81 FR 24681 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Nasdaq Rule 7014
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 80 (April 26, 2016)
Federal Register Volume 81, Issue 80 (April 26, 2016)
| Page Range | 24681-24684 | |
| FR Document | 2016-09598 |
[Federal Register Volume 81, Number 80 (Tuesday, April 26, 2016)] [Notices] [Pages 24681-24684] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-09598] [[Page 24681]] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-77662; File No. SR-NASDAQ-2016-051] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Nasdaq Rule 7014 April 20, 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 4, 2016, The NASDAQ Stock Market LLC (``Nasdaq'' or the ``Exchange'') filed with the Securities and Exchange Commission (``SEC'' or ``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. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change Nasdaq is proposing changes to amend Nasdaq Rule 7014 to remove the Investor Support Program (``ISP''), to add the Small Cap Incentive Program (``SCIP''), and to amend both the Qualified Market Maker (``QMM'') Program and the National Best Bid or Offer (``NBBO'') Program. The changes are being filed for immediate effectiveness and will become operative April 1, 2016. The text of the proposed rule change is available at nasdaq.cchwallstreet.com, at Nasdaq's 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 The purpose of the proposed rule change is to amend Nasdaq Rule 7014 by removing the ISP, adding the SCIP, as well as amending both the QMM Program and the NBBO Program. ISP The Exchange proposes to eliminate the ISP from Nasdaq Rule 7014(a). The purpose of the ISP was to enable Nasdaq members to earn a monthly ISP credit for providing additional liquidity to Nasdaq and increasing the Nasdaq-traded volume of what are generally considered to be retail and institutional investor orders in exchange-traded securities (``targeted liquidity''). However, the Exchange has determined that the ISP no longer serves its intended purpose and that members are availing themselves of other programs. Specifically, changes to the QMM Program have in many circumstances made the ISP rebates obsolete. The Exchange also proposes to amend Nasdaq Rule 7014 to remove ISP references throughout the rule. SCIP The Exchange proposes to add the SCIP as Nasdaq Rule 7014(a). The SCIP will be for Nasdaq market markers (``Nasdaq Market Makers'') \3\ registered in Nasdaq-listed companies with a market capitalization (``cap'') of less than $100 million. The Exchange will update the Nasdaq-listed company symbols list \4\ every six months via an Equity Trader Alert. The initial list is being created using data culled from the end of January 2016. However, the Exchange may remove symbols for companies that are delisted, halted for an extended period of time or for other listing-related matters at any time. --------------------------------------------------------------------------- \3\ See Nasdaq Rule 4612. \4\ See http://www.nasdaqtrader.com/Trader.aspx?id=SCIPPilot. --------------------------------------------------------------------------- Nasdaq Market Makers registered in a SCIP symbol will receive an additional displayed liquidity rebate of $0.0005 per share executed for executions at or above $1.00 (``SCIP Rebate'') if their percent of time at the NBBO is above 50% for the month (``NBBO Test''). The SCIP Rebate will be in addition to all other applicable displayed rebates. For shares executed below $1.00, Nasdaq Market Makers will be subject to the following rates: (i) The rebate to add liquidity will be 0.10% (10 basis points) of the total dollar volume; and (ii) the fee to remove liquidity will be 0.25% (25 basis points) of the total dollar volume. There will be no fee for quotes and orders executed in the Nasdaq Opening or Closing Cross (collectively, the ``Nasdaq Crosses''), or any other cross (e.g., trading halt, limit up-limit down) for Nasdaq Market Makers that meet the NBBO Test in SCIP symbols. Market-on-close and limit-on-close orders executed in the Nasdaq Closing Cross and market- on-open, limit-on-open, good-till-cancelled, and immediate-or-cancel orders executed in the Nasdaq Opening Cross are not eligible for the SCIP Rebate. These orders are considered ``passive'' orders in the Nasdaq Crosses or orders that are swept into the Nasdaq Crosses. All other orders are orders specifically designated to become active or execute in the cross and will receive the SCIP Rebate if they otherwise so qualify. Impact of SCIP on the Tick Pilot The SCIP will take effect on April 1, just prior to the April 4 effectiveness of the data collection phase of the Tick Pilot.\5\ Nasdaq believes that the SCIP is fully consistent with both the effective operation and the important policy objectives of the Tick Pilot. Nasdaq actively supports the SEC's goal of studying the impact of nickel trading increments on the trading of small capitalization securities, including those that will benefit from the SCIP proposed here. --------------------------------------------------------------------------- \5\ On May 6, 2015, the Commission issued an order approving a Plan to Implement a Tick Size Pilot Program (``Plan''), as modified by the Commission, to be implemented within one year after the date of publication of the order for a two-year Pilot Period (the ``Tick Pilot''). See Securities Exchange Act Release No. 74892 (May 6, 2015), 80 FR 27513 (May 13, 2015). The start of the data collection is determined by the terms of the Plan. --------------------------------------------------------------------------- The SCIP will not disrupt researchers' ability to study the impact of nickel trading on small capitalization stocks. There are well- established statistical techniques that allow researchers to control for changes in conditions unrelated to the variable of interest, i.e., changes in trading conditions unrelated to nickel trading increments. Statisticians use control variables and modeling techniques