Document ID: SEC-2013-1444-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The NASDAQ Stock Market, LLC
Posted Date: 2013-08-14T04:00Z

[Federal Register Volume 78, Number 157 (Wednesday, August 14, 2013)]
[Notices]
[Pages 49578-49579]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-19691]

[[Page 49578]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70139; File No. SR-NASDAQ-2013-105]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Eliminate the Exchange's Routable Order Program

August 8, 2013.
    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 August 5, 2013, 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 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 is proposing changes to eliminate the Exchange's Routable 
Order Program (``ROP''). The changes pursuant to this proposal are 
effective upon filing, and the Exchange will implement the proposed 
rule changes on August 5, 2013.
    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. 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
    In February 2013, NASDAQ introduced the Routable Order Program in 
an effort to encourage greater participation by members representing 
retail customers in NASDAQ.\3\ The program was premised on the 
propensity of members representing retail customers to make more 
extensive use of exchange-provided routing facilities and pre- and 
post-market trading sessions, as compared with proprietary traders.
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    \3\ Securities Exchange Act Release No. 68905 (February 12, 
2013), 78 FR 11716 (February 29 [sic], 2013) (SR-NASDAQ-2013-023).
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    To be eligible for the Routable Order Program, a member was 
required to have a market participant identifier (``MPID'') through 
which it provides an average daily volume of at least 35 million shares 
of displayed liquidity using orders that employ the SCAN or LIST 
routing strategies, including an average daily volume of at least 2 
million shares that are provided prior to the NASDAQ Opening Cross and/
or after the NASDAQ Closing Cross.\4\ During recent months, no members 
have qualified for the program.
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    \4\ SCAN is a basic routing strategy that is widely used by 
firms that represent retail customers. SCAN orders check the Nasdaq 
Market Center System for available shares, while remaining shares 
are simultaneously routed to destinations on the applicable routing 
table. If shares remain un-executed after routing, they are posted 
on the book. Once on the book, if the order is subsequently locked 
or crossed by another market center, the System will not route the 
order to the locking or crossing market center. LIST is a routing 
strategy that is used by firms that wish for their orders to 
participate in the opening and closing processes of each security's 
primary listing exchange, to access liquidity on all exchanges if 
marketable, and otherwise to post to the NASDAQ book. Members, 
including those that represent retail customers, use the LIST 
strategy to offload on the Exchange and its routing broker the 
technical complexity associated with routing orders to participate 
in the market open and/or close.
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    With respect to SCAN and LIST orders in securities priced at $1 or 
more per share entered through an MPID that qualified for the ROP, 
NASDAQ charged a fee of $0.0029 per share executed with respect to such 
orders when accessing liquidity in the Nasdaq Market Center.\5\ If such 
orders were designated for display in the Nasdaq Market Center and 
provided liquidity after posting to the book, NASDAQ provided a credit 
of $0.0037 per share executed. With respect to SCAN and LIST orders in 
securities priced less than $1 per share entered through an MPID that 
qualified for the ROP, NASDAQ charged a fee of 0.30% of the total 
transaction cost with respect to such orders when accessing liquidity 
in the Nasdaq Market Center,\6\ and provided a credit of $0.00003 per 
share executed if they were designated for display and provided 
liquidity after posting to the book. These fees and credits would be in 
lieu of the fees and credits otherwise charged or provided under Rule 
7018. Moreover, orders that qualified for these fees and credits were 
not eligible to receive additional credits under NASDAQ's Investor 
Support Program (the ``ISP''),\7\ but were included in calculations 
with regard to eligibility to participate in the ISP and other 
incentive programs under Rule 7014.
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    \5\ When such orders executed at other market centers, the 
routing fees provided for in Rule 7018 would apply.
    \6\ When such orders executed at other market centers, the 
routing fees provided for in Rule 7018 would apply.
    \7\ Rule 7014(a)-(c).
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    The program has not been successful in achieving its goal of 
encouraging members with retail order flow to increase their 
participation in NASDAQ. Accordingly, NASDAQ has decided to terminate 
the program, such that a member that might qualify for the program in 
the future would receive credits and pay fees otherwise applicable 
under Rule 7018 and 7014.\8\
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    \8\ Because this proposed rule change is effective as of August 
5, 2013, ROP pricing would apply on August 1-2, 2013 to any member 
that qualifies for the ROP during August 2013.
     In addition to deleting the relevant paragraphs from Rule 7014, 
NASDAQ is also making conforming changes to the rest of that rule.
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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,\9\ in general, and with 
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 NASDAQ 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.
    \10\ 15 U.S.C. 78f(b)(4) and (5).
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    NASDAQ believes that the proposed elimination of the ROP is 
consistent with the requirements of the Act. Specifically, although the 
goal of the program was to provide meaningful incentives for members 
that represent significant numbers of retail customers to increase 
their participation in NASDAQ, the program has not had that effect; 
accordingly, elimination of the program is reasonable because it will 
not result in a change to the fees and rebates applicable to members in 
August

[[Page 49579]]

2013, based on their level of participation in recent months. In 
addition, the change is reasonable because the fees and rebates 
applicable in the absence of the program are the fees and rebates that 
are otherwise in effect for members not qualifying for the program 
under Rules 7014 and 7018, all of which have been established and 
described in prior proposed rule changes. In addition, another pricing 
incentive program aimed at members representing retail customers, the 
ISP, remains in effect. The change is consistent with an equitable 
allocation of fees and is not unfairly discriminatory because although 
NASDAQ believes that it is equitable to use fee reductions as a means 
to encourage greater retail participation in NASDAQ, such reductions 
are not required under the Act, and the change will eliminate a 
provision that could result in a very high rebate being paid to only 
certain members. Moreover, since the program has not applied to any 
members in recent months, its elimination will not have a direct effect 
on the allocation of fees. Similarly, its elimination is not 
discriminatory because it will have no direct effect on members based 
on their current levels of participation. Finally, the change will not 
result in unfair discrimination against firms that represent retail 
customers, since providing financial incentives to such members, while 
not inconsistent with the Act, is also not required by the Act, and 
because the incentives provided by the ISP remain in place.

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.\11\ NASDAQ 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, 
NASDAQ 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, while also seeking to recoup its costs of operation and earn 
a return. Accordingly, NASDAQ believes that the degree to which fee 
changes in this market may impose any burden on competition is 
extremely limited. In this case, NASDAQ is eliminating an incentive 
program aimed at members representing retail customers, but in which 
such members were not currently participating. Accordingly, NASDAQ does 
not believe that the proposed change will impair the ability of members 
or competing order execution venues to maintain their competitive 
standing in the financial markets.
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    \11\ 15 U.S.C. 78f(b)(8).
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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) of the Act \12\ and paragraph (f) of Rule 19b-4 
thereunder.\13\ 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).
    \13\ 17 CFR 240.19b-4(f).
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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 email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2013-105 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-2013-105. 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-NASDAQ-2013-105 and should 
be submitted on or before September 4, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-19691 Filed 8-13-13; 8:45 am]
BILLING CODE 8011-01-P