[Federal Register Volume 79, Number 95 (Friday, May 16, 2014)]
[Notices]
[Pages 28568-28571]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-11293]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72150; File No. SR-NASDAQ-2014-049]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Modify NASDAQ Rule 7018 Fees and Establish Fee Tiers for the Execution 
of Market-on-Close and Limit-on-Close Orders Executed in the NASDAQ 
Closing Cross and Eliminate the High Volume Market Participant 
Identifier Program

May 12, 2014.
    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 April 30, 2014, The NASDAQ Stock Market LLC (``NASDAQ'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a 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 the 
Substance of the Proposed Rule Change

    NASDAQ is proposing to modify NASDAQ Rule 7018 fees assessed for 
execution and routing [sic] securities listed on the New York Stock 
Exchange (``NYSE'') and on exchanges other than NASDAQ and NYSE, as 
well as establishing fee tiers for the execution of Market-on-Close and 
Limit-on-Close orders executed in the NASDAQ Closing Cross and 
eliminating the high volume Market Participant Identifier program.
    While the changes proposed herein are effective upon filing, the 
Exchange has designated that the amendments be operative on May 1, 
2014.
    The text of the proposed rule change is available at 
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 those 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 parts 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 amend NASDAQ Rule 7018 to modify NASDAQ Rule 
7018 [sic] fees assessed for execution and routing [sic] securities 
listed on NYSE (``Tape A'') and on exchanges other than NASDAQ and the 
NYSE (``Tape B''), as well as establishing fee tiers for the execution 
of Market-on-Close and Limit-on-Close (``MOC/LOC'') orders executed in 
the NASDAQ Closing Cross.
    Specifically, NASDAQ is proposing to offer reduced access fees for 
firms that execute against resting midpoint liquidity for both Tape A 
and Tape B securities. The standard access fees are currently $0.0030 
per executed share, but the Exchange proposes to reduce this fee for 
Tape A and Tape B securities to $0.0027 per executed share. The 
Exchange believes that the proposed discounted executions for taking

[[Page 28569]]

midpoint liquidity will encourage firms that are interested in 
accessing more of the NASDAQ's price improving liquidity access [sic] 
more resting midpoint liquidity before routing to other destinations.
    Additionally, the Exchange is proposing to establish new fee tiers 
for the execution of MOC/LOC orders executed in the NASDAQ Closing 
Cross. The new tiers are designed to reasonably raise revenue, benefit 
market participants that provide liquidity during market hours and the 
opportunity to lower the proposed price changes by executing more 
volume via the NASDAQ Closing Cross. The Exchange proposes to begin 
offering tiers for the execution of MOC/LOC orders as follows:

 Tier A: Shares of liquidity provided in all securities through 
one or more of its Nasdaq Market Center MPIDs that represent above 
1.40% of Consolidated Volume or MOC/LOC volume above 0.50% of 
Consolidated Volume: $0.00065 per executed share
 Tier B: Shares of liquidity provided in all securities through 
one or more of its Nasdaq Market Center MPIDs that represent above 
0.80% to 1.40% of Consolidated Volume or MOC/LOC volume above 0.30% to 
0.50% of Consolidated Volume: $0.0011 per executed share
 Tier C: Shares of liquidity provided in all securities through 
one or more of its Nasdaq Market Center MPIDs that represent above 
0.50% to 0.80% of Consolidated Volume or MOC/LOC volume above 0.10% to 
0.30% of Consolidated Volume: $0.0012 per executed share
 Tier D: Shares of liquidity provided in all securities through 
one or more of its Nasdaq Market Center MPIDs that represent above 
0.30% to 0.50% of Consolidated Volume: $0.0013 per executed share
 Tier E: Shares of liquidity provided in all securities through 
one or more of its Nasdaq Market Center MPIDs that represent above 
0.015% to 0.30% of Consolidated Volume: $0.00135 per executed share
 Tier F: Shares of liquidity provided in all securities through 
one or more of its Nasdaq Market Center MPIDs that represent 0.00% to 
0.015% of Consolidated Volume: $0.0014 per executed share
 Tier G: Member adds Nasdaq Options Market Customer and/or 
Professional liquidity in Penny Pilot Options and/or Non-Penny Pilot 
Options of 0.80% or more of national customer volume in multiply-listed 
equity and ETF options classes in a month: $0.0010 per executed share.

