Document ID: SEC-2014-0131-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: National Stock Exchange, Inc.
Posted Date: 2014-01-23T05:00Z

[Federal Register Volume 79, Number 15 (Thursday, January 23, 2014)]
[Notices]
[Pages 3900-3904]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-01253]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71332; File No. SR-NSX-2014-01]

Self-Regulatory Organizations; National Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend its Fee and Rebate Schedule With Respect to the Order Delivery 
Mode of Interaction With the Exchange

January 16, 2014.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Exchange Act'' or ``Act '') \1\ and Rule 19b-4 thereunder,\2\ 
notice is hereby given that, on January 9, 2014, National Stock 
Exchange, Inc. (``NSX[supreg]'' 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 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 change its Fee and Rebate Schedule 
(the ``Fee Schedule'') issued pursuant to Exchange Rule 16.1 to: (i) 
Eliminate separate Pricing Options A and B of Section II. of the Fee 
Schedule and adopt a single pricing structure for all Exchange Equity 
Trading Permit (``ETP'') Holders using the Order Delivery mode of 
interaction \3\ with the Exchange (an ``Order Delivery User''); \4\ 
(ii) eliminate the Market Data Revenue rebate (``MDR'') and Order 
Delivery Notification Fee under Pricing Option A; (iii) within the 
proposed new unitary fee structure, establish a rebate based on average 
daily volume (``ADV'') of executed shares adding liquidity using Order 
Delivery Mode, with Order Delivery Users receiving a transaction rebate 
based on their ADV adding liquidity solely using Order Delivery Mode, 
or combined with ADV totals including trading volume by that same Order 
Delivery User through the Auto Ex mode of interaction with the 
Exchange; \5\ and, (iv) amend Section IV.

[[Page 3901]]

