Document ID: SEC-2017-0628-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market, LLC
Posted Date: 2017-04-18T04:00Z

[Federal Register Volume 82, Number 73 (Tuesday, April 18, 2017)]
[Notices]
[Pages 18323-18326]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-07754]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80437; File No. SR-NASDAQ-2017-035]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the Exchange's Transaction Fees at Rule 7014(f) To Amend the 
Designated Liquidity Provider Program

April 12, 2017.
    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 March 31, 2017, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Exchange's transaction fees at 
Rule 7014(f) to amend the Designated Liquidity Provider (``DLP'') 
Program (``Program'').
    While these amendments are effective upon filing, the Exchange has 
designated the proposed amendments to be operative on April 3, 2017.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaq.cchwallstreet.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 aspects 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 the DLP Program 
in Rule 7014(f) to eliminate the rebates that are paid pursuant to the 
New Product Support Incentives (``NPSI''). With the elimination of the 
NPSI, the Exchange also proposes to amend one of the ``Basic Rebates'' 
to increase that rebate from $0.0047 per executed share to $0.0070 per 
executed share. Nasdaq also proposes to amend the manner in which the 
average daily volume (``ADV'') of an exchange-traded product (``ETP'') 
is calculated for purposes of determining a DLP's eligibility for the 
Basic Rebate.
    The DLP Program is designed to provide incentives to market makers 
to make markets in certain ETPs. To achieve this goal, Nasdaq provides 
credits to a DLP when executing a Qualified Security. As set forth in 
the Rule, a DLP is a registered Nasdaq market maker for a Qualified 
Security that has committed to maintain minimum performance 
standards.\3\ A Qualified Security is defined as an exchange-traded 
product listed on Nasdaq pursuant to Nasdaq Rules 5705 (Exchange Traded 
Funds: Portfolio Depository Receipts and Index Fund Shares), 5710 
(Securities Linked to the Performance of Indexes and Commodities, 
Including Currencies), 5720 (Trust Issued Receipts), 5735 (Managed Fund 
Shares), or 5745 (NextShares), and it must have at least one DLP.
---------------------------------------------------------------------------

    \3\ The Rule also provides that a DLP shall be selected by 
Nasdaq based on factors including, but not limited to, experience 
with making markets in exchange-traded products, adequacy of 
capital, willingness to promote Nasdaq as a marketplace, issuer 
preference, operational capacity, support personnel, and history of 
adherence to Nasdaq rules and securities laws. Nasdaq may limit the 
number of DLPs in a security, or modify a previously established 
limit, upon prior written notice to members. See Rule 7014(f)(2).
---------------------------------------------------------------------------

    Currently, a DLP may be eligible for three different kinds of 
rebates under the Program. First, a DLP will qualify for a ``Basic 
Rebate'' for adding shares of displayed liquidity in the ETP if the DLP 
is at the National Best Bid and Offer (``NBBO'') at least 20% of the 
time on average in any given month in a particular assigned ETP. The 
Basic Rebates vary based on the ETP's ADV in a given month. 
Specifically, a DLP will receive: (i) A rebate of $0.0047 per executed 
share of displayed liquidity in an ETP that has less than 500,000 ADV 
during the month; (ii) a rebate of $0.0042 per executed share of 
displayed liquidity in an ETP that has between 500,000 and 5 million 
ADV during the month; and (iii) a rebate of $0.0036 per executed share 
of displayed liquidity in an ETP that has greater than 5 million ADV 
during the month. The Basic Rebate will be paid in lieu of other 
rebates or fees provided under Rules 7018 and 7014.
    The second rebate is the NPSI rebate. Like the Basic Rebate, the 
NPSI rebate will be paid in lieu of other rebates or fees provided 
under Rules 7018 and 7014, including the Basic Rebate. A DLP will 
qualify for the NPSI rebate for adding shares of displayed liquidity in 
the ETP if the DLP is at the NBBO at least 20% of the time in the 
assigned ETP in any given month. The ETP itself must have a three month 
ADV of less than 500,000, and the ETP must be less than 36 months old. 
Assuming the ETP meets the NPSI volume criteria, a rebate of $0.0070 
per executed share of displayed liquidity will be paid to DLPs that are 
assigned to ETPs that are 0-12 months from the ETP's product inception 
date; a rebate of $0.0065 per executed share of displayed liquidity for 
ETPs that are 12 to 24 months from the

