Fee Schedule, Order Routing 
(All Tapes) provided that orders routed by the Exchange in accordance 
with Exchange Rule 11.15(a)(ii) \12\ were charged a fee of $0.0030 per 
executed share.
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    \12\ Rule 11.15(a)(ii) entitled Routing to Away Trading Centers 
describes the handling of orders eligible for routing to other 
Trading Centers.
---------------------------------------------------------------------------

    The Fee Schedule further provided that an ETP Holder entering a 
Double Play Order \13\ received a fixed rebate for each share directed 
to and executed on CBSX of $0.0015 per share. These shares were not 
included in the ADV calculation or eligible for additional rebates 
under Section I. of the Fee Schedule. An ETP Holder entering a Double 
Play Order would not be charged a routing fee under Section III for the 
initial routing to a designated away Trading Center. Any unexecuted 
portion of a Double Play Order that is returned and executed on the 
Exchange shall be subject to either Section I of this Schedule, or a 
fee of $0.0030 per share under Section III if the order is subsequently 
routed to an away Trading Center in accordance with Exchange Rule 
11.15(a)(ii).
---------------------------------------------------------------------------

    \13\ Exchange Rule 11.11(c)(10) defined a ``Double Play Order'' 
as market or limit order for which an ETP Holder instructs the 
System to route to designated away Trading Centers which are 
approved by the Exchange from time to time without first exposing 
the order to the NSX Book. A Double Play Order that is not executed 
in full after routing away receives a new time stamp upon return to 
the Exchange and is ranked and maintained in the NSX Book in 
accordance with Rule 11.14(a).
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Explanatory Endnotes
    Prior to the instant amendments, the Fee Schedule contained 
Explanatory Endnotes numbered (1) through (14) inclusive, which are as 
follows, with additional parenthetical explanatory text in certain 
instances:
    (1) As specified in Rule 11.13(b)(1). (This Endnote references a 
description of Auto Ex Mode relevant to Section I of the pre-amendment 
Fee Schedule).
    (2) Except for Midpoint Peg Zero Display Reserve Orders (as 
specified in Rule 11.11(c)(2)(B)), only ``Displayed Orders'' are 
eligible for a rebate. Displayed Orders mean orders that are not ``Zero 
Display Orders'' (which means ``Zero Display Reserve Orders'' as 
specified in Rule 11.11(c)(2)(A)).
    (3) Reserved.
    (4) ``Auto-Ex ADV'' means, with respect to an ETP Holder, the 
average number of shares the ETP Holder has executed in Auto-Ex Mode on 
the Exchange in all NMS stocks when the Exchange is open for trading 
(excluding partial trading days) (or partial month, as applicable). 
Only shares executed by an ETP Holder in Auto-Ex Mode will be used by 
the Exchange to calculate the minimum ADV contained in Section I. 
Regardless of an ETP Holder's Auto-Ex ADV, an ETP Holder shall receive 
a fixed per share rebate for Midpoint Peg Zero Display Reserve Orders, 
and that ETP Holder will not be eligible for additional rebates under 
Section I above.
    (5) Reserved.

[[Page 13356]]

