81 FR 14497 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Fees Under Rule 7018(a)

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 52 (March 17, 2016)

[Federal Register Volume 81, Number 52 (Thursday, March 17, 2016)]
[Notices]
[Pages 14497-14500]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-05989]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77355; File No. SR-NASDAQ-2016-031]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Fees Under Rule 7018(a)

March 11, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 14498]]

(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on February 29, 2016, The NASDAQ Stock Market LLC (``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 proposes to amend Rule 7018(a), concerning the fees 
and credits provided for the use of the order execution and routing 
services of the Nasdaq Market Center by members for all securities 
priced at $1 or more that it trades. While these amendments are 
effective upon filing, the Exchange has designated the proposed 
amendments to be operative on March 1, 2016.
    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 purpose of the proposed rule change is to amend Rule 7018(a), 
concerning the fees and credits provided for the use of the order 
execution and routing services of the Nasdaq Market Center by members 
for all securities priced at $1 or more that it trades. The Exchange is 
proposing to: (i) Increase a credit provided to a member for displayed 
quotes/orders that provide liquidity; (ii) modify the criteria required 
to receive a credit; and (iii) eliminate the fees and credits provided 
for execution of Orders in Select Symbols, as described further below.
First Change
    The Exchange is proposing to increase a credit that it provides to 
members for displayed liquidity under Rule 7018(a). Currently, the 
Exchange provides a credit of $0.0030 per share executed to a member 
for displayed quotes/orders (other than Supplemental Orders or 
Designated Retail Orders) that provide liquidity if the member has (i) 
shares of liquidity provided in all securities during the month 
representing at least 0.15% of Consolidated Volume during the month, 
through one or more of its Nasdaq Market Center MPIDs, and (ii) Adds 
[sic] NOM Market Maker liquidity in Penny Pilot Options and/or Non- 
Penny Pilot Options of 0.90% or more of total industry ADV in the 
customer clearing range for Equity and ETF option contracts per day in 
a month on the Nasdaq Options Market. The Exchange provides the credit 
with the same criteria to securities of all three Tapes \3\ under Rule 
7018(a)(1)-(3).
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    \3\ Tape C securities are those that are listed on the Exchange, 
Tape A securities are those that are listed on NYSE, and Tape B 
securities are those that are listed on exchanges other than Nasdaq 
or NYSE.
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    The Exchange is proposing to increase the credit provided from 
$0.0030 per share executed to $0.00305 per share executed applicable to 
securities of all three Tapes. The Exchange believes that increasing 
the credit will provide members with a greater incentive to increase 
their provision of liquidity on both the Exchange and the Nasdaq 
Options Market.
Second Change
    The Exchange is proposing to modify the criteria required to 
receive a credit for providing non-displayed orders (other than 
Supplemental Orders) that provide liquidity. Currently, the Exchange 
provides a credit of $0.0005 per share executed for other non-displayed 
orders if the member provides an average daily volume of 1 million or 
more shares per day through midpoint orders or other non-displayed 
orders during the month in Tape C securities.
    Similarly, the Exchange provides a credit of $0.0010 per share 
executed for other \4\ non-displayed orders if the member provides an 
average daily volume of 1 million or more shares per day through 
midpoint orders or other non-displayed orders during the month in Tape 
A and B securities.
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    \4\ The Exchange also provides credits for non-displayed mid-
point orders that provide liquidity under the rule.
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    The Exchange is proposing to modify the qualification criteria for 
each of the credit tiers under Rule 7018(a)(1)-(3) to now require that 
a member provide 0.03% or more of Consolidated Volume \5\ during the 
month through midpoint orders or other non-displayed orders in lieu of 
the current requirement that the member have an average daily volume of 
1 million or more shares per day through midpoint orders or other non-
displayed orders during the month.
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    \5\ Consolidated Volume is the total consolidated volume 
reported to all consolidated transaction reporting plans by all 
exchanges and trade reporting facilities during a month in equity 
securities, excluding executed orders with a size of less than one 
round lot. For purposes of calculating Consolidated Volume and the 
extent of a member's trading activity, expressed as a percentage of 
or ratio to Consolidated Volume, the date of the annual 
reconstitution of the Russell Investments Indexes shall be excluded 
from both total Consolidated Volume and the member's trading 
activity. See Rule 7018(a).
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    The Exchange believes that the new criteria will more closely tie 
the amount [sic] midpoint orders and other non-displayed orders 
required to receive the credit with the overall market conditions in 
any given month.
    The Exchange is also proposing to eliminate the credit it provides 
for all other non-displayed orders (other than Supplemental Orders) 
that provide liquidity in Tape A and B securities, which do not 
otherwise qualify for the higher tier discussed above. Currently, the 
Exchange provides a credit of $0.0005 per share executed for other non-
displayed orders in Tape A and B securities that provide liquidity. The 
Exchange does not provide a credit and does not assess a fee for such 
orders in Tape C securities. The Exchange is proposing to harmonize the 
credit tiers for Tape A and B securities with [sic] credit tier for 
Tape C securities by eliminating the $0.0005 per share executed credit 
and not assessing a fee or credit for such orders.
Third Change
    The Exchange is proposing to eliminate the credit provided for 
certain ``select symbols'' under Rule 7018(a)(4). Under the current 
rule, [sic] members receiving less than a $0.0029 per share executed 
credit in [sic] pursuant to Rule 7018(a)(1)-(3) for displayed quotes/
orders (other than Supplemental Orders or Designated Retail Orders) 
that provide liquidity for the securities listed under the rule, the 
Exchange will provide a credit of $0.0029 per share executed instead of 
the lower credit to these members for those securities. Currently, the 
credit provided by the

