[Federal Register Volume 75, Number 198 (Thursday, October 14, 2010)]
[Notices]
[Pages 63238-63240]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-25741]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63040; File No. SR-NASDAQ-2010-128]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Modify the Requirements To Qualify for Credits as a Designated
Liquidity Provider Under Rule 7018(i)
October 5, 2010.
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 October 1, 2010, The NASDAQ Stock Market LLC (``NASDAQ'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described in Items I, II, and III below, which Items
have been prepared by NASDAQ. 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 the
Substance of the Proposed Rule Change
NASDAQ proposes to modify the requirements to qualify for credits
as a designated liquidity provider under Rule 7018(i) and to make a
minor technical change. NASDAQ will implement the proposed change on
October 1, 2010. The text of the proposed rule change is below.
Proposed new language is italicized. Deleted language is [bracketed].
* * * * *
7018. Nasdaq Market Center Order Execution and Routing
(a)-(h) No change.
(i) Notwithstanding the foregoing, the following charges shall
apply to transactions in a Qualified Security by one of its Designated
Liquidity Providers:
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Charge to Designated Liquidity Provider $0.003 per share executed
entering Order that executes in the for securities priced at $1
Nasdaq Market Center or attempts to or more per share (For
execute in the Nasdaq Market Center prior securities priced at less
to routing: than $1 per share, the
normal execution fee under
7018(a) will apply).
Credit to Designated Liquidity Provider $0.004 per share executed
providing displayed liquidity through the (or $0, in the case of
Nasdaq Market Center: executions against Quotes/
Orders in the Nasdaq Market
Center at less than $1.00
per share), up to 10
million shares average
daily volume.
Normal credits under 7018(a)
apply to shares greater
than 10 million average
daily volume and non-
displayed liquidity.
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For purposes of this paragraph:
(1) A security may be designated as a ``Qualified Security'' if:
(A) it is an exchange-traded fund or index-linked security listed
on Nasdaq pursuant to Nasdaq Rules 5705, 5710, or 5720;
(B) [there has been no time at which its average daily volume on
Nasdaq has exceeded 10,000,000 shares during two calendar months of any
three calendar-month period; and
(C)] it has at least one Designated Liquidity Provider.
[The security will cease to be a Qualified Security at the end of
the second calendar month that causes the condition described in
paragraph (B) not to be satisfied.]
(2) A ``Designated Liquidity Provider'' or ``DLP'' is a registered
Nasdaq market maker for a Qualified Security that has committed to
maintain minimum performance standards. [Designated Liquidity
Providers]A DLP shall be selected by Nasdaq based on factors including,
but not limited to, experience with making markets in exchange-traded
funds and index-linked securities, adequacy of capital, willingness to
promote Nasdaq as a marketplace, issuer preference, operational
capacity, support personnel, and history of adherence to Nasdaq rules
and securities laws. Nasdaq may limit the number of Designated
Liquidity Providers in a security, or modify a previously established
limit, upon prior written notice to members.
The minimum performance standards applicable to a DLP[Designated
Liquidity Provider] may be determined from time to time by Nasdaq and
may vary depending on the price, liquidity, and volatility of the
Qualified Security in which the DLP[Designated Liquidity Provider] is
registered. The performance measurements will include (A) percent of
time at the national best bid (best offer) (``NBBO''); (B) percent of
executions better than the NBBO; (C) average displayed size; and (D)
average quoted spread.
(3) If a DLP does not meet the performance measurements for a given
month, fees and credits will revert to the normal schedule under
7018(a). If a DLP does not meet the stated performance measurements for
3 out of the past 4 months, the DLP is subject to forfeit of DLP status
for that instrument, at NASDAQ's discretion. A DLP must provide 30 days
written notice if it wishes to withdraw its registration in a Qualified
Security.
(j) No change.
* * * * *
[[Page 63239]]
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 these statements may be examined at the places specified in
Item IV below. NASDAQ 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
NASDAQ is proposing to modify the criteria required of Designated
Liquidity Providers to qualify for credits in transactions involving a
Qualified Security.\3\ Currently, a Designated Liquidity Provider
(``DLP'') may receive a credit of $0.004 per share executed (or $0, in
the case of executions against Quotes/Orders in the Nasdaq Market
Center at less than $1.00 per share) if it provides liquidity in a
Qualified Security to the Nasdaq Market Center. A Qualified Security is
defined by three criteria in Rule 7018(i)(1): (A) It must be an
exchange-traded fund or index-linked security listed on Nasdaq pursuant
to Nasdaq Rules 5705, 5710, or 5720; (B) there has been no time at
which its average daily volume on Nasdaq has exceeded 10 million shares
during two calendar months of any three calendar-month period; and (C)
it has at least one Designated Liquidity Provider. A security will
cease to be classified as a Qualified Security at the end of the second
calendar month that causes the condition described in paragraph (B) not
to be satisfied. NASDAQ is eliminating requirement ``(B)'' of the
definition of Qualified Security together with related language under
the rule, and will now permit DLPs to qualify for the credit in a
Qualified Security with an average daily volume during the month of up
to 10 million. Any average daily volume for the month in the Qualified
Security in excess of 10 million would be assessed the standard rates
found under Rule 7018(a). As such, a DLP will be able to receive the
higher $0.004 credit on up to 10 million shares of average daily volume
per month in a Qualified Security, even if the DLP exceeds 10 million
in average daily volume in a given month.
