Document ID: SEC-2014-1616-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The NASDAQ Stock Market, LLC
Posted Date: 2014-09-26T04:00Z

[Federal Register Volume 79, Number 187 (Friday, September 26, 2014)]
[Notices]
[Pages 57995-57996]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-22994]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73182; File No. SR-NASDAQ-2014-094]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Extend the Pilot Period for the Retail Price Improvement Program 
Until December 31, 2014

September 23, 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 September 11, 2014, The NASDAQ Stock Market LLC (``NASDAQ'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change as described in Items I and II 
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

    The Exchange proposes to extend the pilot period for the Exchange's 
Retail Price Improvement (``RPI'') Program, which is set to expire on 
September 30, 2014, for three months, to expire on December 31, 2014.
    The text of the proposed rule change is available at http://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, the self-regulatory organization 
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 III 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 purpose of this filing is to extend the pilot period of the RPI 
Program,\3\ currently scheduled to expire on September 30, 2014, for 
three months, to expire on December 31, 2014.
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    \3\ Securities Exchange Act Release No. 68937 (February 15, 
2013), 78 FR 12397 (February 22, 2013) (``RPI Approval Order'') (SR-
NASDAQ-2012-129).
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Background
    In February 2013, the Commission approved the RPI Program on a 
pilot basis.\4\ Initially the pilot period of the RPI Program was set 
to expire on March 28, 2014, however, the pilot period was extended for 
six months and is scheduled to expire on September 30, 2014.\5\ The 
Program is designed to attract retail order flow to the Exchange, and 
allow such order flow to receive potential price improvement. The 
Program is currently limited to trades occurring at prices equal to or 
greater than $1.00 per share. Under the Program, a new class of market 
participant called a Retail Member Organization (``RMO'') is eligible 
to submit certain retail order flow (``Retail Orders'')\6\ to the 
Exchange. NASDAQ members (``Members'') are permitted to provide 
potential price improvement for Retail Orders in the form of non-
displayed interest that is priced more aggressively than the Protected 
National Best Bid or Offer (``Protected NBBO'').\7\
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    \4\ See id.
    \5\ Securities Exchange Act Release No. 71826 (March 28, 2014), 
79 FR 18597 (April 2, 2014) (SR-NASDAQ-2014-030).
    \6\ A ``Retail Order'' is defined in NASDAQ Rule 4780(a)(2), in 
part, as ``an agency or riskless principal order that originates 
from a natural person and is submitted to Nasdaq by a Retail Member 
Organization, provided that no change is made to the terms of the 
order with respect to price (except in the case that a market order 
is changed to a marketable limit order) or side of market and the 
order does not originate from a trading algorithm or any other 
computerized methodology.''
    \7\ The term Protected Quotation is defined in Chapter XII, Sec. 
1(19) and has the same meaning as is set forth in Regulation NMS 
Rule 600(b)(58). The Protected NBBO is the best-priced protected bid 
and offer. Generally, the Protected NBBO and the national best bid 
and offer (``NBBO'') will be the same. However, a market center is 
not required to route to the NBBO if that market center is subject 
to an exception under Regulation NMS Rule 611(b)(1) or if such NBBO 
is otherwise not available for an automatic execution. In such case, 
the Protected NBBO would be the best-priced protected bid or offer 
to which a market center must route interest pursuant to Regulation 
NMS Rule 611.
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    The Program was approved by the Commission on a pilot basis running 
one-year from the date of implementation.\8\ The Commission approved 
the Program on February 15, 2013.\9\ The Exchange implemented the 
Program on March 28, 2013.\10\ The Commission extended the pilot for an 
additional six months at the conclusion of the initial pilot 
period.\11\ Thus, the pilot period for the Program is scheduled to end 
on September 30, 2014.
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    \8\ See RPI Approval Order, supra note 3 at 12397.
    \9\ Id.
    \10\ Securities Exchange Act Release No. 69308 (April 4, 2013), 
78 FR 21663 (April 11, 2013) (SR-NASDAQ-2013-057).
    \11\ Supra note 5.
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Proposal To Extend the Operation of the Program
    The Exchange established the RPI Program in an attempt to attract 
retail order flow to the Exchange by potentially providing price 
improvement to such order flow. The Exchange believes that the Program 
promotes competition for retail order flow by allowing Exchange members 
to submit Retail Price Improvement Orders (``RPI Orders'') \12\ to 
interact with Retail Orders. Such competition has the ability to 
promote efficiency by facilitating the price discovery process and 
generating additional investor interest in trading securities, thereby 
promoting capital formation. The Exchange believes that extending the 
pilot is appropriate because it will allow the Exchange and the 
Commission additional time to analyze data regarding the Program that 
the Exchange has committed to provide.\13\ As such, the Exchange 
believes that it is appropriate to extend the current operation of the 
Program.\14\ Through this filing, the Exchange seeks to extend the 
current pilot period of the Program until December 31, 2014.
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    \12\ A Retail Price Improvement Order is defined in NASDAQ Rule 
4780(a)(3), in part, as consisting of ``non-displayed liquidity on 
NASDAQ that is priced better than the Protected NBBO by at least 
$0.001 and that is identified as such.''
    \13\ See RPI Approval Order, supra note 3 at 12401.
    \14\ Concurrently with this filing, the Exchange has submitted a 
request for an extension of the exemption under Regulation NMS Rule 
612 previously granted by the Commission that permits it to accept 
and rank the RPI orders in sub-penny increments. See Letter from 
John Yetter, Deputy General Counsel, The NASDAQ Stock Market LLC to 
Elizabeth M. Murphy[sic], Secretary, Securities and Exchange 
Commission dated March 24, 2014[sic].
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2. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\15\ in

