Document ID: SEC-2010-1951-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2010-12-17T05:00Z

[Federal Register Volume 75, Number 242 (Friday, December 17, 2010)]
[Notices]
[Pages 79056-79058]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-31682]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63530; File No. SR-NASDAQ-2010-164]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to 
Provide an Exemption from the Thirty-Day Written Notice Requirement of 
Rule 7018(i)(3)

December 10, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 79057]]

(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 9, 2010, The NASDAQ Stock Market LLC (``NASDAQ'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II 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 the 
Substance of the Proposed Rule Change

    NASDAQ is proposing to modify the thirty-day written notice 
requirement applicable to a member firm seeking to withdraw as 
Designated Liquidity Provider.
    The text of the proposed rule change is below. Proposed new 
language is italicized.

7018. Nasdaq Market Center Order Execution and Routing

    (a)-(h) No change.
    (i) Notwithstanding the foregoing, the following charges shall 
apply to transactions in a Qualified Security by one of its Designated 
Liquidity Providers:

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Charge to Designated Liquidity Provider     $0.003 per share executed
 entering Order that executes in the         for securities priced at $1
 Nasdaq Market Center or attempts to         or more per share (For
 execute in the Nasdaq Market Center prior   securities priced at less
 to routing:.                                than $1 per share, the
                                             normal execution fee under
                                             7018(a) will apply).
Credit to Designated Liquidity Provider     $0.004 per share executed
 providing displayed liquidity through the   (or $0, in the case of
 Nasdaq Market Center:.                      executions against Quotes/
                                             Orders in the Nasdaq Market
                                             Center at less than $1.00
                                             per share), up to 10
                                             million shares average
                                             daily volume.
                                            Normal credits under 7018(a)
                                             apply to shares greater
                                             than 10 million average
                                             daily volume and
                                             nondisplayed liquidity.
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    For purposes of this paragraph:
    (1)-(2) No change.
    (3) If a DLP does not meet the performance measurements for a given 
month, fees and credits will revert to the normal schedule under 
7018(a). If a DLP does not meet the stated performance measurements for 
3 out of the past 4 months, the DLP is subject to forfeit of DLP status 
for that instrument, at NASDAQ's discretion. A DLP must provide 30 days 
written notice if it wishes to withdraw its registration in a Qualified 
Security, unless it is also withdrawing as a market maker in the 
Qualified Security.
    (j) No change.
* * * * *