of the Fee Schedule (Regulatory Fee) to eliminate Quotation Update Fees 
applicable to Order Delivery Users only.
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    \3\ See Exchange Rule 11.13 (Proprietary and Agency Orders; 
Modes of Order Interaction), paragraph (b)(2).
    \4\ A ``User'' is defined in Exchange Rule 1.5 as ``. . . any 
ETP Holder or Sponsored Participant who is authorized to obtain 
access to the System pursuant to Rule 11.9 (Access).
    \5\ See Exchange Rule 11.13(b)(1).
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    The text of the proposed rule change is available on the Exchange's 
Web site at www.nsx.com, at the Exchange'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, 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
    The Exchange is proposing amendments to Sections II. and IV. of the 
Fee Schedule with respect to certain fees and rebates applicable to 
Order Delivery Users. The changes are intended to further enhance the 
Exchange's competitive position by offering pricing that will 
incentivize current Order Delivery Users to increase their trading 
volumes while at the same time providing an economically attractive 
price structure designed to encourage additional electronic 
communications networks (``ECNs'') to become Order Delivery Users. In 
order to achieve these goals, the Exchange is proposing to eliminate 
the separate Pricing Options A and B currently contained in Section II. 
of the Fee Schedule and adopt a single fee and rebate structure that 
will apply to all Order Delivery Users, for executions in both 
securities priced at $1.00 and above and securities priced below $1.00.
Elimination of Order Delivery Notification and Quotation Update Fees
    Under the proposed unitary structure, the Exchange will eliminate 
the Order Delivery Notification Fee of $0.35 under current Pricing 
Option A for each Order Delivery Notification, up to 1.5 million Order 
Delivery Notifications per month, delivered by the Exchange's Trading 
System (the ``System'') \6\ to an Order Delivery User for potential 
execution against a posted displayed or undisplayed order in any 
security priced at $1.00 and above. As proposed, there will be no Order 
Delivery Notification fee assessed for any Order Delivery Notification 
transmitted by the Exchange to an Order Delivery User, without regard 
to the price of the security or any minimum number of Order Delivery 
Notifications per month.\7\ The Exchange also proposes to eliminate the 
Quotation Update Fee for Order Delivery Users under Section IV. of the 
Fee Schedule and assess no fee for quotation updates by Order Delivery 
Users, regardless of the price of the security or the number of 
quotation updates in a calendar month.\8\
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    \6\ See Exchange Rule 1.5, which defines the ``System'' as ``. . 
. the electronic securities communications and trading facility 
designated by the Board through which orders of Users are 
consolidated for ranking and execution.''
    \7\ Currently, an Order Delivery Notification Fee is not 
assessed for Order Delivery Notifications delivered by the System to 
an Order Delivery User for potential execution against a posted 
displayed or non-displayed order in any security priced below $1.00.
    \8\ Prior to these changes, the Exchange charged Order Delivery 
Users a Quotation Update Fee of $0.000467 per quotation update in 
securities priced at $1.00 and above, applied to the first 150 
million quotation updates; a new Order Delivery User would pay a 
Quotation Update Fee of $0.00667 [sic] for quotation updates in 
securities priced at $1.00 and above, applied to the first 150 
million quotation updates, during the first three months of using 
Order Delivery Mode.
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New Rebate Structure for Order Delivery Mode
    In addition to the proposed elimination of the Order Delivery 
Notification Fee and Quotation Update Fee applicable in Order Delivery 
