Document ID: SEC-2008-0546-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2008-04-10T04:00Z

[Federal Register: April 10, 2008 (Volume 73, Number 70)]
[Notices]               
[Page 19539-19540]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10ap08-102]                         

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57614; File No. SR-NASDAQ-2008-029]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Modify a Pricing Incentive Program for Market Makers in Exchange-Traded 
Funds and Index-Linked Securities Listed on NASDAQ

April 3, 2008.
    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, 2008, The NASDAQ Stock Market LLC (``NASDAQ'') 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 NASDAQ. Pursuant to Section 19(b)(3)(A)(ii) of 
the Act \3\ and Rule 19b-4(f)(2) thereunder,\4\ NASDAQ has designated 
this proposal as establishing or changing a due, fee, or other charge, 
which renders the proposed rule change effective immediately upon 
filing. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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

    NASDAQ proposes to modify a pricing incentive program for market 
makers in exchange-traded funds (``ETFs'') and index-linked securities 
(``ILSs'') listed on NASDAQ. NASDAQ will implement the proposed rule 
change on April 1, 2008. The text of the proposed rule change is 
available at the Exchange, the Commission's Public Reference Room, and 
http://www.nasdaq.com/about/LegalCompliance.stm.

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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Last year, NASDAQ introduced a pricing incentive program for market 
makers in ETFs and ILSs listed on NASDAQ. The program was designed both 
to enhance NASDAQ's competitiveness as a listing venue for ETFs and 
ILSs and to further strengthen its market quality as a transaction 
venue for ETFs and ILSs.
    Under NASDAQ's program, a market maker in an ETF or ILS may become 
a ``Designated Liquidity Provider'' in a ``Qualified Security'' and 
receive favorable incentive pricing. A ``Designated Liquidity 
Provider'' is a registered NASDAQ market maker in a Qualified Security 
that has committed to maintain minimum performance standards. The 
minimum performance standards applicable to a Designated Liquidity 
Provider may be determined from time to time by NASDAQ and may vary 
depending on the price, liquidity, and volatility of a particular 
Qualified Security. The performance measurements include: (A) Percent 
of time at the national best bid/best offer (``NBBO''); (B) percent of 
executions better than the NBBO; (C) average displayed size; and (D) 
average quoted spread. NASDAQ may remove Designated Liquidity Providers 
that do not meet performance standards or that decide to change their 
status at any time.
    A Qualified Security is an ETF or ILS that is listed on NASDAQ, has 
at least one Designated Liquidity Provider, and trades at volumes below 
a NASDAQ-designated maximum trading volume. Since the inception of the 
program, the maximum trading volume has been set such that a security 
is no longer eligible to be a Qualified Security once there have been 
two calendar months in any three calendar-month period during which its 
average daily volume on NASDAQ exceeded 250,000 shares. Although the 
program has had some success in encouraging additional listings of ETFs 
on NASDAQ since its inception, NASDAQ has concluded, based on feedback 
from sponsors of ETFs and ILSs and market makers, that the 
attractiveness of NASDAQ as a listing venue for these products would be 
further enhanced by increasing the maximum volume threshold such that a 
security would no longer be a Qualified Security once there have been 
two calendar months in any three calendar-month period during which its 
average daily volume on NASDAQ exceeded 10,000,000 shares. NASDAQ 
believes that this increase reflects a commitment to make NASDAQ the 
most attractive venue for listing and trading ETFs and ILSs. The change 
will encourage market maker support for ETFs and ILSs beyond their 
initial introductory period and thereby further enhance liquidity for 
the products as their trading volumes increase.
    Designated Liquidity Providers will continue to pay $0.003 per 
share executed when accessing liquidity in Qualified Securities; when 
providing liquidity, the Designated Liquidity Provider will continue to 
receive a credit of $0.004 per share executed. Consistent with the 
requirements of Regulation NMS, in the unlikely event that a security 
is trading at less than $1 per share, the normal execution fee and 
credit schedule in Rule 7018(a) regarding securities trading at less 
than $1 would apply. Once the 10,000,000 share volume threshold is 
reached, the pricing for the ETF or ILS becomes consistent with pricing 
for other securities traded on NASDAQ.
2. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\5\ in general, and with Section 
6(b)(4) and (5) of the Act,\6\ in particular, in that the 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 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

[[Page 19540]]

general, to protect investors and the public interest. NASDAQ believes 
that by allocating pricing benefits to market makers that make tangible 
commitments to enhancing market quality for ETFs and ILSs listed on 
NASDAQ, the proposal will encourage the development of new financial 
products, provide a better trading environment for investors in ETFs 
and ILSs, and encourage greater competition between listing venues for 
ETFs and ILSs.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f.
    \6\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    NASDAQ believes that the proposed rule change will encourage 
greater competition among venues that list ETFs and ILSs, and will 
further strengthen the quality of the NASDAQ market as a venue for 
transactions in ETFs and ILSs. Accordingly, 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.

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

    Because the foregoing rule change establishes or changes a due, 
fee, or other charge imposed by the Exchange, it has become effective 
pursuant to Section 19(b)(3)(A) of the Act \7\ and Rule 19b-4(f)(2) \8\ 
thereunder. At any time within 60 days of the filing of such proposed 
rule change, the Commission may summarily abrogate 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.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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-2008-029 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2008-029. 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 inspection 
and copying in the Commission's Public Reference Room on official 
business days between the hours of 10 a.m. and 3 p.m. Copies of such 
filing also will be available for inspection and copying at the 
principal office of the NASDAQ. 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-2008-029 and should be submitted on or before May 
1, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
---------------------------------------------------------------------------

    \9\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-7507 Filed 4-9-08; 8:45 am]

BILLING CODE 8011-01-P