80 FR 50678 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Nasdaq Rules 7014 and 7018

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 161 (August 20, 2015)

[Federal Register Volume 80, Number 161 (Thursday, August 20, 2015)]
[Notices]
[Pages 50678-50681]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-20545]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75701; File No. SR-NASDAQ-2015-099]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Nasdaq Rules 7014 and 7018

August 14, 2015.
    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 12, 2015, The NASDAQ Stock Market

[[Page 50679]]

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 the 
Substance of the Proposed Rule Change

    Nasdaq is proposing changes to the national best bid or best offer 
(``NBBO'') program (``NBBO Program'') in Nasdaq Rule 7014, as well as 
proposed changes to amend Nasdaq Rule 7018, governing fees and credits 
assessed for execution and routing of securities.
    The text of the proposed rule change is available at 
nasdaq.cchwallstreet.com at Nasdaq 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 proposes to amend a qualification to receive a certain 
credit for execution and routing of orders in Nasdaq Rule 7018. 
Specifically, the proposed rule change applies to qualification to 
receive a credit in Rule 7018(a)(1), (2) and (3) and, respectively, the 
securities listed on Nasdaq (``Tape C''), the securities listed on the 
New York Stock Exchange (``NYSE'') (``Tape A'') and on exchanges other 
than Nasdaq and NYSE (``Tape B'') (collectively, the ``Tapes'').
    Currently, a $0.0029 per share executed credit is provided to 
member firms that add Customer,\3\ Professional,\4\ Firm,\5\ Non-Nasdaq 
Options Market (``NOM'') market maker \6\ and/or broker-dealer \7\ 
liquidity in Penny Pilot Options \8\ and/or Non-Penny Pilot Options \9\ 
of 1.25% or more of total industry average daily volume (``ADV'') in 
the customer clearing range for equity and ETF option contracts per 
day, in a month on NOM. The Exchange proposes to adjust the criteria 
from 1.25% to 1.15% or more of total industry ADV. The Exchange 
believes the revised criteria to receive the credit will provide a 
greater incentive to Nasdaq market participants to also provide 
liquidity in NOM.
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    \3\ As defined by NASDAQ Options Rules, Chapter XV.
    \4\ Id.
    \5\ Id.
    \6\ Id.
    \7\ Id.
    \8\ The Penny Pilot allows market participants to quote in penny 
increments in certains series of options classes and is designed to 
narrow the average quoted spreads in all classes in the Pilot, which 
may result in customers and other market participants to [sic] trade 
options at better prices. See NASDAQ Options Rules, Chapter XV, Sec. 
2(1).
    \9\Id.
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    The Exchange also proposes to amend the NBBO Program under Nasdaq 
Rule 7014(g). The NBBO Program provides a per share executed rebate 
\10\ with respect to all other displayed orders (other than Designated 
Retail Orders, as defined in Nasdaq Rule 7018) in securities priced at 
$1 or more per share that provide liquidity and establish the NBBO. 
Nasdaq is proposing to harmonize the qualification criteria a member 
firm must meet to receive a rebate under the program for all three 
Tapes. Currently, a member firm may qualify for a $0.0002 per share 
executed NBBO Program rebate in the securities of all three Tapes 
[sic]: (1) Executes shares of liquidity provided in all securities 
through one or more of its Nasdaq Market Center MPIDs that represents 
0.475% or more of Consolidated Volume during the month; or (2) Adds NOM 
Market Maker liquidity, as defined in Chapter XV, Section 2 of the 
Nasdaq Options Market rules, in Penny Pilot Options and/or Non-Penny 
Pilot Options above 0.90% of total industry customer equity and ETF 
option ADV contracts per day in a month. A member firm may qualify for 
a $0.0004 per share executed NBBO Program rebate in Tape A securities 
in lieu of the $0.0002 per share executed rebate if it executes shares 
of liquidity provided in all securities through one or more of its 
Nasdaq Market Center MPIDs that represents 0.50% or more of 
Consolidated Volume during the month. The Exchange proposes to increase 
the level of Consolidated Volume required to qualify for a $0.0002 per 
share executed rebate from 0.475% to 0.50%, which is the level of 
Consolidated Volume required to receive the $0.0004 per share executed 
rebate. As a consequence of increasing the required level of 
Consolidated Volume to receive the $0.0002 per share executed rebate to 
that of the current $0.0004 per share executed rebate in Tape A 
securities, member firms will no longer have an option to qualify for a 
$0.0002 per share executed rebate in Tape A securities. In addition, 
the Exchange is extending the optional NOM-based qualification 
criteria, currently only available for the $0.0002 NBBO program rebate, 
to rebates of $0.0004 in Tape A securities. As a consequence of these 
changes, the same qualification criteria will apply to all three Tapes, 
with only the amount of rebate provided differing. As such, the 
Exchange is proposing to integrate the current rule text under Rule 
7014(g) that sets forth the qualification requirements for each NBBO 
Program rebate into a single requirement under the rule.
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    \10\ The rebate is provided in addition to any rebate or credit 
payable under Nasdaq Rule 7018(a) and the Investor Support Program 
and Qualified Market Maker Progam under Nasdaq Rule 7014.
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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,\11\ in general, and with 
Sections 6(b)(4) and 6(b)(5) of the Act,\12\ 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 designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, 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; and are not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers.
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    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(4) and (5).
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    Nasdaq believes that the proposed changes to Nasdaq Rule 
7018(a)(1), (2) and (3) to amend a qualification to receive the $0.0029 
per share executed credit applied to securities of all three Tapes 
provided to member firms that add Customer, Professional, Firm, Non-NOM 
market maker and/or broker-dealer liquidity in Penny Pilot Options and/
or Non-Penny Pilot Options of 1.15% (decreasing from current 1.25%)

