81 FR 30381 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Adopt a New Limit Up-Limit Down Pricing Program Under Rule 7014

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 94 (May 16, 2016)

[Federal Register Volume 81, Number 94 (Monday, May 16, 2016)]
[Notices]
[Pages 30381-30386]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-11411]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77800; File No. SR-NASDAQ-2016-065]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to 
Adopt a New Limit Up-Limit Down Pricing Program Under Rule 7014

May 10, 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 May 3, 2016, 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 proposes a proposal to adopt a new Limit Up-Limit Down 
Pricing Program under Rule 7014 to improve liquidity during Limit Up-
Limit Down events through incentive rebates.
    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

[[Page 30382]]

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 adopt a new Limit Up-Limit Down 
Pricing Program under Rule 7014 to improve liquidity during Limit Up-
Limit Down events pursuant to Rule 4120(a)(12) through incentive 
rebates.
Background
    On May 6, 2010, the U.S. markets experienced excessive volatility 
in an abbreviated time period, commonly referred to as the ``flash 
crash.'' Many of the almost 8,000 equity securities and exchange-traded 
funds (``ETFs'') traded that day experienced rapid price declines and 
reversals within a short period of time. Staff of the SEC and the U.S. 
Commodity Futures Trading Commission (``CFTC'') (collectively, 
``Staff'') worked together to study the events of the flash crash, 
issuing a report of their findings (``Report'') to the Joint CFTC-SEC 
Advisory Committee on Emerging Regulatory Issues (``Committee'').\3\ 
Staff observed, among other things, that there was a ``liquidity 
crisis'' with respect to individual stocks, whereby market participants 
widened quote spreads, reduced offered liquidity, or withdrew from the 
markets altogether.\4\ Staff stated that:
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    \3\ See Report of the Staffs of the CFTC and SEC to the Joint 
Advisory Committee on Emerging Regulatory Issues, ``Findings 
Regarding the Market Events of May 6, 2010,'' dated September 30, 
2010, available at http://www.sec.gov/news/studies/2010/marketevents-report.pdf.
    \4\ See Report at 5.
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    While the withdrawal of a single participant may not 
significantly impact the entire market, a liquidity crisis can 
develop if many market participants withdraw at the same time. This, 
in turn, can lead to the breakdown of a fair and orderly price-
discovery process, and in the extreme case trades can be executed at 
stub-quotes used by market makers to fulfill their continuous two-
sided obligations.\5\
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    \5\ Report at 6.

