[Federal Register Volume 77, Number 31 (Wednesday, February 15, 2012)]
[Notices]
[Pages 8936-8938]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-3556]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66369; File No. SR-NASDAQ-2012-024]


Self-Regulatory Organizations; the NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Modify NASDAQ's Pre-Market Investor Program

February 10, 2012.
    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 1, 2012, The NASDAQ Stock Market LLC (``NASDAQ'' or 
``Exchange''), 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 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

    NASDAQ is proposing to modify its NASDAQ's Pre-Market Investor 
Program. NASDAQ proposes to implement the proposed rule change on 
February 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, the Exchange 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. 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Last year, NASDAQ introduced a Pre-Market Investor Program to 
encourage greater use of NASDAQ's facilities for trading before the 
market open at 9:30 a.m. and through the trading day.\3\ The goal of 
the program is to encourage the development of a deeper, more liquid 
trading book during pre-market hours, while also recognizing the 
correlation observed by NASDAQ between levels of liquidity provided 
during pre-market hours and levels provided during regular trading 
hours. While maintaining the structure of the existing program, NASDAQ 
is now proposing to modify the program to also encourage greater use of 
NASDAQ's facilities for trading after the market close at 4 p.m. In 
connection with the change, NASDAQ will also rename the program as the 
``Extended Hours Investor Program'' (``EHIP'').
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    \3\ Securities Exchange Act Release No. 65717 (November 9, 
2011), 76 FR 70784 (November 15, 2011) (SR-NASDAQ-2011-150).
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    Under the program, a member is required to designate one or more 
market participant identifiers (``MPIDs'') for use under the 
program.\4\ The member will then qualify for an extra rebate of $0.0002 
per share executed \5\ with respect to all displayed liquidity provided 
through a designated MPID that executes at a price of $1 or more during 
the month if the following conditions are met:
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    \4\ After the initial designation of NASDAQ MPIDs for EHIP use, 
a member may add or remove such EHIP designations for existing 
MPIDs, provided that NASDAQ must be appropriately notified of such a 
change on or before the first trading day of the month when the 
change is to become effective. A newly established MPID may be 
designated for EHIP use immediately upon establishment.
    \5\ Originally, the rebate was set at $0.0001 per share 
executed, but effective February 1, 2012, NASDAQ increased the rate 
to $0.0002 per share executed. See SR-NASDAQ-2012-020 (January 27, 
2012).
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    (1) The MPID's ``EHIP Execution Ratio'' \6\ for the month is less 
than 10. The EHIP Execution Ratio is defined as ``the ratio of (A) the 
total number of liquidity-providing orders entered by a member through 
an EHIP-designated MPID during the specified time period to (B) the 
number of liquidity-providing orders entered by such member through 
such EHIP-designated MPID and executed (in full or partially) in the 
Nasdaq Market Center during such time period; provided that: (i) No 
order shall be counted as executed more than once; and (ii) no Pegged 
Orders, odd-lot orders, or MIOC or SIOC orders \7\ shall be included in 
the tabulation.'' Thus, the requirement stipulates that a high 
proportion of potentially liquidity-providing orders entered through 
the MPID actually execute and provide liquidity. This requirement is 
designed to focus the availability of the program on members 
representing retail and institutional customers.
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    \6\ Formerly, the PMI Execution Ratio.
    \7\ ``Market Hours Immediate-or-Cancel'' or ``System Hours 
Immediate-or-Cancel'' orders.
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    (2) Currently, the member must provide an average daily volume of 2 
million or more shares of liquidity during the month using orders that 
are executed prior to NASDAQ's Opening Cross. NASDAQ has observed that 
members that provide higher volumes of liquidity-providing orders 
during the pre-market hours generally do so throughout the rest of the 
trading day. Accordingly, the program pays a credit with respect to all 
liquidity-providing orders, but only in the event that comparatively 
large volumes of such orders execute in pre-market hours. To broaden 
the focus of the program to include after-hours trading, NASDAQ is 
proposing to modify this provision to provide an alternative criterion 
for participation in the program, but without removing or modifying the

