Document ID: SEC-2011-0222-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2011-02-17T05:00Z

[Federal Register Volume 76, Number 33 (Thursday, February 17, 2011)]
[Notices]
[Pages 9384-9386]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-3582]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63891; File No. SR-NASDAQ-2011-022]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Enhance the Investor Support Program

February 11, 2011.
    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 February 2, 2011, The NASDAQ Stock Market LLC (``NASDAQ'') 
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 NASDAQ. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASDAQ proposes changes to the fee provisions of Rule 7014 
(Investor Support Program) to increase the rebate for adding targeted 
liquidity within the Investor Support Program. NASDAQ has designated 
this fee change proposal effective and operative upon filing.
    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 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. 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
    The Exchange is proposing changes to the fee provisions of Rule 
7014 to increase the rebate for adding targeted liquidity within the 
Investor Support Program.
    The Exchange established an Investor Support Program (``ISP'') that 
enables NASDAQ members to earn a monthly fee credit for providing 
additional liquidity to NASDAQ and increasing the NASDAQ-traded volume 
of what are generally considered to be retail and institutional 
investor orders in exchange-traded securities (``targeted 
liquidity'').\3\ The goal of the ISP is to incentivize members to 
provide such targeted liquidity to the NASDAQ Market Center.\4\ The 
Exchange noted in the ISP Filing that 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) 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

[[Page 9385]]