    (6) Market Data Revenue (``MDR'') Rebates:
    (a) Assuming the minimum ADV threshold(s) are achieved, an ETP 
Holder will receive a MDR Rebate (in such percent as is specified 
above) of the MDR attributable to such ETP Holder's trading and quoting 
of Displayed Orders at prices equal to or greater than one dollar in 
Auto-Ex Mode or Order Delivery Mode, as applicable. ETP Holders will 
not receive MDR Rebates attributable to (x) Zero Display Orders or (y) 
securities quoted at prices less than one dollar.
    (b) Adjustments. To the extent market data revenue from Tape ``A'', 
``B'' or ``C'' transactions is subject to any adjustment, rebates 
provided under this program may be adjusted accordingly.
    (c) De Minimis Rebates. An ETP Holder will not receive a MDR Rebate 
in any calendar quarter in which the MDR Rebate attributable to the ETP 
Holder is less than $250.
    (d) Quarterly Payments. MDR Rebates will be paid on a quarterly 
basis.
    (7) ``Trade value'' means a dollar amount equal to the price per 
share multiplied by the number of shares executed.
    (8) ``Quote spread'' means a dollar amount equal to the number of 
shares executed multiplied by the difference at the time of execution 
between (x) the price per share of the national best bid, and (y) the 
price per share of the national best offer, in each case as such quotes 
are disseminated pursuant to an effective National Market System plan 
and as the terms ``national best bid'' and ``national best offer'' are 
defined in Rule 600 of Regulation NMS; provided, that no rebate based 
on the quote spread shall be payable during any period in which the 
market is locked or crossed.
    (9) As specified in Rule 11.13(b)(2). A marketable order entered 
with a handling instruction other than Post Only through an order 
delivery session by an ETP Holder that is an order delivery participant 
will be subject to the Auto-Ex Mode fee schedule contained in Section I 
above. (This Endnote references the description of Order Delivery Mode 
under Rule 11.13(b)(2) and provides additional information as to the 
fees applicable in certain instances.)
    (10) Reserved.
    (11) Orders that are routed via NSX and executed in another market 
center. (This Endnote provides a description of what constitutes a 
``routed order'' for purposes of the fees under Section III.A of the 
Fee Schedule.
    (12) Authorized recipients of the Exchange's Depth of Book feed 
must execute required documentation with, and be approved by, the 
Exchange prior to receiving the service.
    (13) Upon verification and approval by NSX, the number of shares 
executed by ETP Holders under common ownership and control will be 
aggregated for purposes of calculating average daily volumes. See Rule 
16.3.
    (14) In the event of any change to this Fee and Rebate Schedule at 
other than the end of a calendar month, volume calculations will be 
made on the basis of such number of full trading days within such month 
during which the unchanged pricing or rebate program's terms are in 
effect.
Restructured Fee and Rebate Program
    The Exchange is proposing to amend Section I. of the Fee Schedule 
to eliminate the Variable and Fixed Fee Schedules for securities priced 
at $1.00 and above across all Tapes and to adopt the fee and rebate 
structure currently used by CBSX. The Exchange will therefore, 
consistent with the pricing model in use by CBSX, charge fees to ETP 
Holders adding liquidity and provide a rebate to ETP Holders removing 
liquidity. Consequently, the ADV tiers and their associated per share 
rebates to add liquidity, the fees assessed to remove liquidity, and 
the Market Data Revenue (``MDR'') rebate under the pre-amendment Fee 
Schedule, will be rescinded. The Exchange also proposes to eliminate 
the enhanced rebate for ADV of at least 25,000 shares of added 
liquidity in Tape B securities.
    The Exchange also proposes as a part of these amendments to amend 
Section II. of the Fee Schedule to eliminate the separate fee and 
rebate structure applicable to executions by Order Delivery Users in 
Order Delivery Mode and in some instances through a combination of 
activity through Auto Ex Mode and Order Delivery Mode. As proposed, 
there will be one schedule of transaction fees and rebates that will 
apply in both modes of interaction with the Exchange. The section 
headings of the Fee Schedule will be renumbered in view of the 
elimination of the separate Order Delivery Mode Fee Schedule that 
formerly comprised the content of Section II.
    Under the proposed new fee and rebate schedule for Section I., the 
Exchange will assess a per share fee for adding liquidity, based on a 
percentage of TCV of liquidity in one day. The maximum fee for adding 
liquidity will be $0.0018 per executed share, based on the ETP Holder 
adding less than 0.08% of TCV of liquidity in one day. Proposed amended 
Section I. of the Fee Schedule provides six additional levels that 
reduce the per share fee based on successively higher percentages of 
TCV adding liquidity in one day. The lowest fee of $0.0012 per executed 
share would apply to ETP Holders adding 0.052% or more of TCV of 
liquidity in one day.
    The Exchange represents that the tiers are designed to 
progressively reduce the fees assessed to ETP Holders daily as their 
liquidity provision increases. Specifically, the Exchange believes that 
every .08 percent increase in liquidity executed with respect to TCV 
(.09 percent and .10 percent as such ETP Holder's quantity of liquidity 
provision moves up through the tier levels), produces an additive 
effect on the revenues collected by the Exchange. Therefore, the 
Exchange is proposing to incentivize greater liquidity provision by 
reducing fees payable for providing liquidity as an ETP Holder's level 
of liquidity provision increases. The Exchange's proposal represents an 
aspirational effort to attract greater posted liquidity by reduced fees 
at the specified levels.
    The TCV tiers and the associated fees that the Exchange proposes to 
charge for providing liquidity at the specified levels are as follows:

                  Fees for Providing Liquidity (Maker)
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Maker (adds less than 0.08% of TCV of  $0.0018 per share.
 liquidity in one day).
Maker (adds at least 0.08% but less    0.0017 per share.
 than 0.16% of TCV of liquidity in
 one day).
Maker (adds at least 0.16% but less    0.0016 per share.
 than 0.24% of TCV of liquidity in
 one day).
Maker (adds at least 0.24% but less    0.0015 per share.
 than 0.33% of TCV of liquidity in
 one day).
Maker (adds at least 0.33% but less    0.0014 per share.
 than 0.42% of TCV of liquidity in
 one day).
Maker (adds at least 0.42% but less    0.0013 per share.
 than 0.52% of TCV of liquidity in
 one day).
Maker (adds 0.52% or more of TCV of    0.0012 per share.
 liquidity in one day).
Zero Display Maker...................
Maker (adds liquidity using a Zero     0.0018 per share.
 Display Order or Zero Display
 Primary Peg Order).

[[Page 13357]]

 
Maker (adds liquidity using a Zero     0.0018 per share.
 Display Mid-Point Peg or Zero
 Display Market Peg Order).
------------------------------------------------------------------------

    As noted in the table above, the Exchange proposes fee provisions 
for ETP Holders adding liquidity through Zero Display Reserve 
orders.\14\ ETP Holders will pay a fee of $0.0018 per executed share of 
added liquidity using a Zero Display Order; a Zero Display Primary Peg 
Order; a Zero Display Mid-Point Peg Order; or Zero Display Market Peg 
Order. The fees for adding liquidity in these order types irrespective 
of TCV is intended to incentivize ETP Holders to use these ``dark'' 
orders.
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    \14\ Pursuant to Exchange Rule 11.11(c)(2)(A), a Reserve Order 
entered with zero display quantity is a ``Zero Display Reserve 
Order.'' The price of a Zero Display Reserve Order may be set 
(``pegged'') to track the buy-side of the Protected BBO, the sell-
side of the Protected BBO, or the midpoint of the Protected BBO. A 
pegged Zero Display Reserve Order which tracks the inside quote of 
the opposite side of the market is defined as a Market Peg; a pegged 
Zero Display Reserve Order that tracks the midpoint is defined as a 
Midpoint Peg; and a pegged Zero Display Reserve Order that tracks 
the inside quote of the same side of the market is defined as a 
Primary Peg.
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    The Exchange has also proposed to specify that transactions that 
are (i) Taker; (ii) Routed Away; (iii) Zero Display Maker; or (iv) 
Maker in securities priced below $1.00 will not count toward an ETP 
Holder's percentage of TCV.
    Further, as proposed, the rates for adding liquidity contained in 
Section I. of the Fee Schedule will apply to all transactions in 
securities priced at and above $1.00 made by the same ETP Holder on any 
day in which such ETP Holder adds the established percentage or more of 
TCV of liquidity.
    For ETP Holders removing liquidity, the Exchange proposes to adopt 
the following rebate schedule:

                 Rebates for Removing Liquidity (Taker)
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Taker (removes Zero Display Mid-Point  $0.0015 rebate per share.
 Peg or Zero Display Market Peg
 Order).
Taker (all other order types)........  0.0015 rebate per share.
------------------------------------------------------------------------

    The Exchange is proposing to pay a rebate of $0.0015 per executed 
share to ETP Holders removing liquidity from the NSX Book. Such rebate 
will also be paid to ETP Holders for removing ``dark'' order types, 
specifically the Zero Display Mid-Point Peg or Zero Display Market Peg 
order types.
    The Exchange believes that, by offering a rebate to ETP Holders 
removing liquidity in securities priced at $1.00 or greater, there will 
be a marked improvement in the quality of execution. It is anticipated 
that improvement in execution quality should lead to a greater number 
of market participants attempting to access the resting liquidity on 
the NSX Book.\15\ Furthermore, the Exchange believes that the rebate of 
$0.0015 to remove liquidity will offer attractive economic incentives 
to liquidity takers and, in conjunction with the fee structure for 
liquidity providers, will offer ETP Holders a better quality of 
execution.
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    \15\ The ``NSX Book'' is the System's electronic file of orders 
(Exchange Rule 1.5).
---------------------------------------------------------------------------

