[Federal Register Volume 76, Number 45 (Tuesday, March 8, 2011)]
[Notices]
[Pages 12784-12786]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-5137]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64003; File No. SR-NASDAQ-2011-028]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Modify Fees for Members Using the NASDAQ Market Center
March 2, 2011.
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 February 22, 2011, The NASDAQ Stock Market LLC (the
``Exchange'' or ``NASDAQ'') filed with the Securities and Exchange
Commission (the ``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 Substance
of the Proposed Rule Change
NASDAQ proposes to modify pricing for NASDAQ members using the
NASDAQ Market Center. NASDAQ will implement the proposed change on
March 1, 2011. The text of the proposed rule change is available at
http://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 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
NASDAQ is amending Rule 7018 to make modifications to its pricing
schedule for execution of orders through the NASDAQ Market Center.
NASDAQ offers a credit to liquidity providers, with the size of the
credit varying based on overall monthly volumes of liquidity provision.
Currently, the highest credit is $0.00295 per share executed for
displayed liquidity and $0.0015 per share executed for non-displayed
liquidity. The availability of this credit level is based on volume of
liquidity provision during a month, with the required volume adjusted
each month in accordance with a sliding scale that takes account of
overall market volumes during the month. Specifically, a member
qualifies for the highest credit if it has an average daily volume
through the NASDAQ Market Center in all securities during the month of:
(i) More than 95 million shares of liquidity provided, if average total
consolidated volume reported to all consolidated transaction reporting
plans by all exchanges and trade reporting facilities is more than 10
billion shares per day during the month; (ii) more than 85 million
shares of liquidity provided, if average total consolidated volume is
between 9,000,000,001 and 10 billion shares per day during the month;
(iii) more than 75 million shares of liquidity provided, if average
total consolidated volume is between 8,000,000,001 and 9 billion shares
per day during the month; and (iv) more than 65 million shares of
liquidity provided, if average total consolidated volume is 8 billion
or fewer shares per day during the month.
Effective March 1, 2011, NASDAQ will modify the conditions for
qualifying for this rebate tier by stipulating that a member must
achieve the requisite volume levels through a single market participant
identifier (``MPIDs'').\3\ An MPID is a four-letter code used by a
member to categorize its trading activity for a specific purpose. All
members have at least one MPID, but a member may request the assignment
of additional MPIDs. For example, a member may conduct market making
activity through one MPID, while using a second MPID for trading on
behalf of institutional customers. In addition, certain members
aggregate the trading activity of several firms under their own
membership rubric, for the purposes of obtaining more favorable
pricing, but will generally acquire a separate MPID for each firm that
they aggregate, so as to distinguish the trading activity of one firm
from another. NASDAQ has concluded that its most favorable rebate tier
should be paid to those firms that do the most to enhance NASDAQ's
market quality through unified management of a high volume of quotes/
orders. NASDAQ also wishes to ensure that its fee schedule does not
provide excessive encouragement to members to aggregate the activity of
several firms (some of whom may not themselves be members of the
exchange) for the sole purpose of earning a higher rebate. Thus, a
member or a sponsored non-member that is not able to achieve the
requisite level of liquidity provision will not be able to meet the
threshold by coordinating and consolidating with the trading activity
of other firms using multiple MPIDs.
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\3\ A member achieving the requisite level through one MPID
would be eligible to receive the higher credit with respect to
trading activity through its other MPIDs as well.
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NASDAQ notes, however, that the impact of the change on firms that
currently qualify for the most favorable rebate rate but that are not
able to achieve the required volume thresholds through a single MPID is
mitigated by the fact that qualification for other rebate tiers may
continue to be achieved through one or more MPIDs. Notably, members
that provide a daily average of more than 35 million shares of
liquidity during the month through one or more MPIDs are eligible to
receive a rebate of $0.0029 per share executed for displayed liquidity
and $0.0015 per share executed for non-displayed liquidity (versus the
top rebate of $0.00295 per share executed for displayed liquidity and
$0.0015 per share executed for non-displayed liquidity).
Separately, NASDAQ currently offers a rebate of $0.0029 per share
executed for displayed liquidity and $0.0015 per share executed for
non-displayed in circumstances where a market participant achieves
certain specified levels of activity in both the NASDAQ Market Center
and the NASDAQ Options Market. Currently, the required levels of
monthly activity are an average daily volume of more than 25 million
shares of liquidity provided through the NASDAQ Market Center and an
average daily volume of more than 200,000
[[Page 12785]]
options contracts accessed through the NASDAQ Options Market. NASDAQ
has determined that broadening the availability of this tier to
encourage and reward active participation in both of its markets has
the potential to enhance market quality and will recognize the increase
[sic] prevalence of members that are active on both markets.
