81 FR 1249 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 7014

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 6 (January 11, 2016)

[Federal Register Volume 81, Number 6 (Monday, January 11, 2016)]
[Notices]
[Pages 1249-1251]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-00255]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76826; File No. SR-NASDAQ-2015-164]


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

January 5, 2016.
    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 December 23, 2015, 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 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 is proposing to make two changes to Rule 7014.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaq.cchwallstreet.com, at the principal office of 
the Exchange, 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 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 make two changes to Rule 7014. Rule 
7014 provides the Exchange's Market Quality Incentive Programs. Nasdaq 
currently provides the following incentive programs under the rule: 
Investor Support Program, Qualified Market Maker Program, Lead Market 
Maker Program, and NBBO Program. The Exchange is proposing to add new 
rule text concerning what is not considered eligible displayed 
liquidity under the Investor Support Program and to add clarifying rule 
text to the NBBO Program.
    First, the Exchange is adding new rule text to the Investor Support 
Program (``ISP'') under rule 7014(b) to state that Designated Retail 
Orders \3\ are not included in the number of shares of displayed 
liquidity. The Investor Support Program enables Nasdaq member firms to 
earn a monthly fee credit for providing displayed liquidity to Nasdaq. 
Currently, there are three rates that a member firm may qualify for 
based on the execution price of the displayed liquidity and whether the 
shares of displayed liquidity were entered through an ISP-designated 
port. Subsequent to the adoption of the ISP Program,\4\ Nasdaq adopted 
a new program under Rule 7018 \5\ to use financial incentives to 
encourage greater participation. The new program adopted liquidity 
provider credit tiers for orders designated by a member firm as 
Designated Retail Orders. Currently, Nasdaq has a single liquidity 
provider credit tier of $0.0034 per share executed provided for orders 
designated by a member firm as Designated Retail Orders.\6\ Nasdaq has 
excluded Designated Retail Orders from the calculation of credits 
available under the NBBO Program, QMM Program, and the ISP Program, 
since those orders already receive a significant credit under Rule 
7018(a). Similarly, Nasdaq excludes Designated Retail Orders from the 
credits provided for providing displayed quotes/orders for securities 
of all three tapes.\7\ Unlike the NBBO Program and QMM Program rules, 
which reflect that Designated Retail Orders are not included in those 
programs' credits, Nasdaq neglected to amend the ISP Program rules to 
state that Designated Retail Orders are not considered in the 
calculation of the ISP credit. In adopting the Designated Retail Order 
credit tiers, Nasdaq intended to also exclude Designated Retail Orders 
from the calculation of credits available under the ISP Program, 
consistent with the other programs under the rule. Thus, Nasdaq is 
proposing to state in the rule that Designated Retail Orders are not 
included in the number of shares of displayed liquidity used to 
calculate credit received under the ISP Program.
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    \3\ A ``Designated Retail Order'' is an agency or riskless 
principal order that meets the criteria of FINRA Rule 5320.03 and 
that originates from a natural person and is submitted to Nasdaq by 
a member that designates it pursuant to Rule 7018, provided that no 
change is made to the terms of the order with respect to price or 
side of market and the order does not originate from a trading 
algorithm or any other computerized methodology. An order from a 
``natural person'' can include orders on behalf of accounts that are 
held in a corporate legal form--such as an Individual Retirement 
Account, Corporation, or a Limited Liability Company--that has been 
established for the benefit of an individual or group of related 
family members, provided that the order is submitted by an 
individual. Members must submit a signed written attestation, in a 
form prescribed by Nasdaq, that they have implemented policies and 
procedures that are reasonably designed to ensure that substantially 
all orders designated by the member as ``Designated Retail Orders'' 
comply with these requirements. Orders may be designated on an 
order-by-order basis, or by designating all orders on a particular 
order entry port as Designated Retail Orders. See Rule 7018.
    \4\ See Securities Exchange Act Release No. 63270 (November 8, 
2010), 75 FR 69489 (November 12, 2010) (SR-NASDAQ-2010-141).
    \5\ See Securities Exchange Act Release No. 69133 (March 14, 
2013), 78 FR 17272 (March 20, 2013) (SR-NASDAQ-2013-042).
    \6\ See Rule 7018(a).
    \7\ See Rule 7018(a)(1), (2) and (3).
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    Second, Nasdaq is proposing to add clarifying rule text to Rule 
7014(g), which concerns the NBBO Program. The NBBO Program provides 
rebates per share executed with respect to all other displayed orders 
(other than Designated Retail Orders) in securities priced at $1 or 
more per share that provide liquidity and establish the NBBO. When 
Nasdaq adopted the rule, it neglected to note that the displayed 
quantity of the NBBO Program-qualifying order must be at least one 
round lot at the time of execution. An odd lot order of less than

