Document ID: SEC-2014-1502-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The NASDAQ Stock Market LLC
Posted Date: 2014-09-09T04:00Z

[Federal Register Volume 79, Number 174 (Tuesday, September 9, 2014)]
[Notices]
[Pages 53473-53475]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-21360]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72966; File No. SR-NASDAQ-2014-083]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Common Ownership

September 3, 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 August 29, 2014 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 proposes to harmonize the treatment of the aggregation of 
activity of affiliated members for the purposes of assessing charges or 
credits.
    The Exchange requests that this filing become operative on December 
1, 2014.
    The text of the proposed rule change is set forth below. Proposed 
new language is in italics; deleted text is in brackets.
* * * * *

7027. Aggregation of Activity of Affiliated Members

    (a) No Change
    (b) No Change
    (c) For purposes of this Rule 7027, the term[s set forth below 
shall have the following meanings:]
    [(1) An] ``affiliate'' of a member shall mean any [wholly owned 
subsidiary, parent, or sister of the ]member under 75% common ownership 
or control of that [is also a ]member.
    [(2) A ``wholly owned subsidiary'' shall mean a subsidiary of a 
member, 100% of whose voting stock or comparable ownership interest is 
owned by the member, either directly or indirectly through other wholly 
owned subsidiaries.]
    [(3) A ``parent'' shall mean an entity that directly or indirectly 
owns 100% of the voting stock or comparable ownership interest of a 
member.]
    [(4) A ``sister'' shall mean an entity, 100% of whose voting stock 
or comparable ownership interest is owned by a parent that also owns 
100% of the voting stock or comparable ownership interest of a member.]
* * * * *

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 aspects 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 to amend Nasdaq Rule 7027 to harmonize 
the treatment of the aggregation of activity of affiliated members for 
the purposes of assessing charges or credits by making it consistent 
with the definition of ``Common Ownership'' in Chapter XV which relates 
to options pricing. The aggregation suggested by these rules

[[Page 53474]]