[[Page 18324]]

ETP's product inception date, and a rebate of $0.0055 per executed 
share of displayed liquidity for ETPs that are 24 to 36 months from the 
ETP's product inception date. For purposes of calculating the number of 
months under the rule, the first partial month an ETP is launched will 
count as one month.
    The third rebate is the Additional Tape C ETP Incentives. This 
rebate will be paid in addition to other rebates or fees provided under 
Rules 7018 and 7014, including the Basic Rebate and the NPSI. In order 
to qualify for the Additional Tape C rebate, the DLP must add displayed 
liquidity in a Tape C ETP that is listed on Nasdaq pursuant to Nasdaq 
Rules 5705, 5710, 5720, 5735, or 5745.\4\ The average time the DLP is 
at the NBBO for each assigned ETP must average at least 20%, and the 
average liquidity provided by the DLP for each assigned ETP must 
average at least 5% of the liquidity provided on Nasdaq in the 
respective ETP. The amount of the rebate varies according to the 
minimum monthly average number of ETPs to which a DLP is assigned. A 
DLP that has a minimum monthly average number of 10 assigned ETPs will 
receive a rebate of $0.0003 per executed share; a DLP that has a 
minimum monthly average number of 25 assigned ETPs will receive a 
rebate of $0.0004 per executed share; and a DLP that has a minimum 
monthly average number of 50 assigned ETPs will receive a rebate of 
$0.0005 per executed share.\5\
---------------------------------------------------------------------------

    \4\ Tape C securities are those that are listed on the Exchange, 
Tape A securities are those that are listed on NYSE, and Tape B 
securities are those that are listed on exchanges other than Nasdaq 
or NYSE.
    \5\ Additionally, if a current DLP has less than 10 DLP 
assignments, but increases the number of ETPs for which it is a DLP 
by 100%, the DLP will receive an incremental additional Tape C ETP 
rebate of $0.0001. A DLP receiving its first assignment will count 
as a 100% increase. This incremental rebate is only available for 
the first 100% increase and thus is not available for subsequent 
increases of 100%.
---------------------------------------------------------------------------

    Currently, only an ETP with a product inception date of 36 months 
or less is eligible for the NPSI Rebate. Nasdaq has determined that 
eliminating the time-based eligibility requirement may increase the 
number of ETPs that may be eligible for a rebate under the DLP Program, 
and would therefore incentivize the DLPs that are assigned to those 
ETPs to qualify for a rebate by, among other things, meeting the 
applicable quoting requirements. This is consistent with the purpose of 
the DLP Program and may improve the market quality of additional 
Nasdaq-listed ETPs.
    Once the time-based eligibility requirement is removed from the 
NPSI, the requirements for qualifying for the Basic Rebate tier for 
ETPs with an ADV of less than 500,000 are virtually identical to the 
requirements of qualifying for the NPSI rebate. Specifically, both the 
NPSI and the lowest level of the Basic Rebate tier have a volume 
requirement of less than 500,000 ADV, and both rebates require the DLP 
to be at the NBBO at least 20% of the time on average in the assigned 
ETP. Given the similarities between the NPSI and the lowest tier of the 
Basic Rebate, and in the interest of simplifying the operation of the 
Program, the Exchange has therefore determined to eliminate the NPSI 
rebate in its entirety.\6\
---------------------------------------------------------------------------

    \6\ In eliminating the NPSI rebate, the Additional Tape C ETP 
Incentives rebate will be re-numbered as Rule 7014(f)(5)(B).
---------------------------------------------------------------------------