to control particularities and idiosyncrasies that are inherent to all observed data that stem from conditions exogenous to the variable of interest (nickel increments). Apart from the SCIP, researchers will be required to control for macro events such as changes in interest rates, the imposition of a financial transaction tax, or a decrease in the taxation rate of capital gains. Researchers will also use [[Page 24682]] these techniques to contend with changes in market conditions like high volatility and increased trading volumes driven by unpredictable isolated events or continuing conditions. Changes in Exchange pricing programs are no different from the changed conditions that economists normally expect to encounter in any study period, and future Tick Pilot researchers can deal with them effectively. In fact, the Tick Pilot study might be negatively impacted by attempts to hold trading conditions constant throughout the data collection phase. If the goal of the study is to understand the effect of nickel increments, it is important that the pilot occur under real world conditions. Holding prices constant would actually create artificial conditions rather than real world ones. Researchers will be required to take into account a wide variety of changes, price changes are no different. Conversely, maintaining artificial conditions throughout the study period would skew later research results, rendering them inapposite for application to the real world conditions that will be restored after the study period ends. Finally, Nasdaq notes that the impact of the SCIP should also be negligible because it is going in before the start of the Tick Pilot data collection period, so it will have no statistical impact. QMM Program Currently, under the QMM Program for a member to be designated as a QMM it must quote at the NBBO at least 25% of the time during regular market hours in an average of at least 1,000 securities per day during the month on a single market participant identifier (``MPID''). The Exchange proposes to modify this requirement to allow for the aggregation of all of a member's MPIDs to determine the number of securities for purposes of the 25% NBBO requirement. Specifically, a firm currently must on a single MPID quote 1,000 distinct securities. The Exchange is proposing to allow each MPID a firm uses to count towards the 1,000 securities requirement. For example, if a member has four MPIDs and each MPID quotes in a single security at the NBBO for 30% of the time during regular market hours this will count as four of the required 1,000 securities. However, if a member has two MPIDs and one MPID quotes in a security at the NBBO for 15% of the time during regular market hours and the other MPID quotes in the same security for 20% of the time during regular market hours, that member would not be considered to have met the 25% NBBO requirement and neither security would count towards the 1,000 securities requirement.\6\ --------------------------------------------------------------------------- \6\ Aggregation of MPIDs is used frequently by Nasdaq and other exchanges to assess whether a firm has, in its entirety, satisfied a volume-based threshold. See Nasdaq Rule 7018(a) and (d)(2); see also Preface to Phlx Pricing Schedule (Common Ownership Aggregation). --------------------------------------------------------------------------- NBBO Program The Exchange proposes to increase the NBBO Program credit in Nasdaq Rule 7014(g) from the $0.0002 to $0.0004 per share executed. This credit applies to New York Stock Exchange LLC (``NYSE'')--listed securities and in securities listed on exchanges other than Nasdaq and NYSE. Definitions and Certifications The Exchange also proposes to remove most of the definitions included under Nasdaq Rule 7014(h) and the Nasdaq Rule 7014(i) certification \7\ because they are no longer applicable. --------------------------------------------------------------------------- \7\ Specifically, Nasdaq proposes to delete the definitions in Nasdaq Rule 7014(h)(1)-(4), 7014(h)(6), and 7014(h)(8), as well as the certification in Nasdaq Rule 7014(i). --------------------------------------------------------------------------- 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,\8\ in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act, \9\ 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 its facilities which the Exchange operates or controls, and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. --------------------------------------------------------------------------- \8\ 15 U.S.C. 78f(b). \9\ 15 U.S.C. 78f(b)(4) and (5). --------------------------------------------------------------------------- The Commission and the courts have repeatedly expressed their preference for competition over regulatory intervention in determining prices, products, and services in the securities markets. In Regulation NMS, while adopting a series of steps to improve the current market model, the Commission highlighted the importance of market forces in determining prices and SRO revenues and, also, recognized that current regulation of the market system ``has been remarkably successful in promoting market competition in its broader forms that are most important to investors and listed companies.'' \10\ --------------------------------------------------------------------------- \10\ Securities Exchange Act Release No. 34-51808 (June 9, 2005) (``Regulation NMS Adopting Release''). --------------------------------------------------------------------------- Likewise, in NetCoalition v. Securities and Exchange Commission \11\ (``NetCoalition'') the DC Circuit upheld the Commission's use of a market-based approach in evaluating the fairness of market data fees against a challenge claiming that Congress mandated a cost-based approach.