Mode, the Exchange is proposing to adopt a new rebate schedule for 
adding liquidity solely though Order Delivery Mode, or through use of 
Order Delivery mode in combination with Auto Ex Mode by the same Order 
Delivery User.\9\ Specifically, the Exchange proposes to provide for 
rebates within certain ADV tiers for executions adding liquidity in 
securities priced at $1.00 and above by Order Delivery Users occurring 
solely through Order Delivery Mode. For Order Delivery Users that 
interact with the Exchange in Auto Ex Mode as well as Order Delivery 
Mode, the Exchange is proposing to adopt a separate rebate schedule 
with ADV tiers for executions adding liquidity in securities priced at 
$1.00 and above occurring both through Order Delivery Mode and Auto Ex 
Mode by the same Order Delivery User. If an Order Delivery User meets 
the ADV requirements in both modes of interaction, the Exchange will 
pay an enhanced rebate for the Order Delivery component. Under this 
proposed rebate plan, the Exchange will eliminate the MDR under current 
Pricing Option A. No rebates will be paid for executions in securities 
priced below $1.00. The proposed rebate structure will apply across all 
Tapes.\10\
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    \9\ Currently, Order Delivery Users and their affiliated ETP 
Holders interact with the Exchange using both Order Delivery Mode 
and Auto Ex. Mode, using a separate market participant identifier or 
``MPID'' for each mode of interaction. Pursuant to Exchange Rule 
16.3, upon request of an ETP Holder, its activity may be aggregated 
with the activity of its affiliated ETP Holders for purposes of 
applying the fees and rebates referenced in the Fee Schedule.
    \10\ For January 2014, ADV for purposes of these proposed 
amendments will be calculated based on the number of trading days in 
the month during which the changes are in effect.
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    For executions occurring solely through Order Delivery Mode, the 
Exchange proposes to adopt a three-tiered, volume based-rebate plan 
whereby an Order Delivery User will receive a rebate of $0.0005 per 
executed share for ADV adding liquidity in an amount equal to or 
exceeding 15 million shares per calendar month; an Order Delivery User 
will receive a rebate of $0.0013 per executed share for ADV adding 
liquidity in an amount equal to or exceeding 20 million shares per 
calendar month; and, for ADV adding liquidity in an amount equal to or 
exceeding 25 million shares per calendar month, an Order Delivery User 
will receive a rebate of $0.0017. The rebates at each ADV tier level 
will apply to the total executed volume by that Order Delivery User 
during the calendar month.\11\
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    \11\ Current Order Delivery User ADV adding liquidity meets or 
exceeds the Tier 1 amount of ADV equal to or greater than 15 million 
shares for purposes of the rebate for Order Delivery Mode.
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    For Order Delivery Users that also interact with the Exchange 
through Auto Ex Mode, the Exchange is proposing a two-tiered, volume 
based rebate structure that will provide a rebate to Order Delivery 
Users that meet or exceed certain ADV thresholds of added liquidity 
occurring through both forms of interaction with the System. The 
Exchange proposes to pay a rebate of $0.0005 per executed share for ADV 
adding liquidity in Order Delivery Mode in an amount equal to or 
greater than 300,000 shares up to 749,999 shares, plus ADV of 2 million 
shares or greater of added liquidity through Auto Ex Mode by the same 
Order Delivery User; the Exchange proposes to pay a rebate of $0.0010 
per executed share for ADV adding liquidity in Order Delivery Mode in 
an amount equal to or exceeding 750,000 shares, plus ADV of 3 million 
shares or greater of added liquidity through Auto Ex Mode by the same 
Order Delivery User.

