81 FR 23038 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Nasdaq Rule 7018(a)

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 75 (April 19, 2016)

[Federal Register Volume 81, Number 75 (Tuesday, April 19, 2016)]
[Notices]
[Pages 23038-23040]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-08945]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77609; File No. SR-NASDAQ-2016-054]


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

April 13, 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 April 12, 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.

I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend the Exchange's transaction fees at 
Rule 7018(a) to add a new credit tier available to a member for 
displayed quotes/orders (other than Supplemental Orders or Designated 
Retail Orders) that provide liquidity.
    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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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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 the Exchange's 
transaction fees at Rule 7018(a) to add a new credit tier available to 
a member for displayed quotes/orders (other than Supplemental Orders or 
Designated Retail Orders) that provide liquidity. The new credit tier 
will be available for transactions in securities of all three Tapes \3\ 
and accordingly the new credit tier is being added to Rules 7018(a)(1), 
(2), and (3), which provide the fees and credits for execution and 
routing of orders in Nasdaq-Listed securities, New York Stock Exchange 
(``NYSE'')-listed securities, and securities not listed on Nasdaq or 
NYSE, respectively.
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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 provide a $0.0030 per share executed 
credit to a member that has shares of liquidity provided in all 
securities during the month representing more than 0.20% of 
Consolidated Volume during the month, through one or more of its Nasdaq 
Market Center MPIDs. The member must also qualify for the additional 
$0.05 per contract rebate under Note c(3) of Nasdaq Options Market 
(``NOM'') Rules Chapter XV Section 2(1).\4\ The criteria to receive the 
additional $0.05 per contract rebate under NOM Chapter XV Section 2(1) 
Note c(3) requires a NOM Participant to (i) add Customer, Professional, 
Firm, Non-NOM Market Maker and/or Broker-Dealer \5\ liquidity

[[Page 23039]]

