Document ID: SEC-2011-0296-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2011-03-04T05:00Z

[Federal Register Volume 76, Number 43 (Friday, March 4, 2011)]
[Notices]
[Pages 12171-12173]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-4901]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63984; File No. SR-NASDAQ-2011-027]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Make Clarifying Changes to Rule 7002 Concerning the Application and 
Collection of the Sales Fee

February 28, 2011.
    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 February 16, 2011, 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. 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 make clarifying changes to Rule 7002 
concerning the application and collection of the Sales Fee.
    The text of the proposed rule change is below. Proposed new 
language is italicized; proposed deletions are in brackets.

7002. Sales Fee

    A Sales Fee is assessed by Nasdaq to each member for sales of 
securities through Nasdaq transaction execution systems in the 
following circumstances:
    (a) When a sale in equity securities occurs with respect to which 
Nasdaq is obligated to pay a fee to the SEC under Section 31 of the 
Act;
    (b) When a sale in option securities occurs with respect to which 
Nasdaq is obligated to pay a fee to the SEC under Section 31 of the 
Act;
    (c) When a sell order in equity securities is routed for execution 
at a market other than Nasdaq, resulting in a covered sale on that 
market and an obligation of the routing facility of Nasdaq to pay the 
related sales fee of that market;
    (d) When a sell order in option securities is routed for execution 
at a market other than the Nasdaq Options Market, resulting in a 
covered sale on that market and an obligation of the

[[Page 12172]]

routing facility of Nasdaq to pay the related sales fee of that market; 
[with respect to which Nasdaq is obligated to pay a fee to the SEC 
under Section 31 of the Act.] The Sales Fee is collected indirectly 
from members through their clearing firms by a designated clearing 
agency, as defined by the Act, [NSCC] on behalf of Nasdaq. The amount 
of the Sales Fee is equal to (i) the Section 31 fee rate multiplied by 
(ii) the member's aggregate dollar amount of covered sales resulting 
from transactions through Nasdaq transaction execution systems during 
any computational period.
* * * * *