[[Page 8937]]

existing criteria. Specifically, a member may also satisfy the volume 
requirement if the member provides an average daily volume of 3 million 
or more shares of liquidity during the month using orders that are 
entered through its designated MPID and executed prior to the Nasdaq 
Opening Cross and/or after the Nasdaq Closing Cross. Thus, the modified 
volume criteria may be satisfied either through substantial activity 
during pre-market trading hours, or by substantial activity spread 
across the pre-market and after-hours trading sessions.
    (3) The ratio between shares of liquidity provided through the MPID 
and total shares accessed, provided, or routed through the MPID during 
the month is at least 0.80. This requirement reflects the program's 
goal of encouraging members that provide high levels of liquidity in 
the pre-market and/or after-hours trading sessions to also do so during 
the rest of the trading day.
    The modified program is similar to a fee provision of the EDGX 
Exchange under which a favorable execution fee and rebate are offered 
to members that make significant use of the EDGX Exchange's facilities 
during pre-market and/or post-market hours.\8\
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    \8\ http://www.directedge.com/Membership/FeeSchedule/EDGXFeeSchedule.aspx.
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2. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\9\ in general, and with 
Sections 6(b)(4) and (5) of the Act,\10\ 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, and is not 
designed to permit unfair discrimination between customers, issuers, 
brokers or dealers. All similarly situated members are subject to the 
same fee structure, and access to NASDAQ is offered on fair and non-
discriminatory terms.
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    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(4) and (5).
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    The Pre-Market Investor Program, now renamed with Extended Hours 
Investment Program, is designed to attract greater liquidity to NASDAQ, 
with a particular emphasis on encouraging a deeper and more liquid book 
during pre-market and post-market hours and recognizing and further 
encouraging the observed correlation between liquidity provision during 
pre-market and post-market hours and throughout the trading day. The 
EHIP provides an additional credit to members that satisfy criteria 
designed to be indicative these patterns of market participation. Thus, 
a participant in the program is required to designate MPIDs with a low 
ratio between orders entered and executions; to provide a specified 
volume of liquidity during pre-market hours, or pre-market and/or post-
market hours; and to maintain a high ratio of liquidity provision to 
order execution throughout the month.
    The EHIP is not unfairly discriminatory because it is intended to 
promote submission of liquidity-providing orders to NASDAQ, which 
benefits all NASDAQ members and all investors. Likewise, the EHIP is 
consistent with the Act's requirement for the equitable allocation of 
reasonable dues, fees, and other charges. Members who choose to 
significantly increase the volume of EHIP-eligible liquidity-providing 
orders that they submit to NASDAQ would be benefitting all investors, 
and therefore providing credits to such members, as contemplated in the 
proposed enhanced program, is equitable. Moreover, NASDAQ believes that 
the level of the credit--$0.0002 per share, in addition to credits 
ranging from $0.0020 to $0.00295 per share for displayed liquidity 
under NASDAQ regular transaction execution fee and rebate schedule--is 
reasonable.
    NASDAQ further believes that expanding the program to incentivize 
greater participation in the after-hours trading session is not 
unfairly discriminatory, because it will promote still further the 
provision of liquidity, which benefits all market participants, and 
will broaden the availability of the offered rebate to a greater number 
of market participants. Similarly, NASDAQ believes that the expansion 
of the program is consistent with the equitable allocation of fees, 
because it will further incentivize members to provide liquidity. 
NASDAQ further believes that the expansion is reasonable, because it 
will reduce the fees paid by a larger number of market participants.
    Finally, NASDAQ 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, NASDAQ 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. NASDAQ believes that all aspects of the 
proposed rule change reflect this competitive environment because the 
change is designed to increase the credits provided to members that 
enhance NASDAQ's market quality through liquidity provision.

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 is extremely competitive, members may readily opt 
to disfavor NASDAQ's execution services if they believe that 
alternatives offer them better value. The proposed changes will enhance 
competition by offering a higher rebate to more market participants. In 
addition, the change will enhance competition with the EDGX Exchange, 
which encourages participation in its pre-market and post-market 
trading sessions by means of favorable pricing offered to members that 
are active during pre-market and/or post-market hours.\11\
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    \11\ http://www.directedge.com/Membership/FeeSchedule/EDGXFeeSchedule.aspx.
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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 \12\ and subparagraph (f)(2) of Rule 19b-4 
thereunder.\13\ 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.
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    \12\ 15 U.S.C. 78s(b)(3)(a)(ii)[sic].
    \13\ 17 CFR 240.19b-4(f)(2).
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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.

[[Page 8938]]

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-2012-024 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-2012-024. 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 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-2012-024 and should 
be submitted on or before March 7, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-3556 Filed 2-14-12; 8:45 am]
BILLING CODE 8011-01-P