    For securities priced below $1.00, the Exchange proposes to retain 
the existing pre-amendment fee and rebate structure. ETP Holders adding 
liquidity will receive a per share rebate equal to the lesser of 0.25% 
of the trade value and 25% of the quote spread at the time of 
execution. A fee of 0.30% of trade value will be charged to ETP Holders 
removing liquidity in sub-dollar priced securities.
    Pursuant to Exchange Rule 16.3, upon an ETP Holder's request the 
Exchange will aggregate the activity of the ETP Holder and its 
affiliates for purposes of applying the fees and rebates applicable to 
liquidity providers and liquidity takers.
Amendments to Section III; Elimination of Rebate for Double Play Orders
    The Exchange proposes that, for orders routed by the Exchange and 
executed in another market center in accordance with Exchange Rule 
11.15(a)(ii), the following fees will apply:

                           Orders Routed Away
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Transactions in securities priced $1  $0.0030 per share.
 or greater.
Transactions in securities priced     0.30% of trade value.
 below $1.
------------------------------------------------------------------------

    These are the same fees that applied prior to the instant 
amendments. The proposal by the Exchange also includes eliminating the 
rebate of $0.0015 per share for Double Play Orders directed to and 
executed on CBSX.\16\ The proposed changes to Section I. of the Fee 
Schedule provide a rebate for takers of liquidity in the amount of 
$0.0015 per executed share, which renders unnecessary the specific 
rebate for a Double Play Order, which is designed to allow ETP Holders 
to remove liquidity at the designated away Trading Centers.
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    \16\ See Exchange Act Release No. 70890 (November 15, 2013); 78 
FR 69900 (November 21, 2013) (SR-NSX-2013-21), cited at footnote 7, 
supra.
---------------------------------------------------------------------------

Elimination of Explanatory Endnotes
    The Exchange has also proposed eliminating the Explanatory Endnotes 
of the Fee Schedule, numbered (1) through (14) inclusive. In certain 
instances, the Exchange proposes to move the information contained in 
an Explanatory Endnote to the text of the relevant section of the Fee 
Schedule; in others, deletion of the Endnote is proposed because the 
accompanying sections of the Fee Schedule have been deleted.
    Endnotes (1) (a reference to the description of Auto Ex Mode in 
Exchange Rule 11.13) and (9) (a reference to the description of Order 
Delivery Mode in Rule 11.13 and additional information regarding the 
fees applicable to an Order Delivery order with instructions other than 
Post Only), will both be deleted because they are inapposite in the 
context of the proposed changes to the Fee Schedule and the elimination 
of separate pricing structures for each mode of order interaction.
    Endnote (2) regarding rebates for non-displayed orders is no longer 
applicable in view of the changes to the pricing model. Similarly, 
Endnote (4) addresses ``Auto- Ex ADV'' which is no longer relevant in 
the proposed pricing model.

[[Page 13358]]