transparency and improving investor protection.
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    \3\ For a detailed description of the Investor Support Program, 
see Securities Exchange Act Release No. 63270 (November 8, 2010), 75 
FR 69489 (November 12, 2010)(NASDAQ-2010-141) (notice of filing and 
immediate effectiveness)(the ``ISP Filing''). See also Securities 
Exchange Act Release Nos. 63414 (December 2, 2010), 75 FR 76505 
(December 8, 2010)(NASDAQ-2010-153) (notice of filing and immediate 
effectiveness); and 63628 (January 3, 2011), 76 FR 1201 (January 7, 
2011)(NASDAQ-2010-154) (notice of filing and immediate 
effectiveness).
    \4\ The 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''). In the Concept Release, the 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 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, and that 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).
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    The Exchange now proposes an adjustment to the Investor Support 
Program, in the form of an increase in the rebate for the ISP. The 
primary objective in making this adjustment is to further incentivize 
members to provide targeted liquidity to the Exchange by increasing the 
rebate for those that bring the largest amounts to NASDAQ.
    The ISP generally compares a member's Participation Ratio for the 
current month to the same member's Participation Ratio in August 2010 
(known as the ``Baseline Participation Ratio'').\5\ This 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 \6\ traded in the given 
month.\7\ To determine the amount of the ISP credit pursuant to the 
program, pursuant to sub-section (b), NASDAQ would multiply $0.0003 by 
the lower of: the number of shares of displayed liquidity provided in 
orders entered by the member through its ISP-designated ports and 
executed in the NASDAQ Market Center during the given month; or the 
amount of Added Liquidity \8\ for the given month, which is compared to 
the member's Baseline Participation Ratio. The Exchange proposes to 
increase the rebate to a rate of $0.0004 for members that bring a 
greater amount of targeted liquidity.
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    \5\ The term ``Participation Ratio'' is defined as: for a given 
member in a given month, the ratio of (i) the number of shares of 
liquidity provided in orders entered by the member through any of 
its Nasdaq ports and executed in the Nasdaq Market Center during 
such month to (ii) the Consolidated Volume. Rule 7014 (d)(4).
    The term ``Consolidated Volume'' is defined as: for a given 
member in a given month, the consolidated volume of shares of System 
Securities in executed orders reported to all consolidated 
transaction reporting plans by all exchanges and trade reporting 
facilities during such month. Rule 7014(d)(6).
    \6\ The 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).
    \7\ See Rule 7014(d)(2) and (d)(4).
    \8\ The term ``Added Liquidity'' is defined as: for a given 
member in a given month, the number of shares calculated by (i) 
subtracting from such member's Participation Ratio for that month 
the member's Baseline Participation Ratio, and then (ii) multiplying 
the resulting difference by the average daily consolidated volume of 
shares of System Securities in executed orders reported to all 
consolidated transaction reporting plans by all exchanges and trade 
reporting facilities during such month; provided that if the result 
is a negative number, the Added Liquidity amount shall be deemed 
zero. Rule 7014(d)(1).
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    Specifically, the Exchange clarifies subsection (b) to state that, 
subject to the conditions set forth in section (c) the rebate rate may 
be $0.0003 or $0.0004.\9\ The Exchange adds proposed sub-section (c)(2) 
to indicate that the $.00004 rebate rate is available to those members 
that bring in an even greater amount of liquidity by exceeding the 
Baseline Participation Ration by at least 0.43%.\10\ The Exchange 
believes that the increased rebate should encourage members to strive 
to bring even more retail and institutional orders in exchange-traded 
securities to the Exchange.
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    \9\ Subsection (c)(1) (which simply consolidates current 
subsections (c)(1) and (c)(2)) states that a member shall not be 
entitled to receive any ISP credit pursuant to (b) for a given month 
if any of the following applies: (A) the member's ISP Execution 
Ratio for the month in question is 10 or above; or (B) the average 
daily number of shares of liquidity provided in orders entered by 
the member through its ISP-designated ports and executed in the 
Nasdaq Market Center during the month is below 10 million, provided 
that in calculating such average, Nasdaq will exclude days when it 
is open for less than the entire regular trading day.
    \10\ 0.43% is the equivalent of approximately 35 million shares 
of added liquidity per day (based on January 2011 consolidated 
market activity).
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    The ISP is designed to operate on a monthly cycle, both from the 
perspective of targeted flow brought to the Exchange and ISP rebates to 
members that brought such flow. Since its inception,\11\ the ISP fee 
program has been, and continues to be, non-discriminatory, reasonable, 
and effective in attracting targeted liquidity to the NASDAQ Market 
Center. The primary objective in making the proposed adjustment is to 
encourage members to bring larger amounts of targeted liquidity to the 
Exchange by increasing the rebate for such liquidity. The Exchange 
believes that its proposal is decidedly non-discriminatory because it 
does not favor or distinguish any group of ISP participants while 
promoting the clear goal of the ISP.
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    \11\ See Securities Exchange Act Release No. 63270 (November 8, 
2010), 75 FR 69489 (November 12, 2010)(NASDAQ-2010-141)(notice of 
filing and immediate effectiveness).
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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.
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    \12\ 15 U.S.C. 78f.
    \13\ 15 U.S.C. 78f(b)(4) and (5).
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    The Investor Support Program encourages members to add targeted 
liquidity that is executed in the NASDAQ Market Center. The primary 
objective in making this enhancement to the Investor Support Program is 
to add an even greater amount of targeted liquidity to the Exchange. 
The rule change proposal, like the ISP, is ``not designed to permit 
unfair discrimination'' \14\ but, rather, is intended to promote 
submission of liquidity-providing orders to NASDAQ, which would benefit 
all NASDAQ members and all investors. Likewise, the proposal, like the 
ISP, 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, the proposal 
enhances the goal of the ISP. Members who choose to significantly 
increase the volume of ISP-eligible liquidity-providing orders that 
they submit to NASDAQ would be benefitting all investors, and therefore 
an additional credit, as contemplated in the proposed enhanced 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\
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    \14\ See Section 6(b)(5) of the Act, 15 U.S.C. 78f(b)(5).
    \15\ See Section 6(b)(4) of the Act, 15 U.S.C. 78f(b)(4).
    \16\ See, e.g., Concept Release (discusses the various venues 
where trades are executed).
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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

[[Page 9386]]

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.
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    \17\ 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
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2011-022 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-2011-022. 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, 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 a.m. and 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-2011-022 and should be submitted on or before March 10, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-3582 Filed 2-16-11; 8:45 am]
BILLING CODE 8011-01-P