    The Committee, in turn, issued a series of recommendations based on 
its analysis of Staff's findings.\6\
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    \6\ See Summary Report of the Committee, ``Recommendations 
Regarding Regulatory Responses to the Market Events of May 6, 2010'' 
(Feb, 18, 2011).
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    In response to the market structure issues uncovered by the flash 
crash and the recommendations of the Committee, the exchanges and FINRA 
(collectively, the ``SROs'') implemented market-wide measures designed 
to restore investor confidence by reducing the potential for excessive 
market volatility. One such measure was the adoption of a pilot plan 
for stock-by-stock trading pauses by SROs. On May 31, 2012, the SEC 
approved the National Market System Plan to Address Extraordinary 
Market Volatility, commonly referred to as the ``Limit Up-Limit Down 
Plan.'' \7\ The Limit Up-Limit Down Plan created a market-wide limit 
up-limit down mechanism intended to address extraordinary market 
volatility in ``NMS Stocks,'' as defined in Rule 600(b)(47) of 
Regulation NMS under the Act.\8\ The Limit Up-Limit Down Plan is 
designed to prevent trades in individual NMS Stocks from occurring 
outside of specified Price Bands,\9\ which are based on a Reference 
Price \10\ for each NMS Stock that equals the arithmetic mean price of 
Eligible Reported Transactions \11\ for the NMS Stock over the 
immediately preceding five-minute period (except for periods following 
openings and re-openings). The Price Bands are disseminated by the 
single plan processor responsible for the consolidation of information 
for an NMS Stock (``Processor'') pursuant to Rule 603(b) of Regulation 
NMS.
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    \7\ See Securities Exchange Act Release No. 34-67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012).
    \8\ See 17 CFR 242.600(b)(47).
    \9\ As defined by Section I.(N) of the Plan.
    \10\ As defined by Section I.(T) the Plan.
    \11\ As defined by Section I.(A) the Plan.
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    The Limit Up-Limit Down Plan prevents trades in individual NMS 
Stocks from occurring outside of the Price Bands by applying Limit 
States,\12\ whereby trading is permitted to continue within certain 
upper and lower limits, and Trading Pauses \13\ to accommodate more 
fundamental price moves in an NMS Stock. An NMS Stock will enter a 
Limit State if it has a National Best Offer (``NBO'') that equals the 
lower price band and does not cross the National Best Bid (``NBB''), or 
a NBB that equals the upper price band and does not cross the NBO. When 
an NMS Stock enters a Limit State, the Processor will disseminate the 
information by identifying the relevant quotation (i.e., a NBO that 
equals the Lower Price Band or a NBB that equals the Upper Price Band) 
as a Limit State Quotation,\14\ and ceases to calculate and disseminate 
updated Reference Prices and Price Bands for the NMS Stock until either 
trading exits the Limit State or trading resumes with an opening or re-
opening. An NMS Stock will exit a Limit State if, within 15 seconds of 
entering the Limit State, the entire size of all Limit State Quotations 
are executed or cancelled, at which time the Processor begins to 
calculate and disseminate updated Price Bands based on a Reference 
Price that equals the arithmetic mean price of Eligible Reported 
Transactions for the NMS Stock over the immediately preceding five-
minute period (including the period of the Limit State). If trading for 
an NMS Stock does not exit a Limit State within fifteen seconds of 
entry, the Limit State will terminate when the Primary Listing Exchange 
declares a Trading Pause, or at the end of Regular Trading Hours.
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    \12\ As defined by Section I.(C) the Plan.
    \13\ As defined by Section I.(Y) the Plan.
    \14\ As defined by Section I.(D) the Plan.
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    The Primary Listing Exchange must declare a Trading Pause if a 
[sic] NMS Stock does not exit a Limit State within fifteen seconds of 
entry during Regular Market Hours. The Primary Listing Exchange may 
also declare a Trading Pause for an NMS Stock if the NMS Stock is in a 
Straddle State, which is when the NBB is below the Lower Price Band or 
the NBO is above the Upper Price Band, the NMS Stock is not in a Limit 
State, and trading in that NMS Stock deviates from normal trading 
characteristics such that declaring a Trading Pause would support the 
Plan's goal to address extraordinary market volatility. The Primary 
Listing Exchange is responsible for declaring a Trading Pause in an NMS 
Stock and informing the Processor and during a Trading Pause the 
Processor disseminates Trading Pause information to the public. During 
a Trading Pause, no trades in a NMS Stock may occur, but all bids and 
offers may be displayed. A Trading Pause will conclude in one of two 
ways. First, if after five minutes from declaration of the Trading 
Pause the Primary Listing Exchange has not declared a Regulatory Halt, 
it will initiate established re-opening procedures. The Trading Pause 
will conclude when the Primary Listing Exchange reports a Reopening 
Price. Alternatively, a Trading Pause will conclude if the Primary 
Listing Exchange does not report a Reopening Price within ten minutes 
after the declaration of a Trading Pause in a NMS Stock, and has not 
declared a Regulatory Halt. When trading resumes after a Trading Pause, 
the Processor then will update the Prices Bands.
    The Exchange believes that the Limit Up-Limit Down Plan has been 
successful at addressing extraordinary

[[Page 30383]]