[[Page 3902]]

    The Exchange notes that these rebates will apply only to the ADV of 
added liquidity provided through Order Delivery Mode and will not 
affect the rebates available to the Order Delivery User under Section 
I. of the Fee Schedule (Automatic Execution Mode). In every case, the 
Order Delivery User will receive the applicable rebate provided under 
Section I. for transactions adding liquidity in Auto Ex Mode but will 
only be eligible for the tiered rebates for liquidity added through 
Order Delivery Mode if the ADV levels are satisfied for the applicable 
tier. The rebates at each ADV tier level will apply to the total 
executed volume by that Order Delivery User in both modes of 
interaction during the calendar month.
    The Exchange believes that the proposed transaction rebates will 
incentivize current Order Deliver Users to increase their activity in 
Order Delivery Mode. The Exchange's proposal is also designed to offer 
incentives for new entrants into Order Delivery Mode by offering 
transaction rebates that for activity through both forms of interaction 
with the System, with smaller total ADV adding liquidity in Order 
Delivery Mode but requiring ADV adding liquidity in Auto Ex Mode of 2 
million or 3 million shares.
    With respect to all of the proposed changes to the Fee Schedule for 
Order Delivery Mode, the Exchange is seeking to adopt a fee and rebate 
structure that will both incentivize current Order Delivery Users to 
increase their participation in Order Delivery Mode by eliminating the 
fees and providing for transaction rebates for adding liquidity in ADV 
amounts equal to or greater than 15 million shares, with the highest 
rebate paid for ADV of added liquidity in an amount equal to or greater 
than 25 million shares. The Exchange submits that the proposed 
transaction rebates for adding liquidity in ADV amounts combining 
executions in Order Delivery Mode with Auto Ex Mode will operate to 
incentivize smaller ECNs to increase their interaction with the 
Exchange, thereby providing additional liquidity and additional 
competition for price discovery.
    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,\12\ in general and, in 
particular, Section 6(b)(4) of the Act,\13\ 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,\14\ which requires, among other things, 
that the rules of a national securities exchange not permit unfair 
discrimination 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 and, in general, to protect investors and the 
public interest.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78(f)(b)(4).
    \14\ 15 U.S.C. 78f(b)(5).
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    The Exchange submits that, as set forth below, its proposal to 
eliminate separate Pricing Options A and B under the current Fee 
Schedule and adopt a unitary fee and rebate structure for Order 
Delivery Users meets the requirement of Section 6(b)(4) of the Act in 
that it provides for an equitable allocation of reasonable, dues, fees 
and other charges among Order Delivery Users and other persons using 
the facilities of the Exchange. The Exchange is seeking to provide for 
a structure that fulfills the dual goals of incentivizing current Order 
Delivery Users to increase their activity on the Exchange while at the 
same time promoting new entrants to become Order Delivery Users. All 
ETP Holders that are approved as Order Delivery Users will be subject 
to the same fee and rebate structure, thereby equitably allocating the 
fees and rebates among all Order Delivery Users. The rebates will be 
based on specific volume-based ADV tiers, with higher rebates paid for 
increased volume.
    The Exchange believes that its proposal to eliminate the separate 
pricing options is consistent with Section 6(b)(5) of the Act in that, 
by seeking to increase activity in Order Delivery Mode by both current 
Order Delivery Users and prospective new entrants, the proposal will 
promote just and equitable principles of trade and operate to remove 
impediments to and perfect the mechanism of a free and open market and 
national market system.
    Addressing the individual elements of the proposed changes to the 
Fee Schedule, the Exchange will eliminate the Order Delivery 
Notification Fee of $0.35 under current Section II., Pricing Option A, 
for each Order Delivery Notification, up to 1.5 million Order Delivery 
Notifications per month, delivered by the System to an Order Delivery 
User for potential execution against a posted displayed or undisplayed 
order in any security priced at $1.00 and above; the Exchange also 
proposes to eliminate the Quotation Update Fee for Order Delivery Users 
under Section IV of the Fee Schedule and assess no fee for quotation 
updates by Order Delivery Users, regardless of the price of the 
security or the number of quotation updates in a calendar month.
    As proposed, Order Delivery Users will not pay any fees for Order 
Delivery Notifications or Quotation Updates in any security traded on 
the Exchange. The Exchange believes that the elimination of such fees 
is consistent with Section 6(b)(4) of the Act in that it reasonable as 
a component of the broader changes to the Fee Schedule proposed in this 
rule amendment, in which the fees and rebates applicable to Order 
Delivery Mode are being changed to simplify the structure and 
incentivize increased participation in Order Delivery Mode. The 
Exchange further believes that elimination of the Order Delivery 
Notification and Quotation Update Fees is consistent with the 
requirement of Section 6(b)(4) of the Act in that it will be equitably 
allocated among all Order Delivery Users, without regard to the price 
of the security or whether the Order Delivery User has met a numerical 
threshold to cap such fees, as required under the operative Fee 
Schedule prior to these changes. Given that these fees apply only to 
Exchange ETP Holders approved by the Exchange as Order Delivery Users, 
it is consistent with Section (6)(b)(4) to consider the equitable 
application of the proposed change within the context of this defined 
type of market participant.\15\
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    \15\ The Exchange notes that in prior rule filings to amend the 
Fee Schedule, it stated that the Order Delivery Notification fee is 
intended to recover Order Delivery Mode's development and ongoing 
operational costs (see Exchange Act Release No. 68391 (December 10, 
2012); 77 FR 74536 (December 14, 2012); SR-NSX-2012-25); and the 
revenue raised through the Quotation Update Fee is designated to 
support the Exchange's regulatory oversight (see Exchange Act 
Release No. 68215 (November 13, 2012); 77 FR 69522 (November 19, 
2012); SR-NSX-2012-20). The Exchange represents that the elimination 
of these fees will not impact the Exchange's system development and 
operations or the Exchange's regulatory program as all of these 
functions will be funded by the Exchange through the general 
revenues of the Exchange. The Exchange intends to continue to 
allocate to the regulatory program the same amount of money that 
would be generated through the Quotation Update Fee.

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[[Page 3903]]