[[Page 14499]]

rule applies to the following securities, by ticker symbol: EEM, EWJ, 
GDX, IWM, NUGT, SPY, UWTI, VXX, XIV, and XLF. The Exchange did not 
observe an appreciable improvement in market quality in the select 
symbols on the Exchange, which was its goal in adopting the credit.\6\ 
As a consequence, the Exchange is proposing to eliminate the credit 
[sic]
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    \6\ See Securities Exchange Act Release No. 73967 [sic] (October 
29, 2015), 80 FR 68377 (November 4, 2015) (SR-NASDAQ-2015-126).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \7\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act \8\ 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 the Exchange operates or controls, and is not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers.
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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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First Change
    The Exchange believes that the proposed increase to the credit it 
provides to members for displayed liquidity is reasonable because it is 
designed to further incentivize members to improve the market through 
the provision of shares of liquidity in all securities during the 
month, consistent with its efforts to draw additional order flow to the 
Exchange to improve market quality for all market participants. If 
effective, the Exchange believes that the increased incentive will 
improve overall market quality on both the Exchange and NOM. The 
Exchange believes that the proposed increased credit is an equitable 
allocation and is not unfairly discriminatory because the Exchange will 
provide the credit to all members that qualify for it under the rule.
Second Change
    The Exchange believes that modifying the criteria required to 
receive the credit for providing non-displayed orders (other than 
Supplemental Orders) that provide liquidity is reasonable because the 
proposed change will more closely align the level of liquidity provided 
by the members in comparison to the market as a whole.
    Specifically, the Exchange is tying the requirement to Consolidated 
Volume provided during the month through midpoint orders or other non-
displayed orders in lieu of the current requirement that the member 
have an average daily volume of 1 million or more shares per day 
through midpoint orders or other non-displayed orders during the month.
    The Exchange believes that the new criteria may potentially make 
achieving the credit more difficult to the extent Consolidated Volume 
is high in a given month and will likely represent a stricter criterion 
upon adoption. The Exchange believes it is a better metric to apply to 
measure a member's participation through midpoint orders or other non-
displayed orders during the month in contrast to a static criteria 
average daily volume. The Exchange believes that the proposed 
modification of the criteria is equitably allocated [sic] and not 
unfairly discriminatory because the amended credit criteria applies 
uniformly to securities across all Tapes and all members that elect to 
meet the criteria of the credit tier will receive the credit.
    The Exchange believes reducing the credit it provides for all other 
non-displayed orders (other than Supplemental Orders) that provide 
liquidity in Tape A and B securities that do not otherwise qualify for 
the higher tier is reasonable because the Exchange must periodically 
assess the effectiveness of the incentives it provides in the form of 
reduced fees and credits and, in certain cases, change or eliminate 
those fees and credits once they are no longer needed. By doing so, the 
Exchange is able to deploy incentives in other areas that the Exchange 
determines are in need of market improvement. The Exchange notes that 
it currently does not provide any credit for such orders in Tape C 
securities.
    The Exchange believes that the proposed elimination of the credits 
is equitably allocated and not unfairly discriminatory because all 
members will neither receive a credit nor be assessed a fee under the 
tier, regardless of the listing venue of the security.
Third Change
    The Exchange believes that eliminating the credit provided to 
members for transactions in ``select symbols'' under Rule 7018(a) is 
reasonable because the Exchange did not observe an appreciable 
improvement in market quality in the select symbols which, as 
explained, was the Exchange's goal in adopting the credit.
    As noted above, the Exchange must periodically assess the 
effectiveness of the incentives it provides in the form of reduced fees 
and credits and, in the case of ineffective incentives, eliminate the 
incentive so that the Exchange may apply its resources to other, 
possibly more effective, incentives.
    The Exchange believes that elimination of the credit is equitably 
allocated and not unfairly discriminatory because it will apply to all 
members equally. In this regard, the credit was available to any member 
that met the criteria and in the absence of the credit, members may now 
qualify for other, albeit lower, credits under Rule 7018(a).

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

    The Exchange 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. In terms of inter-market 
competition, the Exchange 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, the Exchange 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, 
the Exchange believes that the degree to which fee changes in this 
market may impose any burden on competition is extremely limited.
    In this instance, the proposed changes to the credits available to 
member firms for execution of securities of the three Tapes do not 
impose a burden on competition because the Exchange's execution 
services are completely voluntary and subject to extensive competition 
both from other exchanges and from off-exchange venues.
    The proposed changes to the credits provided to members are 
reflective of a robust and competitive securities market, where trading 
venues must provide incentives to participants in the form of credits 
to attract order flow and adjust those incentives to make them more 
competitive or to allow the Exchange to provide other market-improving 
incentives elsewhere.
    Moreover, trading venues are free to adjust their fees and credits 
in response to any changes that the Exchange makes to its fees and 
credits. If any of the changes proposed herein are [sic] unattractive 
to market participants, it is likely that the Exchange will lose

[[Page 14500]]

market share as a result. Accordingly, the Exchange does not believe 
that the proposed changes will impair the ability of members or 
competing order execution venues to maintain their competitive standing 
in the financial markets [sic].

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\9\
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    \9\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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.

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-2016-031 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-2016-031. 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-2016-031 and should 
be submitted on or before April 7, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Lynn M. Powalski,
Deputy Secretary.
[FR Doc. 2016-05989 Filed 3-16-16; 8:45 am]
 BILLING CODE 8011-01-P