[Federal Register Volume 77, Number 244 (Wednesday, December 19, 2012)]
[Notices]
[Pages 75232-75234]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-30546]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68421; File No. SR-NASDAQ-2012-135]


 Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Amend NASDAQ's Fees for Order Execution

December 13, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\, and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on November 30, 2012, 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 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

    The NASDAQ Stock Market LLC proposes changes to NASDAQ's fees for 
order execution. While changes pursuant to this proposal are effective 
upon filing, the Exchange will implement the proposed rule on December 
3, 2012.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.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 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
    NASDAQ currently charges $0.0030 per share executed with respect to 
all orders for securities priced at $1 or more per share that execute 
in the NASDAQ Market Center. In this proposed rule change, NASDAQ is 
proposing two specific discounts from this fee.\3\ First, if a member 
enters Market-on-Close (``MOC'') and/or Limit-on-Close (``LOC'') orders 
that execute in the NASDAQ Closing Cross, and such orders represent 
more than 0.06% of the total consolidated volume reported to all 
consolidated transaction reporting plans by all exchanges and trade 
reporting facilities (``Consolidated Volume'') during the month, the 
member would pay a fee of $0.0029 per share executed with respect to 
its orders that execute in the NASDAQ Market Center during the 
month.\4\ NASDAQ is introducing the discount because it believes that 
members that participate in the NASDAQ Closing Cross to a significant 
extent through the use of MOC and/or LOC orders are frequently acting 
on behalf of institutional investor customers. At present, such members 
may be giving NASDAQ lower relative priority in their order routing 
decisions due to its relatively high fees for accessing liquidity, as 
compared with lower-cost exchanges. As a result, liquidity providers on 
NASDAQ may receive larger orders that have already attempted to access 
liquidity elsewhere, such that the order is more likely to have an 
impact on the price of the stock. By lowering fees for these members, 
NASDAQ hopes to encourage them to give greater priority to NASDAQ in 
their routing decisions, thereby lowering their cost and improving the 
execution experience of liquidity providers. NASDAQ also hopes to 
encourage greater use of its Closing Cross through this pricing 
incentive. NASDAQ further notes that the New York Stock Exchange 
(``NYSE'') currently offers general pricing incentives to members that 
make use of its closing process to a specified extent.\5\
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    \3\ NASDAQ is also making conforming changes to relocate the 
placement of the definitions of ``MPID'' and ``Consolidated Volume'' 
in Rule 7018.
    \4\ Unless a lower rate applies. For example, an order subject 
to the discount for Designated Securities described below would pay 
the lower rate.
    \5\ Securities Exchange Act Release No. 68150 (November 5, 
2012), 77 FR 67431 (November 9, 2012) (SR-NYSE-2012-56); Securities 
Exchange Act Release No. 68021 (October 9, 2012), 77 FR 63406 
(October 16, 2012) (SR-NYSE-2012-50).
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    Second, NASDAQ is proposing a discounted execution fee of $0.0028 
per share executed for the following securities (``Designated 
Securities''):

BAC Bank of America Corporation
DIA SPDR Dow Jones Industrial Average ETF
EEM iShares MSCI Emerging Markets Index ETF
F Ford Motor Co.
GE General Electric Company
GEN GenOn Energy, Inc.
HPQ Hewlett-Packard Company
INTC Intel Corporation
IWM iShares Russell 2000 Index ETF
MSFT Microsoft Corporation
NOK Nokia Corporation
QQQ Powershares QQQ ETF
S Sprint Nextel Corp.
SPY SPDR S&P 500 ETF
TZA Direxion Daily Small Cap Bear 3X Shares ETF
VXX iPath S&P 500 VIX ST Futures ETN
XLF Financial Select Sector SPDR ETF
YHOO Yahoo! Inc.

    The discounted fee would apply to all orders in Designated 
Securities entered through a market participant identifier (``MPID'') 
through which a member accesses, provides, or routes shares of 
liquidity that represent more than 0.25% of Consolidated Volume during 
the month, including a daily average volume of at least 2 million 
shares of liquidity provided. The Designated Securities were selected 
based on analysis of the extent to which (i) NASDAQ generally has a 
strong quote in the security, in terms of size and time at the national 
best bid or offer (``NBBO''), but (ii) NASDAQ's share of executions in 
the security has declined. By lowering the fee for accessing liquidity 
in these securities, NASDAQ hopes to encourage members to give greater 
priority to NASDAQ in their routing decisions, thereby lowering their 
cost and improving the execution experience of liquidity providers in 
Designated Securities. In order to qualify for the discount, members 
must demonstrate a commitment to regular participation in the NASDAQ 
Market Center by reaching relatively modest usage levels (shares 
accessed, provided or routed representing 0.25% of Consolidated 
Volume), including an average daily volume of 2 million or more shares 
of liquidity provided. Through this requirement, NASDAQ will minimize 
the likelihood of offering the discount to members that engage solely 
in opportunistic trading without providing liquidity. NASDAQ believes 
that this will, in turn, increase the likelihood that offering the 
pricing incentive will increase NASDAQ's market quality in Designated 
Securities. NASDAQ further notes that NYSE and NYSEArca currently offer 
pricing