impacts the Rule 7000 series where the charge assessed, or credit 
provided, by Nasdaq depends upon the volume of a member's activity. A 
member may request that Nasdaq aggregate its activity with the activity 
of its affiliates.\3\ Therefore, for purposes of applying any provision 
of the Rule 7000 series where the charge assessed, or credit provided, 
by Nasdaq depends upon the volume of a member's activity, references to 
an entity (including references to a ``member'', a ``participant'', or 
a ``Nasdaq Quoting Market Participant'') shall be deemed to include the 
entity and its affiliates that have been approved for aggregation.\4\
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    \3\ See Rule 7027(a)(1).
    \4\ See Rule 7027(b).
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    Currently, Nasdaq Rule 7027 states that for purposes of applying 
any provision of the Rule 7000 Series where the charge assessed, or 
credit provided, by Nasdaq depends upon the volume of a member's 
activity, a member may request that Nasdaq aggregate its activity with 
the activity of its affiliates.\5\ The rule further stipulates that an 
affiliate is considered to be a wholly-owned subsidiary, parent, or 
sister of the member where the member holds 100 percent of the voting 
stock or other comparable ownership interest, either directly or 
indirectly, in the wholly owned subsidiary, parent, or sister member. 
The Exchange proposes to amend Rule 7027 to conform that rule to that 
of the NASDAQ Options Market LLC (``NOM'') at Chapter XV so that 
equities and options members are treated consistently with respect to 
affiliations of members for purposes of pricing. NOM's Rule provides, 
``Common Ownership'' shall mean Participants under 75 percent common 
ownership or control.\6\ The Exchange desires to take the current 
standard of 100 percent for equities members and align that standard to 
the 75 percent standard for Options Participants.
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    \5\ An ``affiliate'' of a member shall mean any wholly owned 
subsidiary, parent, or sister of the member that is also a member. 
See Rule 7027(c)(1). A ``wholly owned subsidiary'' shall mean a 
subsidiary of a member, 100 percent of whose voting stock or 
comparable ownership interest is owned by the member, either 
directly or indirectly through other wholly owned subsidiaries. See 
Rule 7027(c)(2). A ``parent'' shall mean an entity that directly or 
indirectly owns 100 percent of the voting stock or comparable 
ownership interest of a member. See Rule 7027(c)(3). A ``sister'' 
shall mean an entity, 100 percent of whose voting stock or 
comparable ownership interest is owned by a parent that also owns 
100 percent of the voting stock or comparable ownership interest of 
a member. See Rule 7027(c)(4).
    \6\ See NOM Rules at Chapter XV.
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    Pursuant to Rule 7027(a)(1), a member requesting aggregation of 
affiliate activity shall be required to certify to Nasdaq the affiliate 
status of entities whose activity it seeks to aggregate prior to 
receiving approval for aggregation, and shall be required to inform 
Nasdaq immediately of any event that causes an entity to cease to be an 
affiliate. Nasdaq shall review available information regarding the 
entities, and reserves the right to request additional information to 
verify the affiliate status of an entity. Nasdaq shall approve a 
request unless it determines that the certification is not accurate. 
Pursuant to Rule 7027(a)(2), if two or more members become affiliated 
on or prior to the sixteenth day of a month, and submit the required 
request for aggregation on or prior to the twenty-second day of the 
month, an approval of the request by Nasdaq shall be deemed to be 
effective as of the first day of that month. If two or more members 
become affiliated after the sixteenth day of a month, or submit a 
request for aggregation after the twenty-second day of the month, an 
approval of the request by Nasdaq shall be deemed to be effective as of 
the first day of the next calendar month.
    The Exchange intends to amend the NOM options rules to similarly 
require the certifications and approvals as noted herein. The Exchange 
intends that this rule change and the options rule changes noted herein 
harmonize the process by which the Exchange gathers information related 
to affiliated members and then in turn, for purposes of pricing, treat 
both equities and options members alike with respect to the application 
of aggregated pricing.
    The Exchange proposes to apply this pricing as of December 1, 2014 
and issue a Trader Alert to its members.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \7\ in general, and with Sections 6(b)(4) and (b)(5) of 
the Act,\8\ in particular, in that the proposal will harmonize the 
treatment of the aggregation of activity of affiliated members for the 
purposes of assessing charges or credits with the treatment of the 
aggregation of activity of affiliated members in relation to options 
pricing so that more members will be able to benefit from lower charges 
and/or increased credits. The proposal will further serve to reduce 
disparity of treatment between members with regards to the pricing of 
different services and reduce any potential for confusion in how 
activity can be aggregated. The Exchange believes the rule change 
avoids disparate treatment of members that have divided their various 
business activities between separate corporate entities as compared to 
members that operate those business activities within a single 
corporate entity. By way of example, subject to appropriate information 
barriers, many firms that are members of the Exchange operate both a 
market making desk and a public customer business within the same 
corporate entity. In contrast, other members may be part of a corporate 
structure that separates those business lines into different corporate 
affiliates, either for business, compliance or historical reasons, and 
those affiliates are not also considered wholly owned affiliates. Those 
corporate affiliates, in turn, are required to maintain separate 
memberships with the Exchange. Absent the proposed change, such 
corporate affiliates that cannot be considered wholly owned but are 
under common control would not receive the same treatment as members 
who are considered wholly owned affiliates. Accordingly, the Exchange 
believes that its proposed policy is fair and equitable, and not 
unreasonably discriminatory in permitting both wholly owned and common 
control. In addition to ensuring fair and equal treatment of its 
members, the Exchange does not want to create incentives for its 
members to restructure their business operations or compliance 
functions simply due to the Exchange's pricing structure.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that this proposed rule change may enable 
additional equity members to aggregate pricing because the standard 
will be reduced from 100 percent to 75 percent for these members. There 
are no current equity members that would no longer be entitled to the 
aggregation as a result of this rule change. Further, the Exchange 
seeks to harmonize the manner in which aggregated pricing is treated on 
its three markets, NASDAQ, NASDAQ OMX PHLX LLC and NASDAQ OMX BX, Inc. 
and as between equities and options, by developing one standard for 
aggregated pricing and one method for collecting such information on 
aggregated pricing to ensure proper validation of that pricing in the 
manner in which it is occurring on Nasdaq for equity members today.
    Today, BATS Exchange, Inc. (``BATS'') equity members are permitted 
to aggregate share volume calculations for wholly owned affiliates. 
BATS allows a member to aggregate volume with other members that 
control, are controlled by, or are under common

[[Page 53475]]

control with such member.\9\ To the extent two or more affiliated 
companies maintain separate Nasdaq memberships and can demonstrate 
their affiliation by showing they control, are controlled by, or are 
under common control with each other, Nasdaq will permit such members 
to count overall volume of the affiliates in calculating volume. BATS 
does not specify a specific percentage for such aggregation in its 
rule. Nasdaq is specifying 75 percent, similar to the percentage 
applied to Options Participants.
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    \9\ See Securities Exchange Act Release No. 64211 (April 6, 
2011), 76 FR 20414 (April 12, 2014) [sic] (SR-BATS-2011-012).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq does not believe that the proposed rule change will impose 
any burden on competition not necessary or appropriate in furtherance 
of the purposes of the Act. The Exchange is merely seeking to harmonize 
the treatment of the aggregation of activity of affiliated members for 
the purposes of assessing charges or credits with those rules contained 
in Chapter XV which relate to options pricing. The Exchange also 
believes that certain market participants may be able to aggregate 
because the standard is decreasing from 100 percent to 75 percent.

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

    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)(ii) of the Act \10\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(a)(ii).
    \11\ 17 CFR 240.19b-4(f)(6).
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    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: (i) 
necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved. The Exchange has 
provided the Commission written notice of its intent to file the 
proposed rule change, along with a brief description and text of the 
proposed rule change, at least five business days prior to the date of 
filing of the proposed rule change.

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-2014-083 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2014-083. 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-2014-083 and should 
be submitted on or before September 30, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O' Neill,
Deputy Secretary.
[FR Doc. 2014-21360 Filed 9-8-14; 8:45 am]
BILLING CODE 8011-01-P