\12\ As the court emphasized, the Commission ``intended in Regulation NMS that `market forces, rather than regulatory requirements' play a role in determining the market data . . . to be made available to investors and at what cost.'' \13\ --------------------------------------------------------------------------- \11\ NetCoalition v. SEC 615 F.3d 525 (D.C. Cir. 2010). \12\ Id. at 534-535. \13\ Id. at 537. --------------------------------------------------------------------------- Further, ``[n]o one disputes that competition for order flow is `fierce.' . . . As the SEC explained, `[i]n the U.S. national market system, buyers and sellers of securities, and the broker-dealers that act as their order-routing agents, have a wide range of choices of where to route orders for execution'; [and] `no exchange can afford to take its market share percentages for granted' because `no exchange possesses a monopoly, regulatory or otherwise, in the execution of order flow from broker dealers'. . . .'' \14\ --------------------------------------------------------------------------- \14\ Id. at 539 (quoting ArcaBook Order, 73 FR at 74782-74783). --------------------------------------------------------------------------- ISP The Exchange believes that the proposed rule change to eliminate the ISP is reasonable because Nasdaq has determined that this program, which was intended to enable Nasdaq members to earn a monthly fee credit for providing targeted liquidity, no longer serves its intended purpose and that members can instead avail themselves of other potentially higher rebates such as those available in connection with the QMM Program. The Exchange also believes that the elimination of the ISP is equitable and not unfairly discriminatory because its elimination will apply uniformly and it will no longer be available for any market participants. Furthermore, no members currently receive credits under the ISP so no members will be impacted by its elimination. Also, the Exchange believes that eliminating references to the ISP throughout Nasdaq Rule 7014 is reasonable because it will lessen market participant confusion regarding the elimination of the ISP. SCIP The SCIP is intended to encourage Nasdaq Market Makers to improve market quality for Nasdaq-listed companies with market caps of under $100 million. Nasdaq believes that this program will benefit market participants and the market quality of the individual securities in the program. The proposed rule change is to add the SCIP as Nasdaq Rule 7014(a). [[Page 24683]] Specifically, the SCIP will provide for an additional $0.0005 per share executed credit if a Nasdaq Market Maker satisfies the NBBO Test (as described previously). The SCIP Rebate will be in addition to all other applicable displayed rebates. Nasdaq believes that this credit is reasonable because the SCIP Rebate is material enough to incentivize market maker behavior to improve the markets in these securities. The Exchange also believes that the proposed credit is reasonable because it will serve as an effective incentive to Nasdaq Market Makers to provide more liquidity and align the program with improving the NBBO. Increasing such liquidity is reflective of the Exchange's desire to improve liquidity in Nasdaq small cap stocks. The Exchange believes that the above proposed rule change is equitable and not unfairly discriminatory because the SCIP will apply uniformly to all similarly situated members. Nasdaq Market Members that elect to satisfy the NBBO Test will receive the SCIP Rebate. This credit is available to all members that are registered market makers on an equal basis and provides an additional credit for activity that improves the Exchange's market quality in small cap Nasdaq-listed symbols through increased activity at the NBBO. In this regard, the SCIP encourages higher levels of liquidity provision into the price discovery process and is consistent with the overall goals of enhancing market quality. The SCIP also provides for a credit to Nasdaq Market Makers that add liquidity of 0.10% of the total dollar value for shares executed below $1.00, as well as a fee for Nasdaq Market Makers that add liquidity of 0.25% of the total dollar value for shares executed below $1.00. The Exchange believes that this credit and fee are reasonable because taken as a whole they should incentivize market maker behavior to improve the markets in these securities. The Exchange believes that the proposed rule change above is equitable and not unfairly discriminatory because the Exchange will apply the same credit and fee uniformly and for all similarly situated members. Specifically, the above credit and fee are applicable to all Nasdaq Market Makers on an equal basis and the Exchange believes that, taken together, will overall encourage activity that improves the Exchange's market quality in small cap Nasdaq-listed symbols through increased activity at the NBBO. The credit is available to all members on an equal basis and provides an additional credit for activity that improves the Exchange's market quality through increased activity at the NBBO, while the fee will be applied uniformly for all Nasdaq Market Makers that elect to remove liquidity in shares executed under $1.00. Additionally, Nasdaq believes it is reasonable that there will be no fee for all quotes and orders executed in the Nasdaq Crosses, or any other cross for Nasdaq Market Makers that meet the NBBO Test in SCIP symbols, because it is reflective of the Exchange's desire to provide further incentive to members to quote and execute orders in crosses that meet the NBBO Test in SCIP symbols. This is also reflective of the Exchange's goal to improve market quality through the use of reduced fees, as well as of the Exchange's efforts to incentivize market participants to improve market quality. The Exchange believes that the above proposed rule change, as described above, is equitable and not unfairly discriminatory because the Exchange will uniformly assess no fee across all similarly situated members. Additionally, Nasdaq believes that it is reasonable that all quotes and orders exclude market-on-close and limit-on-close orders executed in the Nasdaq Closing Cross and market-on-open, limit-on-open, good- till-cancelled, and