in Penny Pilot Options and/or Non- Penny Pilot Options above 0.80% of 
total industry customer equity and ETF option ADV per day in a month; 
(ii) add Customer, Professional, Firm, Non-NOM Market Maker and/or 
Broker-Dealer liquidity in Non-Penny Pilot Options above 0.15% of total 
industry customer equity and ETF option ADV contracts per day in a 
month; and (iii) execute greater than 0.04% of Consolidated Volume via 
Market-on-Close \6\ and Limit-on-Close \7\ (``MOC/LOC'') volume within 
the NASDAQ Stock Market Closing Cross \8\ within a month. Thus, to 
qualify under the new proposed credit tiers under Rule 7018(a), an 
Exchange member must also be a NOM Participant and meet the NOM rebate 
criteria described above, in addition to the more than 0.20% of 
Consolidated Volume requirement of the proposed credit tiers.
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    \4\ The Exchange notes that rebate and criteria required to 
receive the rebate under NOM Chapter XV Section 2(1) Note c(3) is 
being amended consistent with the description herein effective as of 
the date of this proposed rule change to Rule 7018(a).
    \5\ NOM Chapter XV provides the following defined terms:
    The term ``Customer'' or (``C'') applies to any transaction that 
is identified by a Participant for clearing in the Customer range at 
The Options Clearing Corporation (``OCC'') which is not for the 
account of broker or dealer or for the account of a ``Professional'' 
(as that term is defined in Chapter I, Section 1(a)(48)).
    The term ``NOM Market Maker'' or (``M'') is a Participant that 
has registered as a Market Maker on NOM pursuant to Chapter VII, 
Section 2, and must also remain in good standing pursuant to Chapter 
VII, Section 4. In order to receive NOM Market Maker pricing in all 
securities, the Participant must be registered as a NOM Market Maker 
in at least one security.
    The term ``Non-NOM Market Maker'' or (``O'') is a registered 
market maker on another options exchange that is not a NOM Market 
Maker. A Non-NOM Market Maker must append the proper Non-NOM Market 
Maker designation to orders routed to NOM.
    The term ``Firm'' or (``F'') applies to any transaction that is 
identified by a Participant for clearing in the Firm range at OCC.
    The term ``Professional'' or (``P'') means any person or entity 
that (i) is not a broker or dealer in securities, and (ii) places 
more than 390 orders in listed options per day on average during a 
calendar month for its own beneficial account(s) pursuant to Chapter 
I, Section 1(a)(48). All Professional orders shall be appropriately 
marked by Participants.
    The term ``Broker-Dealer'' or (``B'') applies to any transaction 
which is not subject to any of the other transaction fees applicable 
within a particular category.
    \6\ A ``Market On Close Order'' is an Order Type entered without 
a price that may be executed only during the Nasdaq Closing Cross. 
Subject to the qualifications provided below, MOC Orders may be 
entered, cancelled, and/or modified between 4 a.m. ET and 
immediately prior to 3:50 p.m. ET. Between 3:50 p.m. ET and 
immediately prior to 3:55 p.m. ET, an MOC Order can be cancelled 
and/or modified only if the Participant requests that Nasdaq correct 
a legitimate error in the Order (e.g., Side, Size, Symbol, or Price, 
or duplication of an Order). MOC Orders cannot be cancelled or 
modified at or after 3:55 p.m. ET for any reason. An MOC Order shall 
execute only at the price determined by the Nasdaq Closing Cross. 
See Rule 4702(b)(11).
    \7\ A ``Limit On Close Order'' is an Order Type entered with a 
price that may be executed only in the Nasdaq Closing Cross, and 
only if the price determined by the Nasdaq Closing Cross is equal to 
or better than the price at which the LOC Order was entered. Subject 
to the qualifications provided below, LOC Orders may be entered, 
cancelled, and/or modified between 4 a.m. ET and immediately prior 
to 3:50 p.m. ET. Between 3:50 p.m. ET and immediately prior to 3:55 
p.m. ET, an LOC Order can be cancelled but not modified, and only if 
the Participant requests that Nasdaq correct a legitimate error in 
the Order (e.g., Side, Size, Symbol, or Price, or duplication of an 
Order). See Rule 4702(b)(12).
    \8\ See Rule 4754.
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    Under Rule 7018(a), the Exchange currently offers credits based on 
both Consolidated Volume as well as participation on NOM. For example, 
the Exchange provides a $0.00295 per share executed credit under Rules 
7018(a)(1)-(3) if a member adds 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% or more of total industry ADV in 
the customer clearing range for Equity and ETF option contracts per day 
in a month on NOM. Other credits under Rules 7018(a)(1)-(3) do not 
require participation on NOM. For example, the Exchange provides a 
$0.0030 per share executed credit under Rules 7018(a)(1)-(3) if a 
member has shares of liquidity provided in all securities through one 
or more of its Nasdaq Market Center MPIDs that represent [sic] more 
than 0.75% of Consolidated Volume during the month and member provides 
a daily average of at least 5 Million shares of non-displayed 
liquidity.
    As noted above, the Exchange is also requiring a member to have 
MOC/LOC order volume in excess of 0.04% of Consolidated Volume under 
the new credit tier, thereby requiring a member to provide a 
significant level of MOC/LOC liquidity in the closing cross, which 
benefits all market participants. The Exchange does not currently have 
a credit tier under Rules 7018(a)(1)-(3) provided for displayed quotes/
orders that requires a member to have a certain level of MOC/LOC order 
volume in the closing cross; however, the Exchange does currently 
provide a credit based on participation in the opening and closing 
crosses. Specifically, under Rules 7018(a)(1)-(3), the Exchange 
provides a $0.0028 per share executed credit for displayed quotes/
orders if a member has shares of liquidity provided in the Opening and 
Closing Crosses, excluding MOC, LOC, Market-on- Open, Limit-on-Open, 
Good-til-Cancelled, and Immediate-or-Cancel orders, through one or more 
of its Nasdaq Market Center MPIDs that represent [sic] more than 0.01% 
of Consolidated Volume during the month. The new MOC/LOC requirement of 
the proposed credit tier will allow a member to qualify based, in part, 
on participation in the closing cross in MOC and LOC orders.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\9\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\10\ 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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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the proposed $0.0030 per share executed 
credit is reasonable because it is consistent with other credits that 
the Exchange provides to members for displayed quotes/orders (other 
than Supplemental Orders or Designated Retail Orders) that provide 
liquidity. As a general principle, the Exchange chooses to offer 
credits to members in return for market improving behavior.
    Under Rule 7018(a), the various credits the Exchange provides for 
displayed quotes/orders require members to significantly contribute to 
market quality by providing certain levels of Consolidated Volume 
through one or more of its Nasdaq Market Center MPIDs, and volume on 
NOM. The proposed credit will be provided to members that not only 
contribute to the Exchange by providing more than 0.20% of Consolidated 
Volume through one or more of its Nasdaq Market Center MPIDs during the 
month, including MOC/LOC orders representing 0.04% of Consolidated 
Volume, but members must also provide significant levels of liquidity 
in both Penny Pilot and Non-Penny Pilot Options on NOM.
    The Exchange notes that the proposed credit is consistent with 
other credits that it provides for displayed quotes/orders under the 
rule, which range from $0.0015 per share executed to $0.00305 per share 
executed and which apply progressively more stringent requirements in 
return for higher per share executed credits. Accordingly, the $0.0030 
per share executed credit is reasonable.
    The proposed $0.0030 per share executed credit is an equitable 
allocation and is not unfairly discriminatory because the Exchange will 
apply the same credit to all similarly situated members. Thus, if a 
member meets the requirements, it will receive the credit unless it 
qualifies for a higher credit. Moreover, as discussed above, some 
credit tiers require participation on NOM while others do not. As such, 
members will continue to have opportunities to qualify for similar 
credits based on market participation not tied to NOM.

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

[[Page 23040]]

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 new credit provided to a member for 
execution of securities of each of the three Tapes do [sic] 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 are 
designed to reward market-improving behavior by providing a new credit 
tier based on various measures of such behavior, which may encourage 
other market venues to provide similar credits to improve their market 
quality. Thus, the Exchange does not believe that the proposed changes 
will impose any burden on competition, but may rather promote 
competition.
    In sum, if the changes proposed herein are unattractive to market 
participants, it is likely that the Exchange will lose 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.

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.\11\
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    \11\ 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-2016-054 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-2016-054. 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-2016-
054, and should be submitted on or before May 10, 2016.
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    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-08945 Filed 4-18-16; 8:45 am]
BILLING CODE 8011-01-P