    The new fee tiers for participation in the closing auctions 
essentially replace the high volume Market Participant Identifier 
(``High Volume MPID'') program that allowed a member that trades 
through a qualified High Volume MPID to pay a discounted fee per share 
executed with respect to executions of MOC/LOC orders when the same 
High Volume MPID is on both sides of the trade. Since this incentive 
program has been in place, the Exchange has observed that the High 
Volume MPID program is not widely-used and so it now proposes the new 
fee tiers discussed above. The proposed new fee tiers will result in 
higher fees for most firms, however, the Exchange is offering liquidity 
adding incentives and MOC/LOC incentives to materially reduce the 
proposed fees to be assessed for MOC/LOC executions in the NASDAQ 
Closing Cross. Finally, if a member qualifies for two tiers, the lower 
tier rate will apply.

2. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\3\ in general, and with 
Sections 6(b)(4) and 6(b)(5) of the Act,\4\ 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. This proposal is reasonable, equitable and not 
unfairly discriminatory for the reasons noted below.
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    \3\ 15 U.S.C. 78f.
    \4\ 15 U.S.C. 78f(b)(4) and (5).
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    The proposed changes are reflective of NASDAQ's ongoing efforts to 
use reduced access fees and better targeted discount [sic] to attract 
orders that NASDAQ believes will improve market quality. Generally, 
NASDAQ seeks to provide customers with discounts that they deem 
helpful, and to eliminate those that they do not. By offering reduced 
access fees for firms that execute against resting midpoint liquidity 
and by replacing the High Volume MPID program with the new fee tiers 
for participation in the closing auction, NASDAQ believes it will be 
able to further promote these goals by providing better targeted 
incentives for market participants.
    Specifically, the proposed changes are consistent with statutory 
requirements. The proposal to reduce access fees for firms that execute 
against resting midpoint liquidity from the standard access fee of 
$0.0030 per executed share to $0.0027 per executed share for Tape A and 
Tape B securities is consistent with a fair allocation of reasonable 
fees and not unfairly discriminatory because it is a price cut that 
applies uniformly to all NASDAQ members. NASDAQ believes that the fee 
reduction will incentivize firms to execute against midpoint liquidity 
and this, in turn, will lead to an increase in price improvement 
liquidity and price improvement generally benefits the investing 
public.
    The impact of the change in adding new tiers for participation in 
the NASDAQ Closing Cross will be a price increase for many market 
participants, but those that provide greater liquidity during market 
hours or increase their usage of the NASDAQ Closing Cross will receive 
a greater discount. Generally speaking, the base rate will increase 
from $0.0010 to $0.0014 per executed share as discussed more fully 
below, but the Exchange is providing various incentives to all market 
participants to lower the fees to be assessed for MOC/LOC executions.
    The Exchange's proposal to establish Tier A in which shares of 
liquidity provided in all securities through one or more of its Nasdaq 
Market Center MPIDs that represent above 1.40% of Consolidated Volume 
or MOC/LOC volume above 0.50% of Consolidated Volume will be executed 
at $0.00065 per share is equitable and not unfairly discriminatory 
because all market participants have the opportunity to achieve this 
tier if they choose to increase added [sic] liquidity or MOC/LOC 
volume. The fee is reasonable because it represents a price reduction 
when compared to the current rate of $0.0010 per executed share and is 
approximately the average rate paid by those market participants that 
chose to avail themselves of the High Volume MPID discount.
    The Exchange's proposal to establish Tier B in which shares of 
liquidity provided in all securities through one or more of its Nasdaq 
Market Center MPIDs that represent above 0.80% to 1.40% of Consolidated 
Volume or MOC/LOC volume above 0.30% to 0.50% of Consolidated Volume 
will be executed at $0.0011 per share is equitable and not unfairly 
discriminatory. While this is a price increase, the Exchange is still 
providing opportunities for all market participants to reduce the per 
share rate by adding additional liquidity or executing a greater number 
of MOC/LOC shares.
    The Exchange's proposal to establish Tier C in which shares of 
liquidity provided in all securities through one or more of its Nasdaq 
Market Center MPIDs