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
    NASDAQ is proposing to modify the thirty-day written notice 
requirement applicable to a member firm seeking to withdraw as 
Designated Liquidity Provider (``DLP'') in a Qualified Security \3\ to 
exempt member firms that are also withdrawing as a market maker in the 
Qualified Security. NASDAQ recently amended Rule 7018(i) to include new 
subparagraph (3), discussing DLP performance requirements and adopting 
a 30 day written notice requirement of a member firm's desire to 
withdraw as a DLP in a Qualified Security.\4\ Specifically, NASDAQ 
described the consequences of failing to meet the DLP minimum 
performance criteria described in Rule 7018(i)(2) and adopted a thirty-
day prior notice obligation on DLPs seeking to withdraw registration in 
a Qualified Security. The thirty-day notice requirement was adopted to 
ensure that NASDAQ has adequate time to assign a new DLP, thus avoiding 
any disruption in market quality that may be caused by the absence of 
an assigned DLP.
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    \3\ To be designated as a ``Qualified Security,'' Rule 
7018(i)(1) requires that the security is an exchange-traded fund or 
index-linked security listed on Nasdaq pursuant to Nasdaq Rules 
5705, 5710, or 5720, and that it has at least one Designated 
Liquidity Provider.
    \4\ Securities Exchange Act Release No. 63040 (October 5, 2010), 
75 FR 63238 (October 14, 2010) (SR-NASDAQ-2010-128).
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    NASDAQ is proposing an exemption to the thirty-day written notice 
requirement limited to member firms seeking to withdraw both as a DLP 
and market maker in a Qualified Security. NASDAQ rules do not specify 
or require a minimum time of prior notice of a member firm's desire to 
withdraw as a market maker in a particular security.\5\ As such, a 
member firm may withdraw from any given security the same day as notice 
is provided to NASDAQ. A member firm is, however, restricted from 
making a market in any security that it has withdrawn from for 20 
days.\6\ To be a DLP, a member firm must be a registered market maker 
in the Qualified Security.\7\ Therefore, if a member firm withdraws its 
registration as a market maker in a Qualified Security, it is not 
eligible to act as a DLP.
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    \5\ Rule 4620(a).
    \6\ Id.
    \7\ Rule 7018(i)(2).
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    NASDAQ adopted the thirty-day written notice of withdrawal 
requirement so that it would have adequate time to assign a new DLP as 
a replacement of the withdrawing member firm. Typically, a member firm 
would continue as a market maker in the security that it was 
withdrawing its DLP designation, and thus was able to avail itself of 
the benefits of making a market in the Qualified Security. NASDAQ 
believes that, in cases of complete withdrawal from market making in a 
Qualified Security, the thirty-day written notice of withdrawal 
requirement should not apply, since the member firm is not seeking to 
continue availing itself of the benefit of making a market in the 
security, but rather is completely withdrawing from making a market in 
the security. Such member firms have no intent to make markets in the 
security and are precluded from becoming a market maker in the security 
for 20 days. Accordingly, NASDAQ does not believe that compelling a 
member firm to participate as a market maker and DLP in a security 
during the thirty-day notice period is beneficial to the member firm or 
the quality of the market in the Qualified Security.
2. Statutory Basis
    NASDAQ believes the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\8\ in general and with Section 
6(b)(5) of the Act,\9\ in particular, which requires that the rules of 
an exchange be designed to prevent fraudulent and manipulative acts and

[[Page 79058]]

practices, promote just and equitable principles of trade, foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, protect investors and the public interest. 
NASDAQ believes that the proposed rule change is consistent with these 
requirements because exempting member firms that are entirely 
withdrawing as a market maker in a Qualified Security from the thirty-
day written notice requirement of Rule 7018(i)(3) eliminates an 
inconsistency in the current rules concerning the notice a market maker 
is required to provide NASDAQ when it determines to withdraw from 
making a market in Qualified Securities. NASDAQ believes a member firm 
should be able withdraw from making a market in any security under the 
terms of Rule 4620(a) and not be subject to an additional notice 
requirement that was designed to apply to member firms that would 
continue to participate as a registered market maker in the security. 
Further, NASDAQ does not believe that compelling a member firm wishing 
to withdraw as a market maker in a Qualified Security to participate as 
a market maker and DLP in that security during the thirty-day notice 
period is beneficial to the member firm or the quality of the market in 
the Qualified Security.
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    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(5).
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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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)\10\ of the Act and Rule 19b-
4(f)(6) thereunder.\11\ At any time within 60 days of the filing of the 
proposed rule change, the Commission may summarily 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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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    NASDAQ has asked that the Commission waive the 30-day pre-operative 
waiting period contained in Rule 19b-4(f)(6)(iii).\12\ NASDAQ has 
requested such waiver to quickly cure an unintended inconsistency in 
the notice requirements for withdrawing as a market maker in certain 
securities. Based on NASDAQ's representations that the proposed rule 
change is non-controversial and that no novel issues are presented in 
this proposed rule change, the Commission sees no reason to delay 
implementation of the proposed rule change. The Commission believes it 
is consistent with the protection of investors and the public interest 
to waive the 30-day operative delay, and hereby grants such waiver.\13\
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    \12\ 17 CFR 240.19b-4(f)(6)(iii).
    \13\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule change's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2010-164 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-2010-164. 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 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 offices 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-2010-164, and should be submitted on or before 
January 7, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Florence E. Harmon,
Deputy Secretary.
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    \14\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2010-31682 Filed 12-16-10; 8:45 am]
BILLING CODE 8011-01-P