    Currently, a DLP will receive a Basic Rebate of $0.0047 per 
executed share for an ETP with a monthly ADV of less than 500,000 if 
the DLP is at the NBBO at least 20% of the time on average in the 
assigned ETP. The Exchange is also proposing to amend this tier to 
increase the rebate from $0.0047 per executed share to $0.0070 per 
executed share so that DLPs that are currently receiving the NPSI 
rebate will continue to receive the same rebate going forward.
    Nasdaq believes that it is appropriate to increase the Basic Rebate 
for an ETP with a monthly ADV of less than 500,000 to $0.0070 per 
executed share, because DLPs that currently receive an NPSI rebate of 
$0.0070 per executed share will continue to receive the same rebate 
even with the elimination of the NPSI rebate. Nasdaq believes that the 
proposed $0.0070 per executed share rebate is proportionate to the 
requirements for the Basic Rebate while acting as a sufficient 
incentive to DLPs in lower-volume ETPs to increase their quoting and 
trading activity in those securities. Nasdaq believes it is appropriate 
to raise the Basic Rebate for an ETP with a monthly ADV of less than 
500,000, and not for other Basic Rebate tiers, because DLPs need 
significantly more incentives to quote and trade lower-volume ETPs than 
higher-volume ETPs.
    Finally, Nasdaq is changing the measurement used to calculate an 
ETP's ADV for purposes of determining a DLP's eligibility for the Basic 
Rebate. Currently, a DLP will qualify for the Basic Rebate if the ETP's 
ADV meets the applicable volume threshold, as measured in the same 
month in which the rebate is being paid. Nasdaq proposes to determine a 
DLP's eligibility for the Basic Rebate by using the ETP's ADV in the 
month prior to which the rebate is being paid. Nasdaq believes that 
adopting a prior month ADV measurement provides greater transparency 
and certainty to a DLP in determining the Basic Rebate than the current 
month measurement. Nasdaq is proposing to apply this change to all 
tiers of the Basic Rebate, as it believes that the basis for this 
change applies equally to DLPs in all of the Basic Rebate tiers. Nasdaq 
does not believe that DLPs will significantly alter their trading 
activity as a result of this change, since the relevant measurement is 
the ADV of the ETP to which the DLP is assigned, not the ADV of the 
DLP.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\7\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\8\ 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, and is 
not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The Exchange believes that it is reasonable to eliminate the NPSI 
rebate and to correspondingly increase the amount of the Basic Rebate 
tier for an ETP with a monthly ADV of less than 500,000. Once the time-
based eligibility requirement is removed from the NPSI, the 
requirements for qualifying for the Basic Rebate tier for ETPs with an 
ADV of less than 500,000 are virtually identical to the requirements of 
qualifying for the NPSI rebate. Given the similarities between the NPSI 
and the lowest tier of the Basic Rebate, and in the interest of 
simplifying the operation of the Program, the Exchange believes it is 
reasonable to eliminate the NPSI Rebate in its entirety and 
concurrently re-number the Additional Tape C ETP Incentives rebate. By 
eliminating the NPSI rebate and raising the amount of the Basic Rebate 
for ETPs with an ADV of less than 500,000 to $0.0070 per executed 
share, Nasdaq will increase the number of ETPs that may be eligible for 
this rebate, while ensuring that DLPs that currently receive an NPSI 
rebate of $0.0070 per executed share will continue to have the same 
opportunity to receive that rebate amount even with the elimination of 
the NPSI rebate. Increasing the number of ETPs that may be eligible for 
the $0.0070 rebate will incentivize the DLPs that are assigned to those 
ETPs to qualify for the rebate by, among other things, meeting the 
applicable quoting requirements. This is

[[Page 18325]]