[[Page 1250]]

100 shares is not displayed on the consolidated feeds, and thus is not 
able to set the NBBO. Although implied in the rule, the Exchange 
believes that adding clarifying language is appropriate. Consequently, 
the Exchange is adding rule text that makes it clear that the displayed 
quantity of the Order must be at least one round lot at time of 
execution.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act,\8\ in general, and furthers the objectives 
of Section 6(b)(5) of the Act,\9\ in particular, in that it 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 is not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers. The proposed change furthers these objectives because it 
clarifies what is required to receive the rebates in the case of the 
NBBO Program and states expressly that Designated Retail Orders are not 
considered in the calculation of the credit provided by the ISP 
Program. The Exchange does not propose to alter the operation of, or 
the specific criteria required to qualify under, the program. Rather, 
the Exchange is expressly stating criteria that may otherwise be 
reasonably implied, in the case of the NBBO Program, and that is 
consistent with the treatment of Designated Retail Orders by the other 
Market Quality Incentive Programs under Rule 7014 and credit tiers 
under Rule 7018(a), in the case of the ISP Program. With respect to the 
proposed change to the ISP Program, the Exchange is noting that 
Designated Retail Orders are not included in the number of shares of 
displayed liquidity used to calculate credit received under the ISP 
Program. As discussed, Designated Retail Orders are excluded from the 
calculations under the NBBO Program and QMM Program and from the 
credits provided for displayed quotes/orders under Rule 7018(a) because 
Nasdaq provides a substantial credit of $0.0034 per share executed for 
such orders. As such, member firms have understood that Designated 
Retail Orders are excluded from the calculation of the ISP Program 
credits. With respect to the proposed change to the NBBO Program, the 
Exchange is expressly stating what is reasonably implied as a 
precondition to set the NBBO, namely, that the minimum quantity must be 
no less than one round lot at time of execution. As such, these changes 
promote the protection of the investors and the public interest by more 
precisely stating and by clarifying the requirements of the programs, 
as they have been applied since these programs' adoption.
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    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(5).
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    The Exchange also believes that the proposed change to the ISP 
Program is consistent with Section 6(b)(4) of the Act \10\ 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 the Exchange operates or controls. 
Specifically, the proposed new rule text that states that the ISP 
Program credit will not be paid with respect to Designated Retail 
Orders is reasonable because those orders are already eligible to 
receive a high credit of $0.0034 per share executed. The change is 
consistent with an equitable allocation of fees because Nasdaq believes 
that the credit provided with respect to Designated Retail Orders 
provides sufficient incentive with respect to the market benefits 
associated with the orders in question, such that an additional credit 
is not warranted.
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    \10\ 15 U.S.C. 78f(b)(4).
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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.\11\ The Exchange 
believes that the proposal is irrelevant to competition because it is 
not driven by, and will have no impact on, competition. Specifically, 
the proposal clarifies the application of Nasdaq's rules.
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    \11\ 15 U.S.C. 78f(b)(8).
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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)(iii) of the Act \12\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\13\ 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.
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    \12\ 15 U.S.C. 78s(b)(3)(a)(iii) [sic].
    \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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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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 [email protected]. Please include 
File Number SR-NASDAQ-2015-164 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-2015-164. 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

[[Page 1251]]

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-2015-164 and should 
be submitted on or before February 1, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-00255 Filed 1-8-16; 8:45 am]
BILLING CODE 8011-01-P