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 amendments to Rule 7002 to make clear the 
circumstances that trigger application of the Sales Fee, and to make 
other clarifying changes. Rule 7002 permits NASDAQ to collect a fee 
from its members for sales of securities through NASDAQ transaction 
execution systems with respect to which NASDAQ is obligated to pay a 
fee to the SEC pursuant to Section 31 of the Act \3\ and Rule 31, 
thereunder.\4\ Each national securities exchange and association is 
required to calculate the aggregate dollar amount of ``covered sales'' 
occurring on the exchange or through a member of the national 
securities association and to pay fees based on those covered sales to 
the Commission (``Section 31 fees''). A covered sale is a ``sale of a 
security, other than an exempt sale or a sale of a security future, 
occurring on a national securities exchange or by or through any member 
of a national securities association otherwise than on a national 
securities exchange.'' \5\ Pursuant to Rule 7002, NASDAQ assesses a 
member the Sales Fee for an executed sell order entered into NASDAQ 
transaction execution systems that results in a covered sale. The Sales 
Fee defrays the cost of the Section 31 fee triggered by the covered 
sale. In this regard, the Sales Fee assessed a member is equal to the 
Section 31 fee assessed by the Commission for the covered sale. 
Further, NASDAQ adjusts the Sales Fee in lock step with changes to the 
Section 31 fee made by the Commission.\6\ Assessing a sales fee is 
common practice among the national securities exchanges and 
associations.\7\
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    \3\ 15 U.S.C. 78ee.
    \4\ 17 CFR 240.31.
    \5\ 17 CFR 240.31(a)(6).
    \6\ NASDAQ OMX issues Regulatory Alerts to provide its equities 
and options markets' members with notice of Sales Fee changes. See 
e.g., http://www.nasdaqtrader.com/TraderNews.aspx?id=ERA2011-01.
    \7\ See e.g., CBOE Fees Schedule (January 3, 2011), Item 6 
``Sales Value Fee,'' ISE Rule 212, NYSE Rule 440H, and NYSE Amex 
Rule 393.
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    As noted above, the Sales Fee defrays the cost of the Section 31 
fee. The Sales Fee is triggered by the fulfillment of a members [sic] 
sell order in equity or options securities entered into NASDAQ 
transaction execution systems that results in a covered sale. If the 
member's sell order is fulfilled on NASDAQ's equity or options trading 
markets, NASDAQ incurs a Section 31 fee obligation. Sell orders in 
equity or options securities entered into NASDAQ transaction execution 
systems that are routed to another market for execution, however, do 
not result in a covered sale on NASDAQ. Execution of such routed orders 
is facilitated by NASDAQ's routing brokers,\8\ which act as the selling 
member for a routed order on the away market on behalf of the NASDAQ 
member. Such routed sell orders result in a covered sale on the away 
market, which incurs a Section 31 fee obligation. Like NASDAQ, the away 
market assesses a sales fee on the member that entered the sell order, 
in this case NASDAQ Execution Services or NASDAQ Options Services, to 
defray the cost of the Section 31 fee obligation. In turn, NASDAQ 
assesses its member, the original selling party, a Sales Fee pursuant 
to Rule 7002 to defray the cost of the Section 31 fee passed on by the 
away exchange pursuant to its sales fee. As such, NASDAQ's Sales Fee 
offsets the sales fee it is assessed by the away market, the result of 
which is to place the parties involved in the transaction in the same 
position as if the covered sale had occurred on NASDAQ.
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    \8\ NASDAQ Execution Services and NASDAQ Options Services are 
NASDAQ's routing brokers for equity and option securities, 
respectively. See Rule 4758(b) and NOM Rules Chapter VI, Section 
11(e).
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    In light of the varying means by which a Sales Fee is incurred by 
members, as described above, NASDAQ believes that a more detailed 
description of the circumstances that trigger the Sales Fee is 
warranted. Accordingly, the new rule language proposed by NASDAQ 
expressly discusses covered sales in both equity and option securities. 
In addition, the proposed new rule language includes a description of 
sell orders entered into NASDAQ transaction execution systems that 
result in a covered sale on another exchange, expressly discussing the 
fee incurred by NASDAQ and the application of the Sales Fee in such 
circumstances.
    NASDAQ also proposes deleting reference to the NSCC as the party 
that collects the Sales Fee and replacing it with the term ``designated 
clearing agency,'' which is defined by rules promulgated under the Act 
as a ``clearing agency registered under section 17A of the Act * * * 
that clears and settles covered sales or covered round turn 
transactions.'') \9\ NASDAQ is adopting the term ``designated clearing 
agency'' because it encompasses a broader range of clearing agencies 
than is currently noted under the rule. In this regard, Rule 7002 
discusses the process by which the Sales Fee is collected from members 
for equity covered sales, noting that the fee is collected indirectly 
from members through their clearing firms by NSCC. NSCC is a designated 
clearing agency that clears transactions in equity securities. NASDAQ 
employs NSCC to collect the Sale Fee from members arising from their 
covered sales in equity securities. Sales Fees arising from options 
covered sales, however, are collected from members by the Options 
Clearing Corporation, another designated clearing agency that clears 
option securities.\10\ Consistent with the other changes proposed 
herein, NASDAQ believes the rule should be updated to more fully 
describe the parties and processes involved in collection of the Sales 
Fee. Accordingly, NASDAQ proposes to use a term defined by the rules 
promulgated under the Act,\11\ which most accurately reflects all 
parties NASDAQ employs to collect the Sales Fee from its members.
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    \9\ 17 CFR 240.31(a)(9).
    \10\ In addition to clearing transactions in options, the 
Options Clearing Corporation also clears security futures. See 
http://www.optionsclearing.com.
    \11\ Supra note 9.

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[[Page 12173]]

2. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with 
Section 6(b)(4) of the Act \12\ 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 it does not unfairly discriminate between 
customers, issuers, brokers or dealers. The proposed clarifying 
language does not change the application and assessment of the Sales 
Fee under the rule, but rather provides greater detail on the 
transactions that trigger the fee and the process by which the fee is 
collected. NASDAQ applies Rule 7002 uniformly to all members' sell 
orders entered into NASDAQ's transaction execution systems resulting in 
covered sales.
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    \12\ 15 U.S.C. 78f(b)(4).
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    NASDAQ also believes the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\13\ in general and with Section 
6(b)(5) of the Act,\14\ in particular, which requires that the rules of 
an exchange be designed to prevent fraudulent and manipulative acts and 
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 the proposed amended rule text provides members 
with more detail regarding the circumstances under which NASDAQ 
assesses a Sales Fee, and the process by which the fee is collected. As 
such, the proposed changes will help avoid member confusion and foster 
better understanding of the application of the rule. Accordingly, 
NASDAQ believes the proposed rule change will promote just and 
equitable principles of trade, remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and 
protect investors and the public interest.
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    \13\ 15 U.S.C. 78f.
    \14\ 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 establishes or changes a 
due, fee or other charge applicable only to a member, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \15\ and Rule 19b-
4(f)(2) thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(2).
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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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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-2011-027 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-2011-027. 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, 100 F 
Street, NE., Washington, DC 20549, 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 
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-2011-027, and should be submitted on or before March 25, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-4901 Filed 3-3-11; 8:45 am]
BILLING CODE 8011-01-P