immediate-or-cancel orders executed in the Nasdaq Opening Cross because these orders are considered ``passive'' orders in the Nasdaq Crosses (i.e., orders that were swept into the Nasdaq Crosses). All other orders are orders specifically designated to become active or execute in the cross. The Exchange also believes that this proposed rule change is equitable and not unfairly discriminatory because the exclusion of these quotes and passive orders from the Nasdaq Opening Cross and the Nasdaq Closing Cross, as specified above, will be applied uniformly across all similarly situated members. The overall effect of the SCIP will be to encourage higher levels of liquidity provision into the price discovery process and is consistent with the overall goals of enhancing market quality. QMM Program Nasdaq believes that the proposed rule change to modify the QMM Program requirement to allow for the aggregation of all of a member's MPIDs to determine the number of securities for purposes of the 25% NBBO requirement is reasonable because it may increase the number of potential members than can qualify under the program. This, in turn, will improve Nasdaq market quality by rewarding members that provide significant market-improving order flow with a rebate. The Exchange also believes the proposed rule change is equitable and not unfairly discriminatory because the easier to achieve amended qualification criteria for the QMM Program will apply uniformly to all similarly situated members and members that meet the qualification criteria will be eligible for the QMM rebate. NBBO Program The Exchange also believes that the proposed rule change to increase the NBBO Program credit in Nasdaq Rule 7014(g) from the $0.0002 to $0.0004 per share executed and which applies to NYSE--listed securities and in securities listed on exchanges other than Nasdaq and NYSE is reasonable because the increase to the credit although modest, is likely to incentivize more NBBO setting on Nasdaq and thus improve price formation on the Exchange. The Exchange also believes the proposed rule change is equitable and not unfairly discriminatory because it is available to all members that qualify for this NBBO Program rebate. Definitions and Certifications The Exchange also believes that the proposed rule change to remove most of the definitions included under Nasdaq Rule 7014(h) and the Nasdaq Rule 7014(i) certification \15\ are reasonable since they are no longer applicable. Keeping them in the rule book would only serve to potentially increase confusion for market participants. --------------------------------------------------------------------------- \15\ See note 7 above. --------------------------------------------------------------------------- B. Self-Regulatory Organization's Statement on Burden on Competition Nasdaq does not believe that the proposed rule change will result in a burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended.\16\ 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 credit opportunities available at other venues to be more favorable. --------------------------------------------------------------------------- \16\ 15 U.S.C. 78f(b)(8). --------------------------------------------------------------------------- In such an environment, the Exchange must continually adjust its fees and credits 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 [[Page 24684]] competitors are free to modify their own fees and credits 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 amendments to Nasdaq Rule 7014, which include the elimination of the ISP, the addition of the SCIP, as well as amendments to both the QMM Program and the NBBO Program, do not impose a burden on competition because the Exchange's execution services are voluntary and subject to extensive competition both from other exchanges and from off-exchange venues. The Exchange believes that the competition among exchanges and other venues will help to drive price formation and overall execution quality higher for investors. Rather than placing a burden on competition, the proposed changes to the programs included under Nasdaq Rule 7014, including to certain of the fees and rebates contained therein, are reflective of the fierce competition among market venues to attract order flow to the benefit of all market participants. Overall, the proposed changes to the incentive programs under Rule 7014 are designed to improve their effectiveness in achieving their stated purposes. If any of the changes proposed herein are unattractive to market participants, it is likely that the Exchange will lose market share as a result. In sum, if the rule change proposed herein is 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 change 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 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.\17\ 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. --------------------------------------------------------------------------- \17\ 15 U.S.C. 78s(b)(3)(A)(ii). --------------------------------------------------------------------------- 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 CommentsUse 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-2016-051 on the subject line. Paper Comments Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-NASDAQ-2016-051. 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- 051, and should be submitted on or before May 17, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\18\ --------------------------------------------------------------------------- \18\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Robert W. Errett, Deputy Secretary. [FR Doc. 2016-09598 Filed 4-25-16; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 81, No. 80 / Tuesday, April 26, 2016 / Notices 24681
SECURITIES AND EXCHANGE A. Self-Regulatory Organization’s fee to remove liquidity will be 0.25%
COMMISSION Statement of the Purpose of, and (25 basis points) of the total dollar
Statutory Basis for, the Proposed Rule volume.