    Endnote (6) provides information on the MDR, which is being 
eliminated from the Fee Schedule and thus is no longer needed.
    Endnote (7), defining ``trade value'' and Endnote (8), defining 
``quote spread'' are proposed to be deleted and their content moved to 
the body of the Fee Schedule. Also, the text of each of Endnotes (11) 
through (14) has been moved to the body of the Fee Schedule and the 
deletion of such Endnotes is proposed.
    Finally, Endnotes (3), (5) and (10), which were ``reserved'' will 
also be deleted.
    Pursuant to Exchange Rule 16.1(c), the Exchange will ``provide ETP 
Holders with notice of all relevant dues, fees, assessments and charges 
of the Exchange'' through the issuance of a Regulatory Circular of the 
changes to the Fee Schedule and will provide a copy of the rule filing 
on the Exchange's Web site, www.nsx.com.
 2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6(b) of the Act,\17\ in general and, in 
particular, Section 6(b)(4) of the Act,\18\ which requires that the 
rules of a national securities exchange provide for the equitable 
allocation of reasonable dues, fees, and other charges among its 
members and issuers and other persons using its facilities, and with 
Section 6(b)(5) of the Act,\19\ which requires, among other things, 
that the rules of a national securities exchange not permit unfair 
discrimination between customers, issuers, brokers, or dealers, and be 
designed to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78(f)(b)(4).
    \19\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange submits that the proposed changes in the Fee Schedule 
to restructure its fee and rebate programs for both Auto Ex Mode and 
Order Delivery Mode are equitably allocated and reasonable, as required 
by Section 6(b)(4). The Exchange is proposing to adopt a model whereby 
an ETP Holder's added liquidity, computed as a daily percentage of the 
ETP Holder's TCV adding liquidity, will be subject to fees that will 
decline from $0.0018 per executed share to $0.0012 per executed share 
as the ETP Holder's percentage of TCV increases. The proposed fees are 
equitably allocated in that they will apply to all ETP Holders 
accessing the System, using both Auto Ex Mode and Order Delivery Mode. 
Each ETP Holder will have the ability to determine the extent to which 
the Exchange's proposed structure will provide it with an economic 
incentive to use the System, and model its business accordingly.
    Specifically, the Exchange is proposing to eliminate rebates for 
adding liquidity and the MDR for securities priced at and above $1.00 
under Section I. of the Fee Schedule, and instead provide rebates to 
ETP Holders removing liquidity in securities priced at $1.00 and above 
will receive a standard rebate of $0.0015 per executed share, including 
removing Zero Display Mid-Point or Zero Display Market Peg Orders. The 
Exchange submits that this approach constitutes an equitable allocation 
of reasonable fees and rebates because the fees and rebates are 
applicable to all ETP Holders irrespective of the mode of interaction 
used to access the System.
    The Exchange submits that converting the qualification for the 
different fee tiers for Maker transactions in securities priced $1 or 
greater, from measuring by nominal amount of shares to measuring by 
relative percentage of TCV, is reasonable because it allows the 
Exchange to account for changes in national industry-wide volume. The 
Exchange believes that the change is equitable and not unfairly 
discriminatory because it will be applied to all ETP Holders. Further, 
other exchanges also measure volume using percentage of TCV.
    The Exchange further states that its proposals constitute 
reasonable dues and fees in that they provide for a more simplified and 
streamlined approach which will benefit both ETP Holders and the 
Exchange in determining revenues and expenses. In that regard, the 
change from the pre-amendment fee and rebate structure also aligns the 
Exchange's fee and rebate programs with those used by other national 
securities exchanges.\20\ The Exchange submits that its proposed fee 
and rebate structure is reasonable in that it is designed to achieve 
the goal of maximizing the Exchange's competitive position, simplifying 
and streamlining its Fee Schedule, and promoting an efficient structure 
that aligns with that of other exchanges and thereby can operate to 
reduce the administrative costs and burdens on ETP Holders.
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    \20\ See, e.g., NASDAQ OMX BX fee schedule at 
www.nasdaqtrader.com/Trader.aspx?id=bx_pricing; CBSX fee schedule 
at www.cboe.com/publish/cbsxfeeschedule/cbsxfeeschedule.pdf.
---------------------------------------------------------------------------