    Additionally, the Exchange submits that the elimination of the 
Order Delivery Notification and Quotation Update Fees is consistent 
with Section 6(b)(5) of the Act in that it is not unfairly 
discriminatory. These fees are specific to the Exchange's Order 
Delivery Mode and applicable to all Order Delivery Users; their 
elimination will affect only Order Delivery Users, but will apply 
equally to both current Order Delivery Users and to new entrants. The 
Exchange also notes that it previously filed with the Commission, for 
immediate effectiveness, changes to the Fee Schedule as of November 1, 
2013 that eliminated the Order Delivery Notification Fee and Quotation 
Update Fee in securities priced under $1.00.\16\ Under the current 
proposal, the elimination of these fees will now be extended to all 
securities traded on the Exchange.
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    \16\ See Exchange Act Release No. 34-70890 (November 15, 2013); 
78 FR 69900 (November 21, 2013); SR-NSX-2013-21.
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    The Exchange also proposes to eliminate the 50% MDR currently 
provided under Pricing Option A. This amendment is consistent with 
Section 6(b)(4) of the Act in that it is reasonable to eliminate this 
rebate for Order Delivery Mode in view of the removal of the Order 
Delivery Notification Fee and Quotation Update Fee, which will operate 
to reduce the costs for use of Order Delivery Mode. The Exchange 
believes that it is reasonable to provide for a volume-based rebate 
plan for Order Delivery Mode and eliminate the MDR. The Exchange also 
believes that this proposal is also consistent with Section 6(b)(4) of 
the Act in that it is equitably allocated among all Order Delivery 
Users. Further, the proposed change is consistent with Section 6(b)(5) 
of the Act in that it is not unfairly discriminatory among market 
participants in that every Order Delivery User will be subject to the 
same rebate plan. The Exchange notes that Order Delivery Users who also 
interact with the System through Auto Ex Mode will be continue to be 
eligible for the MDR provided in Section I. of the Fee Schedule; this 
will include Order Delivery Users that also interact with the System 
using Auto Ex Mode and meet the ADV thresholds for the MDR under 
Section I. of the Fee Schedule.
    The Exchange further submits that the elements of its proposal that 
provide for a tiered rebate structure for ADV of added liquidity 
through Order Delivery Mode, either exclusively or through combined ADV 
totals of added liquidity by the same Order Delivery User through Order 
Delivery Mode and Auto Ex Mode, are consistent with Section 6(b)(4) of 
the Act in that they are reasonable and equitably allocated among 
market participants and other persons using the facilities of the 
Exchange. The Exchange believes that the proposed changes are 
reasonable, both individually and within the broader context of the 
amendments to the Fee Schedule for Order Delivery. The Exchange's 
proposal, as discussed above, includes the elimination of Order 
Delivery Notification Fees and Quotation Update Fees. Together with the 
proposal to remove these fees, the tiered, ADV-based rebate plan is 
designed to incentivize current Order Delivery Users to increase their 
activity on the Exchange, and to encourage new entrants to Order 
Delivery Mode. The Exchange's goal is to increase the number of Order 
Delivery Users, thereby increasing liquidity on the Exchange and, 
optimally, providing better execution opportunities for customers.
    The Exchange believes that, given its proposal to remove the fees, 
the amendment providing for a lower rebate than the $0.0030 per share 
rebate for added liquidity under current Pricing Option A is reasonable 
and consistent with Section 6(b)(4) of the Act. It is also reasonable, 
and consistent with the approach of Section I. of the Fee Schedule, to 
establish volume tiers for adding liquidity that will provide 
additional economic incentives for using Order Delivery Mode. Finally, 
the Exchange believes that the proposed changes are consistent with 
Section 6(b)(4) of the Act in that they are equitably allocated among 
all Order Delivery Users who satisfy the ADV tiers to be eligible for 
the rebates to add liquidity.

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 for Order Delivery 
Mode that is intended to enhance competition by incentivizing current 
Order Delivery Users to increase their participation and attract 
additional ECNs to become Order Delivery Users. The proposed changes 
will, the Exchange submits, operate to enhance rather than burden 
competition by aspiring to increase liquidity 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 \17\ and subparagraph (f)(2) of Rule 
19b-4.\18\ 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.
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    \17\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \18\ 17 CFR 240.19b-4.
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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-NSX-2014-01 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-2014-01. 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

[[Page 3904]]

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-2014-01 and should be 
submitted on or before February 13, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-01253 Filed 1-22-14; 8:45 am]
BILLING CODE 8011-01-P