[Release No. 34–77662; File No. SR– Change There will be no fee for quotes and
NASDAQ–2016–051] orders executed in the Nasdaq Opening
1. Purpose
or Closing Cross (collectively, the
Self-Regulatory Organizations; The The purpose of the proposed rule ‘‘Nasdaq Crosses’’), or any other cross
NASDAQ Stock Market LLC; Notice of change is to amend Nasdaq Rule 7014 (e.g., trading halt, limit up-limit down)
Filing and Immediate Effectiveness of by removing the ISP, adding the SCIP, for Nasdaq Market Makers that meet the
Proposed Rule Change To Amend as well as amending both the QMM NBBO Test in SCIP symbols. Market-on-
Nasdaq Rule 7014 Program and the NBBO Program. close and limit-on-close orders executed
ISP in the Nasdaq Closing Cross and market-
April 20, 2016. on-open, limit-on-open, good-till-
Pursuant to Section 19(b)(1) of the The Exchange proposes to eliminate cancelled, and immediate-or-cancel
Securities Exchange Act of 1934 the ISP from Nasdaq Rule 7014(a). The orders executed in the Nasdaq Opening
(‘‘Act’’),1 and Rule 19b–4 thereunder,2 purpose of the ISP was to enable Nasdaq Cross are not eligible for the SCIP
notice is hereby given that on April 4, members to earn a monthly ISP credit Rebate. These orders are considered
2016, The NASDAQ Stock Market LLC for providing additional liquidity to ‘‘passive’’ orders in the Nasdaq Crosses
(‘‘Nasdaq’’ or the ‘‘Exchange’’) filed with Nasdaq and increasing the Nasdaq- or orders that are swept into the Nasdaq
the Securities and Exchange traded volume of what are generally Crosses. All other orders are orders
Commission (‘‘SEC’’ or ‘‘Commission’’) considered to be retail and institutional specifically designated to become active
a proposed rule change as described in investor orders in exchange-traded or execute in the cross and will receive
Items I, II and III below, which Items securities (‘‘targeted liquidity’’). the SCIP Rebate if they otherwise so
have been prepared by the Exchange. However, the Exchange has determined qualify.
The Commission is publishing this that the ISP no longer serves its
notice to solicit comments on the intended purpose and that members are Impact of SCIP on the Tick Pilot
proposed rule change from interested availing themselves of other programs. The SCIP will take effect on April 1,
persons. Specifically, changes to the QMM just prior to the April 4 effectiveness of
Program have in many circumstances the data collection phase of the Tick
I. Self-Regulatory Organization’s made the ISP rebates obsolete. Pilot.5 Nasdaq believes that the SCIP is
Statement of the Terms of Substance of The Exchange also proposes to amend fully consistent with both the effective
the Proposed Rule Change Nasdaq Rule 7014 to remove ISP operation and the important policy
Nasdaq is proposing changes to references throughout the rule. objectives of the Tick Pilot. Nasdaq
amend Nasdaq Rule 7014 to remove the SCIP actively supports the SEC’s goal of
Investor Support Program (‘‘ISP’’), to studying the impact of nickel trading
add the Small Cap Incentive Program The Exchange proposes to add the increments on the trading of small
(‘‘SCIP’’), and to amend both the SCIP as Nasdaq Rule 7014(a). The SCIP capitalization securities, including those
Qualified Market Maker (‘‘QMM’’) will be for Nasdaq market markers that will benefit from the SCIP proposed
Program and the National Best Bid or (‘‘Nasdaq Market Makers’’) 3 registered here.
Offer (‘‘NBBO’’) Program. in Nasdaq-listed companies with a The SCIP will not disrupt researchers’
The changes are being filed for market capitalization (‘‘cap’’) of less ability to study the impact of nickel
immediate effectiveness and will than $100 million. The Exchange will trading on small capitalization stocks.
become operative April 1, 2016. update the Nasdaq-listed company There are well-established statistical
symbols list 4 every six months via an techniques that allow researchers to
The text of the proposed rule change Equity Trader Alert. The initial list is
is available at control for changes in conditions
being created using data culled from the unrelated to the variable of interest, i.e.,
nasdaq.cchwallstreet.com, at Nasdaq’s end of January 2016. However, the
principal office, and at the changes in trading conditions unrelated
Exchange may remove symbols for to nickel trading increments.
Commission’s Public Reference Room. companies that are delisted, halted for Statisticians use control variables and
II. Self-Regulatory Organization’s an extended period of time or for other modeling techniques to control
Statement of the Purpose of, and listing-related matters at any time. particularities and idiosyncrasies that
Statutory Basis for, the Proposed Rule Nasdaq Market Makers registered in a are inherent to all observed data that
Change SCIP symbol will receive an additional stem from conditions exogenous to the
displayed liquidity rebate of $0.0005 per variable of interest (nickel increments).