volatility in the markets, through its combination of price bands and 
trading pauses. A fundamental underpinning to re-establishing a less 
volatile and stable market in times of market stress is liquidity. As 
quoted above, Staff observed that a liquidity crisis arising from the 
withdrawal of market participants can lead to the breakdown of a fair 
and orderly price-discovery process.\15\ There is great risk to market 
participants when markets are volatile and many firms employ their own 
versions of a trading pause to withdraw from the markets as risk 
mitigation.\16\ In its analysis of the flash crash, Staff observed that 
the markets suffered significant reductions in liquidity as prices 
fell, particularly evidenced by a significant reduction in buy-side 
market depth. The lack of adequate incentives to address such liquidity 
crisis is a concern of the Committee, which noted in its report that 
``incentives to display liquidity may be deficient in [a] normal 
market, and are seriously deficient in turbulent markets.'' \17\ 
Arising from this concern, the Committee recommended that the CFTC and 
SEC ``consider incentives to supply liquidity that vary with market 
conditions.'' \18\
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    \15\ See Supra note 6.
    \16\ See Report at 36.
    \17\ See Supra note 6 at 9.
    \18\ Id.
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Proposal
    The Exchange is proposing to implement a new rebate program 
designed to provide incentive to market participants to provide 
liquidity during Limit States, Straddle States and Trading Pause [sic] 
in a select group of NMS Stocks chosen by the Exchange (``LULD 
Liquidity Symbols''). The new incentive program is being proposed in 
light of the Committee's recommendation that exchanges adopt a ``peak 
load'' pricing model as a solution to encouraging liquidity during 
turbulent markets.\19\ In its purest form, a peak load pricing model 
increases both fees and rebates to improve liquidity. A higher access 
fee in comparison to other exchanges may discourage entry of aggressive 
liquidity-removing trades. By contrast, a higher rebate in comparison 
to other markets may encourage entry of liquidity-providing limit 
orders. Under Regulation NMS, exchanges are limited in level of access 
fees that they may assess their members. The Exchange's access fee 
schedule under Rule 7018(a) provides that, under certain circumstances, 
removal of displayed liquidity is assessed as the highest permissible 
rate. As consequence, any additional fee for removal of liquidity would 
exceed that limit. Exchanges are not so constrained, however, in level 
of rebate provided for liquidity.
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    \19\ Id.
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    The Exchange agrees with the Committee that more must be done to 
encourage liquidity during times of market stress, and providing market 
participants with incentives to provide liquidity may further that 
goal. While the Exchange is limited in the level of fee-based 
disincentives that it can assess for liquidity removal during turbulent 
markets, the Exchange is able to adopt incentives to address the 
Committee's concern that there are insufficient incentives to market 
participants to provide displayed liquidity in such markets. 
Specifically, the Exchange is proposing to provide two new incentives 
that are focused on promoting liquidity when a LULD Liquidity Symbol is 
in a Limit State, Straddle State, or a Trading Pause. \20\ The Exchange 
has selected a group of 200 LULD Liquidity Symbols that are Exchange-
listed stocks and ETFs of various sizes based on market capitalization. 
In selecting the securities, the Exchange first considered how 
individual Exchange-listed securities were impacted on particularly 
volatile days, and when a Limit State, Straddle State or Trading Pause 
occurred, with a particular focus on liquidity. From this pool of 
potential LULD Liquidity Symbols, the Exchange next eliminated very low 
