Document ID: SEC-2014-1981-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The NASDAQ Stock Market LLC
Posted Date: 2014-11-25T05:00Z

[Federal Register Volume 79, Number 227 (Tuesday, November 25, 2014)]
[Notices]
[Pages 70253-70256]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-27845]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73648; File No. SR-NASDAQ-2014-108]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Modify NASDAQ Rule 7018 Fees

November 19, 2014.
    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 November 12, 2014, The NASDAQ Stock Market LLC (``NASDAQ'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a 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.
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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 to modify NASDAQ Rule 7018 fees assessed for 
execution and routing securities listed on NASDAQ, the New York Stock 
Exchange (``NYSE'') and on exchanges other than NASDAQ and NYSE.
    The text of the proposed rule change is available at 
nasdaq.cchwallstreet.com at NASDAQ'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, 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 those 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
    NASDAQ is proposing to amend NASDAQ Rule 7018(1), (2) and (3) to 
modify fees assessed for execution and routing securities listed on 
NASDAQ (``Tape C''), NYSE (``Tape A'') and on exchanges other than 
NASDAQ and the NYSE (``Tape B''), respectively, (together, the 
``Tapes'') as well as the opening and closing crosses (``Opening and 
Closing Crosses'') in NASDAQ Rule 7018(d) and (e).
    The Exchange is proposing across all of the tapes (the ``Tapes'') 
an increase to the fee for a firm that executes against resting 
midpoint liquidity from $0.0027 per share executed to $0.0030 per share 
executed. NASDAQ is seeking to harmonize the remove rate for orders 
whether or not they execute against the midpoint so that the remove 
rate for orders is certain before the order is entered. Therefore, the 
Exchange is proposing to increase the charge from $0.0027 to $0.0030 
per share executed across all the tapes.
    NASDAQ is also proposing to eliminate across all of the tapes the 
current $0.00293 per share executed rebate for a member with shares of 
liquidity provided in all securities through one or more of its Nasdaq 
Market Center MPIDs that represent more than 0.10% of Consolidated 
Volume during the month, with shares executed in the Opening and 
Closing Cross that represent more than 0.20% of Consolidated Volume and 
orders entered through a single Nasdaq Market Center MPID that 
represent more than 0.50% of Consolidated Volume during the month. 
NASDAQ believes that the elimination of this rebate is warranted since 
it has failed to increase liquidity in Tape A, B or C securities or to 
provide members with additional incentive to improve market quality.
    The Exchange is also proposing to modify and add new rebates across 
all of the tapes. Specifically, NASDAQ is proposing to expand and 
modify the credit for non-displayed orders (other than Supplemental 
Orders) that provide liquidity. The rebate will now include a $0.0025 
per share executed for midpoint orders. It will be offered provided 
that

[[Page 70254]]