In its filing with the Commission, share executed for executions at or
Nasdaq included statements concerning Apart from the SCIP, researchers will
above $1.00 (‘‘SCIP Rebate’’) if their be required to control for macro events
the purpose of, and basis for, the percent of time at the NBBO is above
proposed rule change and discussed any such as changes in interest rates, the
50% for the month (‘‘NBBO Test’’). The imposition of a financial transaction tax,
comments it received on the proposed SCIP Rebate will be in addition to all
rule change. The text of those or a decrease in the taxation rate of
other applicable displayed rebates. capital gains. Researchers will also use
statements may be examined at the For shares executed below $1.00,
mstockstill on DSK4VPTVN1PROD with NOTICES
places specified in Item IV below. The Nasdaq Market Makers will be subject to 5 On May 6, 2015, the Commission issued an
Exchange has prepared summaries, set the following rates: (i) The rebate to add order approving a Plan to Implement a Tick Size
forth in sections A, B, and C below, of liquidity will be 0.10% (10 basis points) Pilot Program (‘‘Plan’’), as modified by the
the most significant parts of such of the total dollar volume; and (ii) the Commission, to be implemented within one year
statements. after the date of publication of the order for a two-
year Pilot Period (the ‘‘Tick Pilot’’). See Securities
3 SeeNasdaq Rule 4612. Exchange Act Release No. 74892 (May 6, 2015), 80
1 15 U.S.C. 78s(b)(1). 4 Seehttp://www.nasdaqtrader.com/ FR 27513 (May 13, 2015). The start of the data
2 17 CFR 240.19b–4. Trader.aspx?id=SCIPPilot. collection is determined by the terms of the Plan.
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![24682 Federal Register / Vol. 81, No. 80 / Tuesday, April 26, 2016 / Notices
these techniques to contend with security would count towards the 1,000 approach in evaluating the fairness of
changes in market conditions like high securities requirement.6 market data fees against a challenge
volatility and increased trading volumes claiming that Congress mandated a cost-
NBBO Program
driven by unpredictable isolated events based approach.12 As the court
or continuing conditions. Changes in The Exchange proposes to increase emphasized, the Commission ‘‘intended
Exchange pricing programs are no the NBBO Program credit in Nasdaq in Regulation NMS that ‘market forces,
different from the changed conditions Rule 7014(g) from the $0.0002 to rather than regulatory requirements’
that economists normally expect to $0.0004 per share executed. This credit play a role in determining the market
encounter in any study period, and applies to New York Stock Exchange data . . . to be made available to
future Tick Pilot researchers can deal LLC (‘‘NYSE’’)—listed securities and in investors and at what cost.’’ 13
with them effectively. securities listed on exchanges other than Further, ‘‘[n]o one disputes that
In fact, the Tick Pilot study might be Nasdaq and NYSE. competition for order flow is ‘fierce.’
negatively impacted by attempts to hold Definitions and Certifications . . . As the SEC explained, ‘[i]n the U.S.
trading conditions constant throughout national market system, buyers and
the data collection phase. If the goal of The Exchange also proposes to sellers of securities, and the broker-
the study is to understand the effect of remove most of the definitions included dealers that act as their order-routing
nickel increments, it is important that under Nasdaq Rule 7014(h) and the agents, have a wide range of choices of
the pilot occur under real world Nasdaq Rule 7014(i) certification 7 where to route orders for execution’;
conditions. Holding prices constant because they are no longer applicable. [and] ‘no exchange can afford to take its
would actually create artificial 2. Statutory Basis market share percentages for granted’
conditions rather than real world ones. because ‘no exchange possesses a
Researchers will be required to take into The Exchange believes that its monopoly, regulatory or otherwise, in
account a wide variety of changes, price proposal is consistent with Section 6(b) the execution of order flow from broker
changes are no different. Conversely, of the Act,8 in general, and furthers the dealers’. . . .’’ 14
maintaining artificial conditions objectives of Sections 6(b)(4) and 6(b)(5)
of the Act, 9 in particular, in that it ISP
throughout the study period would
skew later research results, rendering provides for the equitable allocation of The Exchange believes that the
them inapposite for application to the reasonable dues, fees and other charges proposed rule change to eliminate the
real world conditions that will be among members and issuers and other ISP is reasonable because Nasdaq has
restored after the study period ends. persons using its facilities which the determined that this program, which
Finally, Nasdaq notes that the impact of Exchange operates or controls, and is was intended to enable Nasdaq
the SCIP should also be negligible not designed to permit unfair members to earn a monthly fee credit for
because it is going in before the start of discrimination between customers, providing targeted liquidity, no longer
the Tick Pilot data collection period, so issuers, brokers, or dealers. serves its intended purpose and that
The Commission and the courts have members can instead avail themselves
it will have no statistical impact.
