[Federal Register Volume 76, Number 43 (Friday, March 4, 2011)]
[Notices]
[Pages 12171-12173]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-4901]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63984; File No. SR-NASDAQ-2011-027]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Make Clarifying Changes to Rule 7002 Concerning the Application and
Collection of the Sales Fee
February 28, 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 16, 2011, 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 is proposing to make clarifying changes to Rule 7002
concerning the application and collection of the Sales Fee.
The text of the proposed rule change is below. Proposed new
language is italicized; proposed deletions are in brackets.
7002. Sales Fee
A Sales Fee is assessed by Nasdaq to each member for sales of
securities through Nasdaq transaction execution systems in the
following circumstances:
(a) When a sale in equity securities occurs with respect to which
Nasdaq is obligated to pay a fee to the SEC under Section 31 of the
Act;
(b) When a sale in option securities occurs with respect to which
Nasdaq is obligated to pay a fee to the SEC under Section 31 of the
Act;
(c) When a sell order in equity securities is routed for execution
at a market other than Nasdaq, resulting in a covered sale on that
market and an obligation of the routing facility of Nasdaq to pay the
related sales fee of that market;
(d) When a sell order in option securities is routed for execution
at a market other than the Nasdaq Options Market, resulting in a
covered sale on that market and an obligation of the
[[Page 12172]]
routing facility of Nasdaq to pay the related sales fee of that market;
[with respect to which Nasdaq is obligated to pay a fee to the SEC
under Section 31 of the Act.] The Sales Fee is collected indirectly
from members through their clearing firms by a designated clearing
agency, as defined by the Act, [NSCC] on behalf of Nasdaq. The amount
of the Sales Fee is equal to (i) the Section 31 fee rate multiplied by
(ii) the member's aggregate dollar amount of covered sales resulting
from transactions through Nasdaq transaction execution systems during
any computational period.
* * * * *
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 amendments to Rule 7002 to make clear the
circumstances that trigger application of the Sales Fee, and to make
other clarifying changes. Rule 7002 permits NASDAQ to collect a fee
from its members for sales of securities through NASDAQ transaction
execution systems with respect to which NASDAQ is obligated to pay a
fee to the SEC pursuant to Section 31 of the Act \3\ and Rule 31,
thereunder.\4\ Each national securities exchange and association is
required to calculate the aggregate dollar amount of ``covered sales''
occurring on the exchange or through a member of the national
securities association and to pay fees based on those covered sales to
the Commission (``Section 31 fees''). A covered sale is a ``sale of a
security, other than an exempt sale or a sale of a security future,
occurring on a national securities exchange or by or through any member
of a national securities association otherwise than on a national
securities exchange.'' \5\ Pursuant to Rule 7002, NASDAQ assesses a
member the Sales Fee for an executed sell order entered into NASDAQ
transaction execution systems that results in a covered sale. The Sales
Fee defrays the cost of the Section 31 fee triggered by the covered
sale. In this regard, the Sales Fee assessed a member is equal to the
Section 31 fee assessed by the Commission for the covered sale.
Further, NASDAQ adjusts the Sales Fee in lock step with changes to the
Section 31 fee made by the Commission.\6\ Assessing a sales fee is
common practice among the national securities exchanges and
associations.\7\
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\3\ 15 U.S.C. 78ee.
\4\ 17 CFR 240.31.
\5\ 17 CFR 240.31(a)(6).
\6\ NASDAQ OMX issues Regulatory Alerts to provide its equities
and options markets' members with notice of Sales Fee changes. See
e.g., http://www.nasdaqtrader.com/TraderNews.aspx?id=ERA2011-01.
\7\ See e.g., CBOE Fees Schedule (January 3, 2011), Item 6
``Sales Value Fee,'' ISE Rule 212, NYSE Rule 440H, and NYSE Amex
Rule 393.
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As noted above, the Sales Fee defrays the cost of the Section 31
fee. The Sales Fee is triggered by the fulfillment of a members [sic]
sell order in equity or options securities entered into NASDAQ
transaction execution systems that results in a covered sale. If the
member's sell order is fulfilled on NASDAQ's equity or options trading
markets, NASDAQ incurs a Section 31 fee obligation. Sell orders in
equity or options securities entered into NASDAQ transaction execution
systems that are routed to another market for execution, however, do
not result in a covered sale on NASDAQ. Execution of such routed orders
is facilitated by NASDAQ's routing brokers,\8\ which act as the selling
member for a routed order on the away market on behalf of the NASDAQ
member. Such routed sell orders result in a covered sale on the away
market, which incurs a Section 31 fee obligation. Like NASDAQ, the away
market assesses a sales fee on the member that entered the sell order,
in this case NASDAQ Execution Services or NASDAQ Options Services, to
defray the cost of the Section 31 fee obligation. In turn, NASDAQ
assesses its member, the original selling party, a Sales Fee pursuant
to Rule 7002 to defray the cost of the Section 31 fee passed on by the
away exchange pursuant to its sales fee. As such, NASDAQ's Sales Fee
offsets the sales fee it is assessed by the away market, the result of
which is to place the parties involved in the transaction in the same
position as if the covered sale had occurred on NASDAQ.