consistent with the purpose of the DLP Program and may improve the 
market quality of additional Nasdaq-listed ETPs. Even with the NPSI's 
time-based requirement removed, Nasdaq believes that the proposed 
$0.0070 per executed share rebate is proportionate to the requirements 
for the Basic Rebate while acting as a sufficient incentive to DLPs in 
lower-volume ETPs to increase their quoting and trading activity in 
those securities.
    Nasdaq believes it is reasonable to change the measurement used to 
calculate an ETP's ADV for purposes of determining a DLP's eligibility 
for the Basic Rebate. Nasdaq believes that adopting a prior month ADV 
measurement provides greater transparency and certainty to a DLP in 
determining the Basic Rebate than the current month measurement. Nasdaq 
is proposing to apply this change to all tiers of the Basic Rebate, as 
it believes that the basis for this change applies equally to DLPs in 
all of the Basic Rebate tiers.
    Nasdaq believes that eliminating the NPSI rebate, and increasing 
the amount of the Basic Rebate tier for an ETP with a monthly ADV of 
less than 500,000, is equitable and not unfairly discriminatory. In 
eliminating the NPSI Rebate and raising the amount of the Basic Rebate 
for ETPs with an ADV of less than 500,000 to $0.0070 per executed 
share, all DLPs that currently qualify [sic] NPSI Rebate will continue 
to have the opportunity to qualify for the same $0.0070 rebate that 
they currently receive. By raising the amount of the Basic Rebate for 
ETPs with an ADV of less than 500,000 to $0.0070 per executed share, 
DLPs that are assigned to such ETPs that are not currently receiving 
the $0.0070 per executed share rebate will now be eligible to receive 
this rebate. This will incentivize the DLPs that are assigned to such 
ETPs to qualify for this rebate by, among other things, meeting the 
applicable quoting requirements. Moreover, Nasdaq believes it is 
appropriate to raise the Basic Rebate for an ETP with a monthly ADV of 
less than 500,000, and not for other Basic Rebate tiers, because DLPs 
need significantly more incentives to quote and trade lower-volume ETPs 
than higher-volume ETPs. For these reasons, Nasdaq believes it is 
reasonable to raise the Basic Rebate for low-volume ETPs in this manner 
even though the NPSI's time-based requirement will no longer apply.
    Nasdaq believes that changing the measurement used to calculate an 
ETP's ADV for purposes of determining a DLP's eligibility for the Basic 
Rebate is equitable and not unfairly discriminatory. Nasdaq is 
proposing to apply this change to all tiers of the Basic Rebate, as it 
believes that the basis for this change (providing greater transparency 
and certainty to a DLP in determining the rebate amount) applies 
equally to DLPs in all of the Basic Rebate tiers. Nasdaq does not 
believe that DLPs will significantly alter their trading activity as a 
result of this change, since the relevant measurement is the ADV of the 
ETP to which the DLP is assigned, not the ADV of the DLP. In addition, 
this standard will apply to all DLPs that would otherwise qualify for 
the Basic Rebate.

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 and rebates 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 and rebates 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.
    Here, increasing the Basic Rebate for ETPs with an ADV of less than 
500,000 to $0.0070 per executed share, eliminating the NPSI rebate, and 
changing the measurement of an ETP's ADV for purposes of the Basic 
Rebate do not impose a burden on competition because the Exchange's 
execution services are completely voluntary and subject to extensive 
competition both from other exchanges and from off-exchange venues. 
With these proposed changes, all similarly-situated members are equally 
capable of qualifying for the proposed Basic Rebate for ETPs with an 
ADV of less than 500,000 if they choose to meet the requirements of the 
Program and the Basic Rebate, and the same rebate will be paid to all 
members that qualify for it. In addition, members will continue to have 
opportunities to qualify for the Tape C Rebate under the Program.
    Nasdaq believes that raising the Basic Rebate for an ETP with a 
monthly ADV of less than 500,000, and not for other Basic Rebate tiers, 
does not constitute a burden on competition not necessary or 
appropriate, because DLPs need significantly more incentives to quote 
and trade lower-volume ETPs than higher-volume ETPs. Eliminating the 
NPSI Rebate and increasing the proposed Basic Rebate for ETPs with an 
ADV of less than 500,000 to $0.0070 per executed share will expand the 
scope of ETPs, and the DLPs that are assigned to them, that are 
eligible for this rebate, while helping ensure that DLPs that currently 
qualify for the $0.0070 rebate under the NPSI will continue to qualify 
for this amount. This change will therefore incentivize the DLPs that 
are assigned to ETPs with an ADV of less than 500,000, and which do not 
currently qualify for the NPSI Rebate, to qualify for the rebate by, 
among other things, meeting the applicable quoting requirements, which 
may improve the market quality of additional Nasdaq-listed ETPs. Given 
the competitive nature of the market for listing and trading ETPs, 
these changes which [sic] may encourage other market venues to make 
similar changes to improve their market quality. Thus, the Exchange 
does not believe that the proposed changes will impose any burden on 
competition, but may rather promote competition.

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

    No written comments were either solicited or 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.\9\ At any time within 60 days of the filing 
of the proposed rule change, the Commission summarily may temporarily 
suspend such rule change if it appears to the Commission that such 
action is: (i) Necessary or appropriate in the public interest; (ii) 
for the protection of investors; or (iii) otherwise in furtherance of 
the purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78s(b)(3)(A)(ii).

---------------------------------------------------------------------------

[[Page 18326]]

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposal 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 No. SR-NASDAQ-2017-035 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 No. SR-NASDAQ-2017-035. 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 will also 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 No. SR-NASDAQ-2017-035 and should be 
submitted on or before May 9, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
---------------------------------------------------------------------------

    \10\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-07754 Filed 4-17-17; 8:45 am]
 BILLING CODE 8011-01-P