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\3\ The Designated Liquidity Provider pricing incentive program
was implemented in August 2007. See Securities Exchange Act Release
No. 56130 (July 25, 2007), 72 FR 42163 (August 1, 2007) (SR-NASDAQ-
2007-061).
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NASDAQ is also limiting the availability of the credit to only DLPs
providing displayed liquidity through the Nasdaq Market Center. A
primary purpose of the credit program in Qualified Securities is to
promote an active and liquid trading market in ETFs and ILSs. As
currently written, however, Rule 7018(i) provides a credit for any type
of liquidity provided by a DLP, even if the liquidity is not-displayed
and thus not promoting price discovery through active public display.
NASDAQ believes that the program should only award DLPs that make
markets in a Qualified Security by providing displayed liquidity.
NASDAQ is adding new rule text describing the consequences of
failing to meet the DLP minimum performance criteria described in Rule
7018(i)(2). The minimum performance standards applicable to a DLP are
determined by NASDAQ and may vary depending on the price, liquidity,
and volatility of a particular Qualified Security. These performance
measurements include: (A) Percent of time at the NBBO; (B) percent of
executions better than the NBBO; (C) average displayed size; and (D)
average quoted spread. NASDAQ may remove DLPs that do not meet
performance standards, or that decide to change their status, at any
time. NASDAQ is providing clarifying information regarding the
consequences of failing to meet the minimum performance standards.
Specifically, if a DLP fails to meet minimum performance standards in a
given month, fees will revert to the standard schedule of fees and
credits under Rule 7018(a). If a DLP fails to meet minimum performance
standards for three out of the past four months, it will lose DLP
status for that instrument. NASDAQ is imposing a thirty-day prior
notice obligation on DLPs seeking to withdraw registration in a
Qualified Security. This thirty-day notice requirement will ensure that
NASDAQ has adequate time to assign a new DLP, thus avoiding any
disruption in market quality that may be caused by the absence of an
assigned DLP.
Last, NASDAQ is making a non-substantive technical change to the
rule by providing the acronym ``DLP'' as an alternative to ``Designated
Liquidity Provider'' for use in the rule text.
2. Statutory Basis
NASDAQ believes that the proposed rule change is consistent with
the provisions of Section 6 of the Act,\4\ in general, and Section
6(b)(4) of the Act,\5\ in particular, because 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 that
NASDAQ operates or controls, and it does not unfairly discriminate
between customers, issuers, brokers or dealers. NASDAQ believes that by
allocating pricing benefits to market makers that make tangible
commitments to enhancing market quality for ETFs and ILSs listed on
NASDAQ, the proposal will encourage the development of new financial
products, provide a better trading environment for investors in ETFs
and ILSs, and encourage greater competition between listing venues for
ETFs and ILSs. The changes proposed herein are designed to further
promote liquid markets in ETFs and ILSs, and to ensure that DLPs are
provided adequate incentives to continue to meet minimum standards to
participate in the credit program.
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\4\ 15 U.S.C. 78f.
\5\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition
NASDAQ believes that the proposed rule change will encourage
greater competition among venues that list ETFs and ILSs, and will
further strengthen the quality of the NASDAQ market as a venue for
transactions in ETFs and ILSs. Accordingly, NASDAQ does not believe
that the proposed rule change will result in any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act, as amended.
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 rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act.\6\ 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. If the Commission
[[Page 63240]]
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
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\6\ 15 U.S.C. 78s(b)(3)(a)(ii).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File Number SR-NASDAQ-2010-128 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2010-128. This
file number should be included on the subject line if e-mail 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 website
viewing and printing in the Commission's Public Reference Room on
official business days between the hours of 10 a.m. and 3 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-2010-128, and should be submitted on or before
November 4, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12).
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-25741 Filed 10-13-10; 8:45 am]
BILLING CODE 8011-01-P