[Federal Register Volume 78, Number 76 (Friday, April 19, 2013)]
[Notices]
[Pages 23611-23616]
[FR Doc No: 2013-09191]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69376; File No. SR-NASDAQ-2013-063]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
To Amend Rules 7014 and 7018

April 15, 2013.
    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 April 1, 2013, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    NASDAQ is proposing changes to its schedule of fees and rebates for
execution of orders for securities priced at $1 or more under Rule
7018, as well as changes to its Qualified Market Maker (``QMM'') and
NBBO Setter Incentive Programs under Rule 7014. The changes pursuant to
this proposal are effective upon filing, and the Exchange will
implement the proposed rule changes on April 1, 2013.
    The text of the proposed rule change is available on the Exchange's
Web site at http://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 the
Statutory Basis for, the Proposed Rule Change

1. Purpose
Designated Retail Orders
    In March 2013,\3\ NASDAQ introduced new liquidity provider credit
tiers for orders designated by a member as Designated Retail Orders.
The change was part of an ongoing effort by NASDAQ to use financial
incentives to encourage greater participation in NASDAQ by members that
represent retail customers.\4\ For purposes of the new tiers and
credits, a Designated Retail Order is defined as an agency or riskless
principal \5\ order that originates from a natural person and is
submitted to NASDAQ by a member that designates it pursuant to Rule
7018, provided that no change is made to the terms of the order with
respect to price or side of market and the order does not originate
from a trading algorithm or any other computerized methodology. As
originally adopted, if a member enters Designated Retail Orders through
a market participant identifier (``MPID'') through which (i) at least
90% of the shares of liquidity provided during the month are provided
through Designated Retail Orders, and (ii) the member accesses,
provides, or routes shares of liquidity that represent at least 0.10%
of Consolidated Volume \6\ during the month, the member would receive a
credit of $0.0034 per share executed for Designated Retail Orders that
provide liquidity if they are displayed orders. NASDAQ is proposing to
modify the criteria for this tier in two respects. First, NASDAQ is
removing the 0.10% of Consolidated Volume requirement, such that any
member that satisfies the requirement to provide 90% of the shares of
liquidity provided through a particular MPID using Designated Retail
Orders will be eligible for the $0.0034 per share executed rate. In
addition, NASDAQ is proposing an additional means by which a member may
receive the $0.0034 per share executed rate. If the member provides
shares of liquidity through Designated Retail Orders that represent at
least 0.30% of Consolidated Volume, and the member also qualifies for
the Penny Pilot Tier 4 Customer and Professional Rebate to Add
Liquidity under Chapter XV, Section 2 of the NASDAQ Options Market
(``NOM'') rules during the month through one or more of its NOM MPIDs,
it will also qualify for the $0.0034 rate. Under a proposed rule change
for NOM being filed contemporaneously,\7\ a NOM Participant qualifies
for the Tier 4 Customer and Professional Rebate if it adds a number of
contracts of Customer and Professional \8\ liquidity that equals or
exceeds 0.5% of total industry customer equity and ETF option average
daily volume (``ADV'') during the month.
---------------------------------------------------------------------------