volume stocks that frequently have LULD bands based on bid-ask midpoint 
rather than a trade price. Last, the Exchange used stratified random 
sampling of the remaining pool of potential LULD Liquidity Symbols to 
assure that the stocks represented a wide range of market 
capitalization levels. The Exchange may add to or modify the list of 
securities covered by the Limit Up-Limit Down Pricing Program. To the 
extent the Exchange determines to modify the list of LULD Liquidity 
Symbol, it will file a rule change proposal with the Commission. In 
selecting new LULD Liquidity Symbols, the Exchange will apply the same 
criteria used in selecting the initial group of LULD Liquidity Symbols.
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    \20\ The Exchange notes that nothing proposed in this rule 
change will alter how the Exchange handles quotes and orders in 
compliance with Regulation NMS, including member obligations with 
respect to avoiding quotes and orders that lock or cross the 
markets.
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    First, for LULD Liquidity Symbol securities priced $1 or more the 
Exchange is adopting an incentive in the form of a $0.0010 per share 
executed rebate to Exchange market makers that enter displayed orders 
to buy (other than Designated Retail Orders, as defined in Rule 7018) 
when the LULD Liquidity Symbol security enters a Limit State based on 
an NBO that equals the lower price band and does not cross the NBB 
(``Limit Down Limit State''). To be eligible, the market maker must be 
registered as a market maker for the LULD Liquidity Symbol. The 
Exchange believes the incentive will promote liquidity in LULD 
Liquidity Symbols during times of significant price declines in those 
securities, which is typically a time when buy liquidity is scarce. The 
rebate will be provided to all buy orders entered by an Exchange market 
maker priced at or higher than the Lower Price Band of the Limit Down 
Limit State entered after initiation thereof until its conclusion, and 
that add liquidity at any time during continuous trading.\21\ 
Similarly, for LULD Liquidity Symbol securities priced $1 or more the 
Exchange will provide the $0.0010 per share executed rebate to Exchange 
market makers that enter displayed orders to buy (other than Designated 
Retail Orders, as defined in Rule 7018) when the LULD Liquidity Symbol 
security enters a Straddle State based on an NBB that is below the 
lower price band (``Limit Down Straddle State''). To be eligible, the 
market maker must be registered as a market maker for the LULD 
Liquidity Symbol. The rebate will be provided to all buy orders entered 
by an Exchange market maker priced at or higher than the Lower Price 
Band of the Limit Down Straddle State entered after initiation thereof 
until its conclusion, and that receive an execution any time after the 
order is entered during regular market hours, except for executions 
received in subsequent Halt Crosses or Closing Cross. The Exchange will 
use the time that it receives the message from the Processor that a 
LULD Liquidity Symbol is in a Limit Down Limit State or Limit Down 
Straddle State as the time at which the rebate is available, and the 
message from the Processor that the security has emerged from the Limit 
Down Limit State or Limit Down Straddle State as the time at which the 
rebate is no longer available.
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    \21\ Orders are considered to have added liquidity if they are 
posted on the Exchange book and are executed during continuous 
trading. Executions during a Halt, IPO, Open, and Closing Crosses 
are note considered to have added or removed liquidity.
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    The following is an example of how the rebate will be applied. For 
this example market maker refers to an Exchange market maker registered 
in symbol ABC. Assume symbol ABC has a lower price band of $10.00 and 
is a LULD Liquidity Symbol. Further