[[Page 28570]]

that represent above 0.50% to 0.80% of Consolidated Volume or MOC/LOC 
volume above 0.10% to 0.30% of Consolidated Volume will be executed at 
$0.0012 per share is equitable and not unfairly discriminatory because 
this tier provides additional opportunities for members to reduce the 
fees to be paid for MOC/LOC executions.
    The Exchange's proposal to establish Tier D in which shares of 
liquidity provided in all securities through one or more of its Nasdaq 
Market Center MPIDs that represent above 0.30% to 0.50% of Consolidated 
Volume will be executed at $0.0013 per share is equitable and not 
unfairly discriminatory because this tier provides additional 
opportunities for members to reduce the fees to be paid for MOC/LOC 
executions.
    The Exchange's proposal to establish Tier E in which shares of 
liquidity provided in all securities through one or more of its Nasdaq 
Market Center MPIDs that represent above 0.015% to 0.30% of 
Consolidated Volume will be executed at $0.00135 per share is equitable 
and not unfairly discriminatory because this tier provides additional 
opportunities for members to reduce the fees to be paid for MOC/LOC 
executions.
    The Exchange's proposal to establish Tier F in which shares of 
liquidity provided in all securities through one or more of its Nasdaq 
Market Center MPIDs that represent 0.00% to 0.015% of Consolidated 
Volume will be executed at $0.0014 per share is equitable and not 
unfairly discriminatory because the Exchange believes this represents 
the base rate for utilizing the NASDAQ Closing Cross. The Exchange 
spends significant testing and regulatory resources, among other 
resources, to ensure that the NASDAQ Closing cross [sic] is the 
industry standard. The Exchange believes that this proposed rate 
properly reflects that ongoing investment. Further, the Exchange is 
offering a variety of incentives that are discussed above and below for 
market participants to reduce their costs [sic] adding additional 
liquidity or increasing volume in the NASDAQ Closing Cross.
    The Exchange's proposal to establish Tier G in which a member adds 
Nasdaq Options Market Customer and/or Professional liquidity in Penny 
Pilot Options and/or Non-Penny Pilot Options of 0.80% or more of 
national customer volume in multiply-listed equity and ETF options 
classes in a month will be executed at $0.0010 per share is equitable 
and not unfairly discriminatory because this provides an additional 
means for members to reduce their fees assessed for executions in the 
NASDAQ Closing Cross. Like the other tiers offered, this tier enhances 
market participants' choices to earn price cuts. They can add more 
liquidity on the Exchange or its options platform or they can use the 
NASDAQ Closing Cross instead of potential off-exchange alternatives.
    Volume-based discounts such as the fees associated with the new 
tiers for participation in the Closing Cross proposed here have been 
widely adopted in the cash equities markets, and are equitable because 
they are open to all members on an equal basis and provide discounts 
that are reasonably related to the value to an exchange's market 
quality associated with higher levels of market activity, such as 
higher levels of liquidity provision and introduction of higher volumes 
of orders into the price and volume discovery processes of the Closing 
Cross. NASDAQ further notes that it operates in a highly competitive 
market in which market participants can readily favor competing venues, 
or in this case, internalize orders rather than exposing them to the 
broader market, if they deem fee levels at a particular venue to be 
excessive. NASDAQ believes that the new fee tiers will help ensure that 
its Closing Cross continues to attract high levels of participation.
    Additionally, the elimination of High Volume MPID program is 
consistent with a fair allocation of reasonable fees and not unfairly 
discriminatory since the removal of the rule language pertaining to the 
incentives impacts all firms equally.

B. Self-Regulatory Organization's Statement on Burden on Competition

    NASDAQ does not believe that the proposed rule changes will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.\5\ 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. Because competitors are free to modify their own fees in 
response, and because market participants may readily adjust their 
order routing practices, NASDAQ believes that the degree to which fee 
changes in this market may impose any burden on competition is 
extremely limited. In this instance, discounted executions for taking 
midpoint liquidity, as well as the replacement of the High Volume MPID 
program with the establishment of new fee tiers for the execution of 
MOC/LOC orders executed in the NASDAQ Closing Cross reflect this.
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    \5\ 15 U.S.C. 78f(b)(8).
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    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 change has become effective pursuant to Section 
19(b)(3)(A) of the Act,\6\ and paragraph (f) \7\ of Rule 19b-4, 
thereunder. 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.
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    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 17 CFR 240.19b-4(f).
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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-2014-049 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2014-049. This 
file number should be included on the subject line if email is used.


[[Page 28571]]


    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 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-2014-049, and 
should be submitted on or before June 6, 2014.

    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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-11293 Filed 5-15-14; 8:45 am]
BILLING CODE 8011-01-P