the member adds an average daily volume of 5 million or more shares 
through midpoint orders during the month and either adds Customer and/
or Professional liquidity in Penny Pilot Options and/or Non- Penny 
Pilot Options of 1.40% or more of national customer volume in multiply-
listed equity and exchange-traded fund (``ETF'') options classes in a 
month as pursuant to Chapter XV, Section 2 of the Nasdaq Options Market 
(``NOM'') rules or adds 8 million shares of non-displayed liquidity 
(excluding retail price improvement orders). NASDAQ believes that this 
proposed credit will incentivize members to post more liquidity at the 
midpoint, which should improve price discovery for the benefit of 
investors.
    NASDAQ also proposes to also modify this rebate for Tape C 
securities only. Specifically, the credit of $0.0014 per share executed 
tier for midpoint orders if the member provides an average daily volume 
of less than 5 million shares through midpoint orders during the month 
is proposed to be modified by decreasing it to $0.0010 per share 
executed. The Exchange believes that is no longer necessary to pay a 
higher rebate for adding liquidity in Tape C.
    The Exchange is also proposing to modify across all of the tapes 
the existing credit for displayed Designated Retail Orders. The 
existing rebate of $0.0033 per share will remain, but the rebate will 
increase slightly to $0.0034 per share executed if the member adds 
Customer and/or Professional liquidity in Penny Pilot Options and/or 
Non- Penny Pilot Options of 1.40% or more of national customer volume 
in multiply-listed equity and ETF options classes in a month as 
pursuant to Chapter XV, Section 2 of the NOM rules. The Exchange 
believes that increasing the rebate will attract additional retail 
order flow.
    NASDAQ also is proposing to modify an existing fee for Tape A and 
Tape B securities. The proposed fee cap of $5,000 per month pertains to 
both a DOT or LIST Order that executes in the NYSE opening or re-
opening process combined with a LIST Order that executes in the 
NYSEArca and NYSEAmex opening or re-opening process if a member adds 
Customer and/or Professional liquidity in Penny Pilot Options and/or 
Non-Penny Pilot Options of 1.40% or more of national customer volume in 
multiply-listed equity and ETF options classes in a month as pursuant 
to Chapter XV, Section 2 of the NOM Rules. The Exchange believes that 
this will encourage firms that route options customer order flow and 
equity order flow that would qualify as retail to send more order flow 
to both NOM and NASDAQ. Additionally, NASDAQ is proposing to combine 
for Tape B securities the LIST order that executes in an exchange's re-
opening process with the language noted above regarding the LIST order 
that executes in an exchange's opening process. Aside from simplifying 
the rule language by combining it for a LIST order that executes in the 
opening or re-opening process, this also serves to reduce and harmonize 
the fee for a LIST order that executes in an exchange's re-opening 
process from $0.001 to $0.0005 per share executed in the NYSEArca re-
opening process.
    NASDAQ Rules 7018(d) and (e) set forth fees assessed for executions 
received in the Opening and Closing Crosses. The rule provides a fee of 
$0.0003 per share executed assessed for all other quotes and orders not 
otherwise noted under the rules. The Exchange is proposing to increase 
the fee from $0.0003 to $0.0004 per share executed in the Opening and 
Closing Crosses. The proposed increases to the fees assessed for 
executions in the Closing and Opening Crosses will help the Exchange 
recapture some of the costs it incurs operating the cross system, while 
maintaining very low fees for the execution of orders in these crosses.
2. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\3\ in general, and with 
Sections 6(b)(4) and 6(b)(5) of the Act,\4\ 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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    \3\ 15 U.S.C. 78f.
    \4\ 15 U.S.C. 78f(b)(4) and (5).
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    NASDAQ believes that the increase across all of the tapes to the 
fee for a member that executes against resting midpoint liquidity from 
$0.0027 per share executed to $0.0030 per share executed is reasonable, 
equitably allocated and not unfairly discriminatory and will harmonize 
the remove rate for orders whether or not they execute against the 
midpoint so that the remove rate for orders is certain before the order 
is entered. The Exchange believes the increase is reasonable because 
the rate is consistent with the standard remove rate and members 
receive significant price improvement when accessing midpoint 
liquidity. The fee increase is equitably allocated and not unfairly 
discriminatory because the increase is being uniformly assessed across 
all of the tapes on all members that execute against resting midpoint 
liquidity. Further, the Exchange believes that the reduced remove rate 
for receiving a midpoint execution is no longer necessary because the 
reduction did not result in a meaningful change in midpoint activity.
    The Exchange believes that the elimination across all of the tapes 
of the current $0.00293 per share executed rebate for a member with 
shares of liquidity provided in all securities through one or more of 
its Nasdaq Market Center MPIDs that represent more than 0.10% of 
Consolidated Volume during the month, with shares executed in the 
Opening and Closing Cross that represent more than 0.20% of 
Consolidated Volume and orders entered through a single Nasdaq Market 
Center MPID that represent more than 0.50% of Consolidated Volume 
during the month is consistent with an equitable allocation of a 
reasonable fee and not unfairly discriminatory. Specifically, the 
Exchange believes it is equitable and not unfairly discriminatory 
because this tier is being eliminated for all members and across all 
tapes so no members are being disadvantaged. Additionally, only one 
member qualified for the rebate in October and removing the rebate will 
impact their total rebates received by less than 1%.
    NASDAQ believes that the change across all tapes to the credit for 
non-displayed orders (other than Supplemental Orders) that provide 
liquidity is reasonable, equitably allocated and not unfairly 
discriminatory. The new tier for the rebate of $0.0025 per share 
executed for midpoint orders when the member adds an average daily 
volume of 5 million or more shares through midpoint orders during the 
month and either adds Customer and/or Professional liquidity in Penny 
Pilot Options and/or Non- Penny Pilot Options of 1.40% or more of 
national customer volume in multiply-listed equity and ETF options 
classes in a month as pursuant to Chapter XV, Section 2 of the NOM 
rules or adds 8 million shares of non-displayed liquidity (excluding 
retail price improvement orders) is equitably allocated and not 
unfairly discriminatory because it treats all members uniformly since 
it is available to all members and across all tapes. The