Accordingly, NASDAQ is reducing the required level of activity on the
NASDAQ Market Center to an average daily volume of more than 10 million
shares of liquidity provided, while setting the required volume of
activity on the NASDAQ Options Market at more than 130,000 options
contracts accessed or provided through the NASDAQ Options Market.
NASDAQ is also making several non-substantive amendments to Rule
7018 to clarify where required volume levels may continue to be
achieved through one or more MPIDs, and is also making several minor
formatting changes to 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 with Section
6(b)(4) of the Act,\5\ 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 NASDAQ operates or controls. First, all similarly situated
members will be subject to the same fee structure, and access to NASDAQ
is offered on fair and non-discriminatory terms. Moreover, NASDAQ
believes that it is reasonable and equitable to stipulate that members
qualifying for NASDAQ's most favorable liquidity rebate tier must
achieve requisite volume thresholds through a single MPID, thereby
enhancing market quality through unified management of the member's
quotes and orders and discouraging aggregation arrangements that exist
solely for pricing reasons. Specifically, liquidity provider rebate
tiers exist to enhance market quality by encouraging participants to
post large numbers of quotes/orders on a particular venue and thereby
allow the exchange to serve a robust price discovery function and
absorb larger volumes of incoming orders at a given price. NASDAQ
believes that it is reasonable and equitable to offer its highest
rebate tier to firms that provide volume through a single MPID, because
NASDAQ believes that such firms are most likely to provide consistent
liquidity during periods of market stress and to manage their quotes/
orders in a coordinated manner that promotes price discovery and market
stability.
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\4\ 15 U.S.C. 78f.
\5\ 15 U.S.C. 78f(b)(4).
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NASDAQ further believes that it is less equitable to pay a high
rebate to a member that aggregates the activity of multiple smaller
firms, since the higher rebate is not being paid with respect to the
active quote/order management of a particular market maker or active
liquidity provider, but rather simply due to the member's willingness
to allow other members and sponsored participants to channel low
volumes of quote/order activity through another member. Accordingly,
NASDAQ believes that the proposal is not unreasonably discriminatory
because it is consistent with the overall goals of enhancing market
quality that undergird the liquidity provider rebate. Finally, NASDAQ
notes that firms no longer eligible for the highest rebate tier would
remain eligible for a rebate tier that is identical with respect to
non-displayed liquidity and only $0.00005 per share executed lower with
respect to displayed liquidity.
NASDAQ further 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. In
particular, because many other trading venues do not stipulate that
volume thresholds must be achieved through a single MPID, market
participants that currently receive the highest rebate but that will be
unable to do so in the future may readily favor competing venues in an
effort to receive more favorable pricing.
With respect to its pricing change for members active on both the
NASDAQ Market Center and the NASDAQ Options Market, NASDAQ noted in its
prior filing to establish a rebate tier focused on such members that
the tier is responsive to the convergence of trading in which members
simultaneously trade different asset classes within a single
strategy.\6\ Thus, to the extent that a member decreases volume in cash
equities while trading higher volumes of options, the tier recognizes
that the member nevertheless remains an active member of the NASDAQ
Stock Market and should remain eligible for pricing discounts that
recognize the overall volume of its activity. NASDAQ also notes that
cash equities and options markets are linked, with liquidity and
trading patterns on one market affecting those on the other.
Accordingly, the tier recognizes that activity in the options markets
also supports price discovery and liquidity provision in the NASDAQ
Market Center.
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\6\ Securities Exchange Act Release No. 59879 (May 6, 2009), 74
FR 22619 (May 13, 2009) (SR-NASDAQ-2009-041).
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After over one year of experience with the existing pricing tier,
however, NASDAQ has concluded that the level of the activity required
to qualify for the tier was not low enough to provide the benefit to an
appropriately wide range of members that are active in both the NASDAQ
Market Center and the NASDAQ Options Market. Accordingly, NASDAQ has
decided to lower the required thresholds so as to make the associated
discount more widely available.
NASDAQ further notes, however, that the tier is one of several
means of qualifying for the rebate levels associated with the tier, and
that the other means do not require any activity on the NASDAQ Options
Market. Accordingly, NASDAQ believes that the tier and the proposed
change in required levels of activity are not unreasonably
discriminatory.
B. Self-Regulatory Organization's Statement on Burden on Competition
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. Because the market
for order execution and routing is extremely competitive, members may
readily opt to disfavor NASDAQ's execution services if they believe
that alternatives offer them better value. Accordingly, NASDAQ 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
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.\7\ 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
[[Page 12786]]
interest, for the protection of investors, or 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.
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\7\ 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-2011-028 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-2011-028. 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 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 a.m. and 3 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-2011-028 and should be submitted on or before March 29, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-5137 Filed 3-7-11; 8:45 am]
BILLING CODE 8011-01-P