    The Exchange believes that retaining the pre-amendment fee and 
rebate structure for securities priced below $1.00, i.e., ETP Holders 
adding liquidity will receive a per share rebate equal to the lesser of 
0.25% of the trade value and 25% of the quote spread at the time of 
execution and ETP Holders removing liquidity will be charged a fee of 
0.30% of the trade value, is consistent with Section 6(b)(4) of the 
Act. The pre-amendment fee and rebate structure for sub-dollar 
securities will be equitably allocated in that all ETP Holders 
executing orders in such securities will be subject to its provisions; 
the fee and rebate structure is reasonable in that it recognizes the 
differences between securities priced below $1.00 and those priced at 
$1.00 and above and retains the fee and rebate structure that best 
addresses the Exchange's goals of greater liquidity, price improvement, 
and execution quality.
    As part of the proposed changes, the Exchange will eliminate the 
rebate of $0.0015 per executed share that it pays to ETP Holders that 
direct Double Play Orders to CBSX. The Exchange submits that 
eliminating this rebate is consistent with Section 6(b)(4) of the Act. 
The proposed change is equitably allocated in that it applies to all 
executions by ETP Holders using Double Play Orders; the proposal is 
reasonable in that the proposed rebate changes provide for a rebate in 
the same amount for all ETP Holders removing liquidity, thereby 
aligning the treatment of executions of Double Play Orders with that of 
all other orders removing liquidity and providing for a rebate in the 
same amount.
    The Exchange also believes that the proposed changes described 
above satisfy the requirements of Section 6(b)(5) of the Act in that 
they do not permit unfair discrimination between customers, issuers, 
brokers, or dealers, and are designed to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market and a national market system. Under the 
proposed changes to the Fee Schedule, all ETP Holders executing orders 
on the Exchange will be subject to one fee and rebate structure 
applicable to both modes of order interaction, and such changes are 
thereby designed to meet the requirements of the Section 6(b)(5) that 
the rules of the Exchange not permit unfair discrimination among ETP 
Holders and their customers. The Exchange submits that, to the extent 
that the amendments to the Fee Schedule align with the fee and rebate 
programs of other exchanges, they will promote just and equitable 
principles of trade by reducing the administrative burdens

[[Page 13359]]

and expenses incurred by ETP Holders in determining the revenues and 
costs associated with its activity on the Exchange.
    Moreover, the Exchange believes that offering rebates to ETP 
Holders removing liquidity in securities priced at $1.00 or greater 
will incentivize more such liquidity-takers to trade on the Exchange, 
which will in turn provide greater opportunities for liquidity 
providers to experience a better execution quality. Improvement in 
execution quality should, the Exchange posits, lead to a greater number 
of market participants seeking to access the liquidity on the NSX Book, 
which would inure to the benefit of all ETP Holders seeking greater and 
better execution opportunities. In this regard, the Exchange believes 
that proposed amendments to the Fee Schedule meet the test of an 
equitable allocation of reasonable dues and fees under Section 6(b)(4) 
as well as promoting just and equitable principles of trade and 
operating to remove impediments to and perfect the mechanism of a free 
and open market and a national market system under Section 6(b)(5).
    The Exchange submits that its proposal to eliminate the Explanatory 
Endnotes of the Fee Schedule, numbered (1) through (14) inclusive, in 
certain instances moving the information contained in an Explanatory 
Endnote to the text of the relevant section of the Fee Schedule and in 
others deleting the Endnote because the accompanying sections of the 
Fee Schedule have been deleted, is consistent with Section 6(b)(5) of 
the Act. The Exchange is proposing these amendments to add greater 
clarity and transparency to the Fee Schedule which, it believes will be 
enhanced by deleting obsolete references and moving relevant retained 
Endnote text to the accompanying section of the Fee Schedule. The 
Exchange submits that these amendments are consistent with Section 
6(b)(5) in that they promote just and equitable principles of trade and 
operate to protect investors and the public interest.

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 that is not necessary or appropriate 
in furtherance of the purposes of the Exchange Act. The proposed rule 
change seeks to adopt a fee and rebate structure, certain aspects of 
which are already in use by CBSX, and it will apply to all ETP Holders 
irrespective of the mode of order interaction used to access the 
Exchange. The Exchange submits that, given that it previously had 
separate fee and rebate programs for executions occurring through Auto 
Ex Mode and Order Delivery Mode, moving to a single schedule for 
transaction fees and rebates for both modes of order interaction should 
impose no burden on competition. Moreover, the proposed changes will, 
the Exchange believes, operate to enhance rather than burden 
competition by aspiring to increase liquidity and improve execution 
quality on the Exchange through reasonable and equitably allocated 
economic incentives.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The proposed rule change has taken effect upon filing pursuant to 
Section 19(b)(3)(A)(ii) of the Act \21\ and subparagraph (f)(2) of Rule 
19b-4.\22\
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \22\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such 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.

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 rule-comments@sec.gov. Please include 
File Number SR-NSX-2014-05 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-NSX-2014-05. 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 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-NSX-2014-05 and should be 
submitted on or before March 31, 2014.
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    \23\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-05030 Filed 3-7-14; 8:45 am]
BILLING CODE 8011-01-P