[[Page 70255]]

Exchange believes that the proposed change is reasonable because it 
does not unfairly burden competition, but rather it will promote 
competition among member organizations to provide more meaningful non-
displayed liquidity, specifically midpoint liquidity, on the Exchange 
to the benefit of investors and other members.
    NASDAQ also proposes to modify the credit for non-displayed orders 
(other than Supplemental Orders) in one additional way for Tape C 
securities only. Specifically, the credit of $0.0014 per share executed 
tier for midpoint orders if the member provides an average daily volume 
of less than 5 million shares through midpoint orders during the month 
is proposed to be modified by decreasing it to $0.0010 per share 
executed. The Exchange believes that this rebate modification 
applicable to Tape C securities only is reasonable, equitably allocated 
and not unfairly discriminatory. NASDAQ believes that the proposed 
decrease to the rebate is reasonable because it remains a higher rebate 
than the rebates provided to other non-displayed liquidity in Tape C 
securities and, thus, still incentivizes members to add midpoint 
liquidity over other forms of non-displayed liquidity in Tape C and 
represents only a modest decrease from the current rebate level. NASDAQ 
believes that the proposed credit is equitably allocated and not 
unfairly discriminatory because the rebate for this tier is available 
and applies uniformly to members that are eligible that provide such 
liquidity with regard to Tape C securities. Additionally, all members 
have incentives available and equal opportunity to earn higher rebates 
for adding more liquidity.
    NASDAQ believes that the modification of the existing rebate for 
Designated Retail Orders is consistent with an equitable allocation of 
a reasonable fee and not unfairly discriminatory. The existing rebate 
of $0.0033 per share will remain, but the rebate will increase slightly 
to $0.0034 per share executed if the member adds Customer and/or 
Professional liquidity in Penny Pilot Options and/or Non- Penny Pilot 
Options of 1.40% or more of national customer volume in multiply-listed 
equity and ETF options classes in a month as pursuant to Chapter XV, 
Section 2 of the NOM rules. The Exchange believes that the increase to 
the rebate under certain circumstances is reasonable because it is 
intended to incentivize liquidity for Designated Retail Orders and 
thereby improve overall liquidity in the marketplace. The modified 
rebate is equitably allocated and not unfairly discriminatory because 
it is available to all members that satisfy the criteria, regardless of 
the exchange upon which it is executed. The Exchange notes that rebates 
linked to options volume is not novel and that the Exchange has other 
tiers available for members based on options volume.\5\
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    \5\ See Exchange Rule 7018.
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    The Exchange also believes that the modification to another 
existing fee that is for Tape A and Tape B securities is reasonable, 
equitably allocated and not unfairly discriminatory. Specifically, the 
fee is [sic] and relates to both a DOT or LIST Order that executes in 
the NYSE opening or re-opening process, and is combined with a LIST 
Order that executes in the NYSEArca and NYSEAmex opening or re-opening 
process for purposes of a cap of $0.0005 per share executed not to 
exceed $5,000 per month. This applies if a member adds Customer and/or 
Professional liquidity in Penny Pilot Options and/or Non-Penny Pilot 
Options of 1.40% or more of national customer volume in multiply-listed 
equity and ETF options classes in a month as pursuant to Chapter XV, 
Section 2 of the NOM Rules. The Exchange believes that the cap on total 
charges is reasonable because it provides additional incentives for 
members to utilize the Exchange router to access liquidity at away 
markets, as well as provide additional incentives to add options 
liquidity to receive this routing benefit. This cap is also equitably 
allocated and not unfairly discriminatory because all members have an 
equal opportunity to receive this incentive should they choose to avail 
themselves of this benefit. As noted above, incentives and benefits 
that combine options and equities volume is [sic] not novel.
    NASDAQ also believes that, in connection with the rebate above, 
combining for Tape B securities the LIST order that executes in an 
exchange's re-opening process with the LIST order that executes in an 
exchange's opening process, as well as reducing the fee from $0.001 to 
$0.0005 per share executed in the NYSEArca re-opening process is 
reasonable, equitably allocated and not unfairly discriminatory. 
Specifically, the Exchange believes that reducing the fee for the 
NYSEArca re-opening process is reasonable because it incentivizes 
members to utilize the Exchange router to access liquidity at away 
markets. Additionally, this fee reduction is equitably allocated and 
not unfairly discriminatory because the reduced fee harmonizes the fee 
for a LIST order that executes in an exchange's re-opening process and 
applies to all members.
    Lastly, NASDAQ believes that the changes to the fees assessed for 
participation the Opening and Closing Crosses are consistent with an 
equitable allocation of a reasonable fee and not unfairly 
discriminatory. Specifically, the Exchange is proposing to increase the 
fee from $0.0003 to $0.0004 per share executed in the Opening and 
Closing Crosses. The Exchange believes that the fees are reasonable 
because supporting the crosses requires capital investment to maintain 
a system that facilitates an orderly auction process, and the proposed 
increases are designed to offset the costs the Exchange incurs in 
operating the crosses. Moreover, the proposed fees are equitably 
allocated because they apply a fee on all members that benefit from 
participation in the Opening and Closing Crosses, and are based on the 
type of order entered and contribution to market quality. Similarly, 
the proposed fees are not unfairly discriminatory because they are 
based on the type of order executed in the crosses and the benefit to 
market quality that such orders provide. NASDAQ believes that the 
proposal to increase the charges assessed for executions in the crosses 
is reasonable, equitably allocated and not unfairly discriminatory 
because the increased fees are identical in amount and apply to all 
members that elect to participate in the crosses and receive an 
execution. Moreover, NASDAQ does not believe that the increased fees 
will negatively impact participation in the crosses as current rates 
assessed for the open and closing cross continue to be materially less 
than the standard fee for accessing liquidity.