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incentives that are limited to certain designated securities.\6\
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    \6\ Securities Exchange Act Release No. 68021 (October 9, 2012), 
77 FR 63406 (October 16, 2012) (SR-NYSE-2012-50); Securities 
Exchange Act Release No. 67986 (October 4, 2012), 77 FR 61803 
(October 11, 2012) (SR-NYSEArca-2012-104).
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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,\7\ in general, and with 
Sections 6(b)(4) and 6(b)(5) of the Act,\8\ 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.
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    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(4) and (5).
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    Specifically, NASDAQ believes that the proposal to introduce a 
pricing incentive for members that achieve certain participation levels 
in the NASDAQ Closing Cross is reasonable because it will result in a 
reduction of fees below the levels currently in effect, which in turn 
are consistent with the requirements of Rule 610 under Regulation NMS 
\9\ applicable to access fees. The proposal is consistent with an 
equitable allocation of fees and not unfairly discriminatory because it 
will reduce fees to members that NASDAQ believes are generally acting 
on behalf of institutional investors, and NASDAQ believes that drawing 
the orders of such members to NASDAQ will be beneficial to other market 
participants. Specifically, by encouraging such members to route orders 
to NASDAQ sooner, the pricing change is intended to benefit liquidity 
providers by allowing them to achieve more frequent executions under 
conditions where the execution of their posted liquidity is less likely 
to have a negative impact on the price of the security being traded. In 
addition, the change is intended to increase the proportion of orders 
in NASDAQ that reflect long-term trading interest, rather than 
opportunistic trading strategies. Accordingly, although the fee 
reduction applies only to members with certain characteristics, it is 
equitable and not unfairly discriminatory because it is intended to 
encourage trading behavior that is beneficial to the market as a whole. 
The discount is also not unfairly discriminatory because an appreciable 
number of members are expected to qualify for it based on current 
trading volumes, and more may qualify by increasing their participation 
in NASDAQ.
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    \9\ 17 CFR 242.610.
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    Similarly, NASDAQ believes that the proposal to introduce a pricing 
incentive for Designated Securities is reasonable because it will 
result in a reduction of fees below the levels currently in effect, 
which in turn are consistent with the requirements of Rule 610 under 
Regulation NMS \10\ applicable to access fees. The proposal is 
consistent with an equitable allocation of fees and not unfairly 
discriminatory because it will reduce fees for members that have 
demonstrated a commitment to regular participation in the NASDAQ Market 
Center through reaching specified levels of overall usage and liquidity 
provision. Incentives focused on the members that provide liquidity are 
prevalent in securities markets because higher levels of liquidity 
provision aid price discovery and dampen volatility. In addition, the 
focus of the incentive on Designated Securities is equitable and not 
unreasonably discriminatory because, despite strong quotes in terms of 
size and time at the inside, NASDAQ's share of executions in these 
securities has declined, thereby risking the willingness of members to 
continue to offer liquidity at current levels. By providing an 
incentive for members to access NASDAQ's quote in these securities, the 
price change will benefit liquidity providers as well as liquidity 
accessors. The discount is also not unfairly discriminatory because an 
appreciable number of members are expected to qualify for it based on 
current trading volumes, and more may qualify by increasing their 
participation in NASDAQ.
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    \10\ Id.
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    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. 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 the proposed rule change 
reflects this competitive environment because it lowers fees for 
members whose trading activity is likely to reinforce incentives for 
other members to provide liquidity at NASDAQ.

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. By reducing fees, the proposal is 
a manifestation of the continued intense level of competition in the 
market for order execution.

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.\11\ 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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    \11\ 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 email to [email protected]. Please include 
File Number SR-NASDAQ-2012-135 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-2012-135. This 
file number should be included on the

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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 
such 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-2012-135, and should be submitted on or before 
January 9, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-30546 Filed 12-18-12; 8:45 am]
BILLING CODE 8011-01-P