[[Page 30384]]

assume the Exchange is the only market with a displayed offer at $10.00 
for 300 shares and the Exchange has received the message from the 
Processor that ABC is in a Limit Down Limit State. Market maker #1 
enters a 1,000 share displayable buy order priced at $10.00. Market 
maker #1's order trades against the 300 shares offered and the 
remaining 700 shares post to the Exchange's book at $10.00. The Bid on 
the Exchange is now $10.00. The 700 shares from market maker #1 are 
eligible to receive the additional $0.0010 rebate per share executed 
when adding liquidity. Market maker #2 enters a 200 share displayable 
buy order at $10.00. The 200 shares are also eligible to receive the 
additional $0.0010 rebate when adding liquidity. The Exchange receives 
the message from the Processor that the security has emerged from the 
Limit Down Limit State. Market maker #3 enters a 100 share displayable 
buy order at $10.00. The 100 shares are not eligible to receive the 
additional $0.0010 rebate since the Exchange has already received the 
message from the Processor that the security has emerged from the Limit 
Down Limit State. Market maker #1 and #2's posted orders are still 
eligible to receive the $0.0010 per share rebate if the orders add 
liquidity at a later point.
    Second, the Exchange is proposing to provide an incentive to all 
market participants that enter Orders in an LULD Liquidity Symbol 
during a Trading Pause and receive an execution of that Order. The 
Exchange will provide a $0.0005 per share executed rebate, which will 
be provided upon execution of the eligible Order in the reopening 
process at the conclusion of the Trading Pause. The rebate will be 
provided in lieu of the fee assessed under Rule 7018(f) for execution 
of quotes and orders executed halt crosses.\22\ Unlike the proposed 
$0.0010 per share executed rebate, which focuses on providing incentive 
to Exchange Market Makers to provide liquidity when the price of a LULD 
Liquidity Symbol has dropped significantly, this proposed $0.0005 per 
share executed rebate targets all market participants during a Trading 
Pause. The Exchange will use the time at which it declares a Trading 
Pause in the LULD Liquidity Symbol up to the point at which it 
completes the halt cross in the security as the time during which 
orders are eligible to receive the $0.0005 per share executed rebate
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    \22\ Under Rule 7018(f), a member is assessed a $0.0010 per 
share executed fee for any quote or order that receives an execution 
in a halt cross, which includes a Limit Up-Limit Down trading pause 
halt cross.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act,\23\ in general, and furthers the objectives 
of Sections 6(b)(4) and 6(b)(5) of the Act,\24\ 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 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest; and are not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. As a general principle, the Exchange applies 
rebates and reduced fees in an effort to promote beneficial market-
improving behavior among market participants. Under Rule 7014, the 
Exchange currently provides four Market Quality Incentive Programs that 
are designed to improve the markets by providing rebates and reduced 
fees as incentive to market participants. The proposed Limit Up-Limit 
Down Pricing Program is consistent with these other market-improving 
programs because it is designed to promote liquidity when liquidity is 
scarce and most needed. The proposed program is also consistent with 
recommendations made by the Committee to support trading during events 
when there is a shortage of liquidity. The Exchange is proposing to 
offer the program for a period no less than six months from its 
adoption so that it can measure the effectiveness of the rebates.
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    \23\ 15 U.S.C. 78f.
    \24\ 15 U.S.C. 78f(b)(4) and (5).
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Market Maker Rebate
    The Exchange believes that the proposed $0.0010 per share executed 
rebate is reasonable because it rewards market makers for providing 
liquidity when the price of a security is falling significantly and 
many market participants have withdrawn. As discussed above, a stock 
that is in a Limit Down Limit State or Limit Down Straddle State has 
experienced a significant drop in a relatively short time. It has been 
the Exchange's observation that Limit Down Limit States and Limit Down 
Straddle States on the lower band are often characterized by a 
significant disparity between the number of buyers and sellers. Orders 
that provide buy side liquidity promote price discovery and help to 
normalize trading. The proposed rebate is designed to support buy side 
liquidity during Limit Down Limit States and Limit Down Straddle States 
in LULD Liquidity Symbols by providing market makers with an incentive 
to provide bids at or above the Limit Down Price band. The proposed 
rebate may also provide incentive to Members to register as market 
makers in the LULD Liquidity Symbols so that they may avail themselves 
of the rebate, thereby potentially improving overall market quality in 
such securities. Moreover, the Exchange believes that the proposed 
$0.0010 per share executed rebate is reasonable because it is 
consistent with rebates of other market quality incentive programs 
under Rule 7014. While the Exchange acknowledges that the $0.0010 per 
share executed rebate is significantly higher than provided by most 
incentive programs under Rule 7014, which provide additional rebates 
ranging from $0.0001 to $0.0004 per share executed, the Exchange notes 
that the Lead Market Maker (``LMM'') Program under Rule 7014 provides 
rebates in Qualified Securities to LMMs for adding displayed liquidity 
ranging from $0.0040 to $0.0046 per share executed, depending on the 
qualification criteria met.\25\ The rebate under the LMM Program is 
provided in lieu of the rebates provided under Rule 7018(a) for 
providing displayed liquidity, which are as high as $0.00305 per share 
executed. Thus, the lowest effective rebate available to a LMM under 
the LMM Program is $0.00095 ($0.0040--$0.00305). Consequently, the 
Exchange believes that the proposed $0.0010 per share executed rebate 
is reasonable because it is similar to the rebates provided under the 
LMM Program.
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    \25\ See Rule 7014(d) and (e).
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    The Exchange believes that the proposed rebate is an equitable 
allocation and is not unfairly discriminatory because the Exchange will 
provide the same rebate to all similarly situated market makers. The 
Exchange believes that limiting the $0.0010 per share executed rebate 
to registered market makers is an equitable allocation and is not 
unfairly discriminatory because the incentive may encourage Members to 
register as

[[Page 30385]]