[[Page 50680]]

or more of total industry ADV in the customer clearing range for equity 
and ETF option contracts per day, in a month on NOM is reasonable 
because the Exchange believes the revised criteria to receive the 
credit will provide a greater incentive to Nasdaq market participants 
to also provide liquidity in NOM. The Exchange also believes that the 
proposed rule changes [sic] is equitable and not unfairly 
discriminatory because the amended qualification to receive the credit 
is applied uniformly to securities of all three Tapes and it is 
immediately available to all market participants that qualify.
    The Exchange believes the proposed changes that harmonize the 
criteria required to qualify for a rebate under the NBBO Program are 
reasonable because they will continue to provide incentives to market 
participants to improve the NBBO and increase their participation on 
the Exchange. In particular, increasing the Consolidated Volume 
required to qualify for a $0.0002 per share executed rebate under Rule 
7014(g)(1) from 0.475% to 0.5% represents a modest increase to the 
requirement in return for the rebate, which the Exchange believes will 
continue to provide incentive to market participants with attainable 
criteria. Moreover, the Exchange believes that it is reasonable to 
apply a higher Consolidated Volume requirement to receive a rebate in 
Tape B and C securities notwithstanding that the amount of the rebate 
is lower than that of Tape A because the market in terms of setting the 
NBBO in Tape B and C securities is sufficiently robust to support 
higher requirements. As such, the Exchange believes that requiring 
member firms to provide more market-improving Consolidated Volume in 
return for the rebate is reasonable. The Exchange also believes that 
extending the NOM-based means by which a member firm may qualify for a 
rebate under Rule 7014(g)(2) to the $0.0004 rebate in Tape A securities 
under the program is reasonable because it will provide market 
participants another means by which they may qualify for a rebate, 
which is [sic] currently available as an option to qualify for the 
$0.0002 rebate.
    Additionally, Nasdaq believes the proposed changes to Rule 7014(g) 
are equitable and not unfairly discriminatory because all members that 
qualify under the conditions described above are eligible to receive 
the rebate under the NBBO Program. The NBBO Program is intended to 
encourage members to add liquidity at prices that benefit all Nasdaq 
market participants and the Nasdaq market itself, and enhance price 
discovery. Also, the Exchange believes that increasing the level of 
Consolidated Volume required to receive a rebate in Tape B and C 
securities under the NBBO Program is equitable and not unfairly 
discriminatory because it is the same level of Consolidated Volume 
currently required to qualify for a $0.0004 per share executed rebate 
in Tape A securities. As such, all market participants will receive a 
rebate if they meet the same Consolidated Volume requirement. The 
Exchange believes that making the NOM-based qualifying criteria of Rule 
7014(g)(2) available to member firms in Tape A securities is an [sic] 
equitable and not unfairly discriminatory because all member firms will 
have the option to qualify under this criteria. In sum, the Exchange 
believes that these proposed rule changes are equitable and not 
unfairly discriminatory because they apply uniform criteria to all 
member firms in return for a rebate from the Exchange, the rate at 
which is set by the Exchange based on the Tape of the security in which 
it seeks to incentivize market participants to improve the NBBO.
    Finally, 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. 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. Nasdaq believes that the proposed rule change 
reflects this competitive environment because it is designed, in part, 
to increase rebates for members that enhance the quality of Nasdaq's 
market.

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.\13\ 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 competitors are free to modify their own fees in 
response, and because market participants may readily adjust their 
order routing practices [sic].
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    \13\ 15 U.S.C. 78f(b)(8).
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    Nasdaq believes that the degree to which fee changes in this market 
may impose any burden on competition is extremely limited or even non-
existent. In this instance, the changes to Nasdaq Rules 7014 and 7018 
do not impose a burden on competition because the NBBO Program, as 
amended, still offers economically advantageous credits and is 
reflective of the need for exchanges to offer and to let the financial 
incentives to attract order flow evolve, and the change to one of the 
qualifications to receive a credit in Nasdaq Rule 7018(a)(1), (2) and 
(3) does not impose a burden on competition because Nasdaq's execution 
services are completely voluntary and subject to extensive competition 
both from other exchanges and from off-exchange venues. While the 
Exchange does not believe that the proposed changes will result in any 
burden on competition, if the changes proposed herein are unattractive 
to market participants it is likely that Nasdaq will lose market share 
as a result.

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.\14\ 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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    \14\ 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:

[[Page 50681]]

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2015-099 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-2015-099. 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 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-2015-
099, and should be submitted on or before September 10, 2015.\15\
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    \15\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-20545 Filed 8-19-15; 8:45 am]
BILLING CODE 8011-01-P