repeatedly expressed their preference of other potentially higher rebates such
QMM Program for competition over regulatory as those available in connection with
Currently, under the QMM Program intervention in determining prices, the QMM Program.
for a member to be designated as a products, and services in the securities The Exchange also believes that the
QMM it must quote at the NBBO at least markets. In Regulation NMS, while elimination of the ISP is equitable and
25% of the time during regular market adopting a series of steps to improve the not unfairly discriminatory because its
hours in an average of at least 1,000 current market model, the Commission elimination will apply uniformly and it
securities per day during the month on highlighted the importance of market will no longer be available for any
a single market participant identifier forces in determining prices and SRO market participants. Furthermore, no
(‘‘MPID’’). The Exchange proposes to revenues and, also, recognized that members currently receive credits under
modify this requirement to allow for the current regulation of the market system the ISP so no members will be impacted
aggregation of all of a member’s MPIDs ‘‘has been remarkably successful in by its elimination.
to determine the number of securities promoting market competition in its Also, the Exchange believes that
for purposes of the 25% NBBO broader forms that are most important to eliminating references to the ISP
requirement. investors and listed companies.’’ 10 throughout Nasdaq Rule 7014 is
Specifically, a firm currently must on Likewise, in NetCoalition v. Securities reasonable because it will lessen market
a single MPID quote 1,000 distinct and Exchange Commission 11 participant confusion regarding the
securities. The Exchange is proposing to (‘‘NetCoalition’’) the DC Circuit upheld elimination of the ISP.
allow each MPID a firm uses to count the Commission’s use of a market-based
SCIP
towards the 1,000 securities
requirement. For example, if a member
6 Aggregation of MPIDs is used frequently by The SCIP is intended to encourage
Nasdaq and other exchanges to assess whether a Nasdaq Market Makers to improve
has four MPIDs and each MPID quotes firm has, in its entirety, satisfied a volume-based
in a single security at the NBBO for 30% threshold. See Nasdaq Rule 7018(a) and (d)(2); see
market quality for Nasdaq-listed
of the time during regular market hours also Preface to Phlx Pricing Schedule (Common companies with market caps of under
this will count as four of the required Ownership Aggregation). $100 million. Nasdaq believes that this
1,000 securities. However, if a member
7 Specifically, Nasdaq proposes to delete the
program will benefit market participants
definitions in Nasdaq Rule 7014(h)(1)–(4), and the market quality of the individual
mstockstill on DSK4VPTVN1PROD with NOTICES
has two MPIDs and one MPID quotes in 7014(h)(6), and 7014(h)(8), as well as the
a security at the NBBO for 15% of the certification in Nasdaq Rule 7014(i).
securities in the program.
time during regular market hours and 8 15 U.S.C. 78f(b). The proposed rule change is to add
9 15 U.S.C. 78f(b)(4) and (5). the SCIP as Nasdaq Rule 7014(a).
the other MPID quotes in the same
10 Securities Exchange Act Release No. 34–51808
security for 20% of the time during 12 Id.
(June 9, 2005) (‘‘Regulation NMS Adopting at 534–535.
regular market hours, that member Release’’). 13 Id. at 537.
would not be considered to have met 11 NetCoalition v. SEC 615 F.3d 525 (D.C. Cir. 14 Id. at 539 (quoting ArcaBook Order, 73 FR at
the 25% NBBO requirement and neither 2010). 74782–74783).
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![24684 Federal Register / Vol. 81, No. 80 / Tuesday, April 26, 2016 / Notices
competitors are free to modify their own such rule change if it appears to the For the Commission, by the Division of
fees and credits in response, and Commission that such action is Trading and Markets, pursuant to delegated
because market participants may readily necessary or appropriate in the public authority.18
adjust their order routing practices, the interest, for the protection of investors, Robert W. Errett,
Exchange believes that the degree to or otherwise in furtherance of the Deputy Secretary.
which fee changes in this market may purposes of the Act. [FR Doc. 2016–09598 Filed 4–25–16; 8:45 am]
impose any burden on competition is BILLING CODE 8011–01–P
extremely limited. IV. Solicitation of Comments
In this instance, the amendments to Interested persons are invited to
Nasdaq Rule 7014, which include the submit written data, views, and SMALL BUSINESS ADMINISTRATION
elimination of the ISP, the addition of arguments concerning the foregoing,
the SCIP, as well as amendments to both including whether the proposed rule [Disaster Declaration #14700]
the QMM Program and the NBBO change is consistent with the Act.