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

    NASDAQ does not believe that the proposed rule changes will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.\6\ 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. Because

[[Page 70256]]

competitors are free to modify their own fees in response, and because 
market participants may readily adjust their order routing practices, 
NASDAQ believes that the degree to which fee changes in this market may 
impose any burden on competition is extremely limited. In this 
instance, the changes to routing fees and credits do not impose a 
burden on competition because NASDAQ's routing services are optional 
and are the subject of competition from other exchanges and broker-
dealers that offer routing services, as well as the ability of members 
to develop their own routing capabilities. The slightly increased fees 
for execution in the NASDAQ crosses are reflective of a need to support 
and improve NASDAQ systems, which in turn benefit market quality and 
ultimately, competition. In sum, if the changes proposed herein are 
unattractive to market participants, it is likely that NASDAQ will lose 
market share as a result.
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    \6\ 15 U.S.C. 78f(b)(8).
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    Accordingly, NASDAQ does not believe that the proposed changes will 
impair the ability of members or competing order execution venues to 
maintain their competitive standing in the financial markets.

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

    The foregoing change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\7\ 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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    \7\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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-2014-108 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549.

    All submissions should refer to File Number SR-NASDAQ-2014-108. 
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 such 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-2014-108 and should be submitted on or before December 16, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-27845 Filed 11-24-14; 8:45 am]
BILLING CODE 8011-01-P