market makers in LULD Liquidity Symbols. Market makers have certain 
quoting and pricing obligations \26\ for the securities in which they 
are registered; however, such obligations do not require them to enter 
buy orders priced at or higher than the Lower Price Band of the Limit 
Down Limit State or Limit Down Straddle State. The proposed $0.0010 per 
share executed rebate is designed to incentivize market makers to 
provide liquidity in LULD Liquidity Symbols for which they are 
registered as market makers at a price higher than they would otherwise 
be obligated in order to satisfy their market making obligations. 
Moreover, an increased number of market makers registered in LULD 
Liquidity Symbols may increase the potential for improved liquidity in 
LULD Liquidity Symbols during Limit States, and may improve overall 
market quality in LULD Liquidity Symbols because of market makers' 
quoting and pricing obligations, which would benefit all market 
participants that trade LULD Liquidity Symbols.
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    \26\ Rule 4613 requires market maker to be willing to buy and 
sell a security that it is registered as such on a continuous basis 
during regular market hours and to enter and maintain a two-sided 
trading interest that is identified to the Exchange as the interest 
meeting the obligation and is displayed in the Exchange's quotation 
montage at all times. Exchange market makers must also adhere to 
certain pricing obligations in their registered securities, as 
established by Rule 4613.
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Trading Pause Rebate
    The Exchange believes that the proposed $0.0005 per share executed 
rebate provided to members that enter Orders in a LULD Liquidity Symbol 
during a Trading Pause and receive an execution of that Order is 
reasonable because it may provide incentive to all market participants 
to provide liquidity during a Trading Pause in the securities of the 
program. The Exchange believes that all participants that provide 
liquidity during a Trading Pause should be rewarded for taking on the 
risk of entering orders during a volatile market. These orders promote 
price discovery, which may in turn help reestablish normal trading in a 
security covered by the program. Moreover, the Exchange believes that 
the proposed $0.0005 per share executed rebate is reasonable because it 
is consistent with rebates of other market quality incentive programs 
under Rule 7014, which provide additional rebates ranging from $0.0001 
to $0.0004 per share executed. Unlike those rebates, which are provided 
in addition to any fee or other rebate the member may receive under 
Rule 7018, the proposed $0.0005 per share executed rebate is provided 
in lieu of the $0.0010 per share executed fee assessed for executions 
in halt crosses, including a Limit Up-Limit Down trading pause halt 
cross. As a consequence, a member that qualifies for the proposed new 
rebate will receive a net benefit of $0.0015 per share executed. The 
Exchange notes that this net benefit is similar to the net benefit 
provided LMMs under the LMM Program. Specifically, an LMM that meets 
the highest performance criteria under the LMM Program is eligible to 
receive no charge for executions in the Halt Cross, Opening Cross and 
Closing Cross. In certain circumstances, a member may be assessed a 
charge of $0.0015 per share executed for participation in the Opening 
and Closing Crosses. Thus, the net benefit provided by the proposed 
$0.0005 per share executed rebate is reasonable. The Exchange believes 
that the proposed $0.0005 per share executed rebate is an equitable 
allocation and is not unfairly discriminatory because the Exchange will 
provide the rebate to all members that provide orders during a Trading 
Pause in a LULD Liquidity Symbol that receive an execution

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 Exchange is offering rebates in an effort to 
improve market quality during times of high volatility. The Exchange 
does not believe that the proposed change will place a burden on inter-
market competition because the Limit Up-Limit Down Pricing Program is 
designed to improve market quality for all market participants by 
promoting price discovery for LULD Liquidity Symbols that have 
triggered Limit Up-Limit Down processes, and other exchanges are free 
to offer similar programs. If successful, the proposed Limit Up-Limit 
Down Pricing Program may promote competition among exchanges to provide 
incentives of their own to address low liquidity in NMS Stocks during a 
Limit Up-Limit Down process. Further, the Exchange does not believe 
that the proposed incentive program imposes a burden on competition 
among market participants because participation in the market during a 
Limit Up-Limit Down Limit State, Straddle State, or Trading Pause is 
completely voluntary. Moreover, the proposed incentive program will not 
be a burden on competition among market participants because the 
Exchange is offering a rebate to all members that qualify under the 
program. The Exchange notes that it is limiting the $0.0010 per share 
executed rebate to Exchange market makers registered in LULD Liquidity 
Symbols as an incentive to such market makers to provide liquidity 
priced better than they otherwise would be required to do so as market 
makers. In addition, the proposal may incentivize market participants 
to register as market makers with the Exchange. Providing incentive to 
members to become market makers will benefit all market participants 
trading in LULD Liquidity Symbols for the reasons discussed above. In 
this regard, all member firms may register as market makers in the LULD 
Liquidity Symbols if they choose to meet the qualification criteria. 
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.\27\
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    \27\ 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

[[Page 30386]]

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-2016-065 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-2016-065. 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-2016-065 and 
should be submitted on or before June 6, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-11411 Filed 5-13-16; 8:45 am]
 BILLING CODE 8011-01-P