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\8\ NASDAQ Execution Services and NASDAQ Options Services are
NASDAQ's routing brokers for equity and option securities,
respectively. See Rule 4758(b) and NOM Rules Chapter VI, Section
11(e).
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In light of the varying means by which a Sales Fee is incurred by
members, as described above, NASDAQ believes that a more detailed
description of the circumstances that trigger the Sales Fee is
warranted. Accordingly, the new rule language proposed by NASDAQ
expressly discusses covered sales in both equity and option securities.
In addition, the proposed new rule language includes a description of
sell orders entered into NASDAQ transaction execution systems that
result in a covered sale on another exchange, expressly discussing the
fee incurred by NASDAQ and the application of the Sales Fee in such
circumstances.
NASDAQ also proposes deleting reference to the NSCC as the party
that collects the Sales Fee and replacing it with the term ``designated
clearing agency,'' which is defined by rules promulgated under the Act
as a ``clearing agency registered under section 17A of the Act * * *
that clears and settles covered sales or covered round turn
transactions.'') \9\ NASDAQ is adopting the term ``designated clearing
agency'' because it encompasses a broader range of clearing agencies
than is currently noted under the rule. In this regard, Rule 7002
discusses the process by which the Sales Fee is collected from members
for equity covered sales, noting that the fee is collected indirectly
from members through their clearing firms by NSCC. NSCC is a designated
clearing agency that clears transactions in equity securities. NASDAQ
employs NSCC to collect the Sale Fee from members arising from their
covered sales in equity securities. Sales Fees arising from options
covered sales, however, are collected from members by the Options
Clearing Corporation, another designated clearing agency that clears
option securities.\10\ Consistent with the other changes proposed
herein, NASDAQ believes the rule should be updated to more fully
describe the parties and processes involved in collection of the Sales
Fee. Accordingly, NASDAQ proposes to use a term defined by the rules
promulgated under the Act,\11\ which most accurately reflects all
parties NASDAQ employs to collect the Sales Fee from its members.
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\9\ 17 CFR 240.31(a)(9).
\10\ In addition to clearing transactions in options, the
Options Clearing Corporation also clears security futures. See
http://www.optionsclearing.com.
\11\ Supra note 9.
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[[Page 12173]]
2. Statutory Basis
NASDAQ believes that the proposed rule change is consistent with
Section 6(b)(4) of the Act \12\ 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, and it does not unfairly discriminate between
customers, issuers, brokers or dealers. The proposed clarifying
language does not change the application and assessment of the Sales
Fee under the rule, but rather provides greater detail on the
transactions that trigger the fee and the process by which the fee is
collected. NASDAQ applies Rule 7002 uniformly to all members' sell
orders entered into NASDAQ's transaction execution systems resulting in
covered sales.
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\12\ 15 U.S.C. 78f(b)(4).
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NASDAQ also believes the proposed rule change is consistent with
the provisions of Section 6 of the Act,\13\ in general and with Section
6(b)(5) of the Act,\14\ in particular, which requires that the rules of
an exchange be designed to prevent fraudulent and manipulative acts and
practices, promote just and equitable principles of trade, foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, protect investors and the public interest.
NASDAQ believes that the proposed rule change is consistent with these
requirements because the proposed amended rule text provides members
with more detail regarding the circumstances under which NASDAQ
assesses a Sales Fee, and the process by which the fee is collected. As
such, the proposed changes will help avoid member confusion and foster
better understanding of the application of the rule. Accordingly,
NASDAQ believes the proposed rule change will promote just and
equitable principles of trade, remove impediments to and perfect the
mechanism of a free and open market and a national market system, and
protect investors and the public interest.
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\13\ 15 U.S.C. 78f.
\14\ 15 U.S.C. 78f(b)(5).
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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.
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
Because the foregoing proposed rule change establishes or changes a
due, fee or other charge applicable only to a member, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \15\ and Rule 19b-
4(f)(2) thereunder.\16\
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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is 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
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, as amended, 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-2011-027 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-2011-027. 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 such filing also will be
available for inspection and copying at the principal offices of
NASDAQ. 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-2011-027, and should be submitted on or before March 25, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-4901 Filed 3-3-11; 8:45 am]
BILLING CODE 8011-01-P