Program, do not impose a burden on Oregon Disaster #OR–00081
Comments may be submitted by any of
competition because the Exchange’s Declaration of Economic Injury
the following methods:
execution services are voluntary and AGENCY: U.S. Small Business
subject to extensive competition both Electronic Comments
Administration.
from other exchanges and from off- • Use the Commission’s Internet ACTION: Notice.
exchange venues. The Exchange comment form (http://www.sec.gov/
believes that the competition among rules/sro.shtml); or SUMMARY: This is a notice of an
exchanges and other venues will help to • Send an email to rule-comments@ Economic Injury Disaster Loan (EIDL)
drive price formation and overall sec.gov. Please include File Number SR– declaration for the State of Oregon,
execution quality higher for investors. NASDAQ–2016–051 on the subject line. dated 04/19/2016.
Rather than placing a burden on Incident: Sinkhole and Landslide.
competition, the proposed changes to Paper Comments Incident Period: 12/17/2015 and
the programs included under Nasdaq • Send paper comments in triplicate continuing.
Rule 7014, including to certain of the to Brent J. Fields, Secretary, Securities Effective Date: 04/19/2016.
fees and rebates contained therein, are and Exchange Commission, 100 F Street EIDL Loan Application Deadline Date:
reflective of the fierce competition NE., Washington, DC 20549–1090. 01/19/2017.
among market venues to attract order All submissions should refer to File ADDRESSES: Submit completed loan
flow to the benefit of all market Number SR–NASDAQ–2016–051. This applications to: U.S. Small Business
participants. Overall, the proposed file number should be included on the Administration, Processing and
changes to the incentive programs under subject line if email is used. To help the Disbursement Center, 14925 Kingsport
Rule 7014 are designed to improve their Commission process and review your Road, Fort Worth, TX 76155.
effectiveness in achieving their stated comments more efficiently, please use FOR FURTHER INFORMATION CONTACT: A.
purposes. If any of the changes only one method. The Commission will Escobar, Office of Disaster Assistance,
proposed herein are unattractive to post all comments on the Commission’s U.S. Small Business Administration,
market participants, it is likely that the Internet Web site (http://www.sec.gov/ 409 3rd Street SW., Suite 6050,
Exchange will lose market share as a rules/sro.shtml). Copies of the Washington, DC 20416.
result. submission, all subsequent SUPPLEMENTARY INFORMATION: Notice is
In sum, if the rule change proposed amendments, all written statements hereby given that as a result of the
herein is unattractive to market with respect to the proposed rule Administrator’s EIDL declaration,
participants, it is likely that the change that are filed with the applications for economic injury
Exchange will lose market share as a Commission, and all written disaster loans may be filed at the
result. Accordingly, the Exchange does communications relating to the address listed above or other locally
not believe that the proposed change proposed rule change between the announced locations.
will impair the ability of members or Commission and any person, other than The following areas have been
competing order execution venues to those that may be withheld from the determined to be adversely affected by
maintain their competitive standing in public in accordance with the the disaster:
the financial markets. provisions of 5 U.S.C. 552, will be Primary Counties: Curry.
C. Self-Regulatory Organization’s available for Web site viewing and Contiguous Counties:
Statement on Comments on the printing in the Commission’s Public Oregon: Coos, Douglas, Josephine.
Proposed Rule Change Received From Reference Room, 100 F Street NE., California: Del Norte.
Members, Participants or Others Washington, DC 20549 on official The Interest Rates are:
Written comments were neither business days between the hours of
solicited nor received. 10:00 a.m. and 3:00 p.m. Copies of such Percent
filing also will be available for
III. Date of Effectiveness of the inspection and copying at the principal Businesses And Small Agricultural
Proposed Rule Change and Timing for offices of the Exchange. All comments Cooperatives Without Credit
Commission Action Available Elsewhere .................. 4.000
received will be posted without change; Non-Profit Organizations Without
the Commission does not edit personal
mstockstill on DSK4VPTVN1PROD with NOTICES
The foregoing change has become Credit Available Elsewhere ....... 2.625
effective pursuant to Section identifying information from
19(b)(3)(A)(ii) of the Act.17 At any time submissions. You should submit only The number assigned to this disaster
within 60 days of the filing of the information that you wish to make for economic injury is 147000.
proposed rule change, the Commission available publicly. All submissions The States which received an EIDL
summarily may temporarily suspend should refer to File Number SR– Declaration # are Oregon, California.
NASDAQ–2016–051, and should be
17 15 U.S.C. 78s(b)(3)(A)(ii). submitted on or before May 17, 2016. 18 17 CFR 200.30–3(a)(12).
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Document Created: 2016-04-26 01:36:44
Document Modified: 2016-04-26 01:36:44
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 81 FR 24681 |
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