[[Page 57996]]

general, and with Section 6(b)(5) of the Act,\16\ in particular, in 
that it 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 general to protect 
investors and the public interest.
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    \15\ 15 U.S.C. 78f.
    \16\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that extending the pilot period for the RPI 
Program is consistent with these principles because the Program is 
reasonably designed to attract retail order flow to the exchange 
environment, while helping to ensure that retail investors benefit from 
the better price that liquidity providers are willing to give their 
orders. Additionally, as previously stated, the competition promoted by 
the Program may facilitate the price discovery process and potentially 
generate additional investor interest in trading securities. The 
extension of the pilot period will allow the Commission and the 
Exchange to continue to monitor the Program for its potential effects 
on public price discovery, and on the broader market structure.

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

    The Exchange 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. The 
proposed rule change extends an established pilot program for three 
months, thus allowing the RPI Program to enhance competition for retail 
order flow and contribute to the public price discovery process.

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 rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \17\ and Rule 19b-4(f)(6) \18\ thereunder 
because the proposal does not: (i) Significantly affect the protection 
of investors or the public interest; (ii) impose any significant burden 
on competition; and (iii) by its terms, become operative for 30 days 
from the date on which it was filed, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest, provided that the Exchange has given the 
Commission 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, or such shorter time as designated by the Commission.\19\
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f)(6).
    \19\ In addition, Rule 19b-4(f)(6)(iii) requires the Exchange to 
give the Commission written notice of the Exchange's 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, or such shorter time as 
designated by the Commission. The Exchange has satisfied this 
requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally may 
not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) \20\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange has requested that the 
Commission waive the 30-day operative delay period. The Commission 
believes that waiver of the 30-day operative delay period is consistent 
with the protection of investors and the public interest because waiver 
would allow the RPI Program to continue uninterrupted. Accordingly, the 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest, 
and designates the proposed rule change to be operative upon filing 
with the Commission.\21\
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    \20\ 17 CFR 240.19b-4(f)(6)(iii).
    \21\ For purposes only of waiving the operative delay for this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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 necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.\22\
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    \22\ 15 U.S.C. 78s(b)(3)(C).
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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-2014-094 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-2014-094. 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-2014-094 and should 
be submitted on or before October 17, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-22994 Filed 9-25-14; 8:45 am]
BILLING CODE 8011-01-P