    \3\ Securities Exchange Act Release No. 69133 (March 14, 2013),
78 FR 17272 (March 20, 2013) (SR-NASDAQ-2013-042).
    \4\ The Commission has expressed concern that a significant
percentage of the orders of individual investors are executed in
over-the-counter markets, that is, at off-exchange markets.
Securities Exchange Act Release No. 61358 (January 14, 2010), 75 FR
3594 (January 21, 2010) (Concept Release on Equity Market Structure,
``Concept Release''). In the Concept Release, the Commission
recognized the strong policy preference under the Act in favor of
price transparency and displayed markets. See also Mary L. Schapiro,
Strengthening Our Equity Market Structure (Speech at the Economic
Club of New York, Sept. 7, 2010) (``Schapiro Speech,'' available on
the Commission Web site) (comments of former Commission Chairman on
what she viewed as a troubling trend of reduced participation in the
equity markets by individual investors, and that a significant
percentage of volume in U.S.-listed equities is executed in venues
that do not display their liquidity or make it generally available
to the public).
    \5\ To qualify as a Designated Retail Order, a riskless
principal order must satisfy the criteria set forth in FINRA Rule
5320.03. These criteria include that that the member maintain
supervisory systems to reconstruct, in a time[hyphen]sequenced
manner, all orders that are entered on a riskless principal basis;
and the member submits a report, contemporaneously with the
execution of the facilitated order, that identifies the trade as
riskless principal.
    \6\ ``Consolidated Volume'' is defined as the total consolidated
volume reported to all consolidated transaction plans by all
exchanges and trade reporting facilities.
    \7\ SR-NASDAQ-2013-062 (April 1, 2013).
    \8\ The term ``Customer'' applies to any transaction that is
identified by a Participant for clearing in the Customer range at
The Options Clearing Corporation (``OCC'') which is not for the
account of a broker or dealer or for the account of a Professional.
The term ``Professional'' means any person or entity that (i) is not
a broker or dealer in securities, and (ii) places more than 390
orders in listed options per day on average during a calendar month
for its own beneficial account(s) pursuant to Chapter I, Section
1(a)(48) of the NOM Rules.
---------------------------------------------------------------------------

    As is currently the case, Designated Retail Orders not qualifying
for the

$0.0034 per share executed tier will receive a credit of $0.0033 per
share executed if they are displayed, and will receive NASDAQ's
existing credits for midpoint pegged and midpoint peg post-only orders
(``midpoint orders'') and other forms of non-displayed orders if they
are not displayed.\9\
---------------------------------------------------------------------------

    \9\ Specifically, NASDAQ provides a credit of $0.0017 per share
executed for midpoint orders if the member provides an average daily
volume of more than 3 million shares through midpoint orders during
the month, $0.0015 per share executed for midpoint orders if the
member provides an average daily volume of 3 million or fewer shares
through midpoint orders during the month, and $0.0010 per share
executed for other orders that are not displayed.
---------------------------------------------------------------------------

New Tiers for Members Active in the NASDAQ Market Center and the NASDAQ
Options Market
    In March 2013,\10\ NASDAQ adopted a new liquidity provider credit
tier for members that are active in both the Nasdaq Market Center and
NOM. Under that tier, NASDAQ provides a credit of $0.0030 per share
executed for displayed orders that provide liquidity if a member (i)
has shares of liquidity provided in all securities during the month
representing at least 0.45% of Consolidated Volume during the month,
through one or more of its Nasdaq Market Center MPIDs, and (ii)
qualifies for the Penny Pilot Tier 8 \11\ Customer and Professional
Rebate to Add Liquidity under Chapter XV, Section 2 of the NOM rules
during the month through one or more of its NOM MPIDs. A NOM
Participant may qualify for the Tier 8 Customer and Professional Rebate
if it (i) has Total Volume \12\ of 325,000 or more contracts per day in
a month, (2) adds Customer and Professional liquidity of 1.00% or more
of national customer volume in multiply-listed equity and ETF options
classes in a month, or (iii) adds Customer and Professional liquidity
of 60,000 or more contracts per day in a month and NOM Market Maker
liquidity of 40,000 (formerly 30,000) or more contracts per day per
month.
---------------------------------------------------------------------------

    \10\ Securities Exchange Act Release No. 69133 (March 14, 2013),
78 FR 17272 (March 20, 2013) (SR-NASDAQ-2013-042).
    \11\ Formerly Tier 7, but redesignated as Tier 8 in SR-NASDAQ-
2013-062 (April 1, 2013). SR-NASDAQ-2013-062 also increases the
Tier's requirement for NOM Market Maker liquidity from 30,000 to
40,000 contracts per day during the month.
    \12\ ``Total Volume'' is defined as Customer, Professional,
Firm, Broker-Dealer, Non-NOM Market Maker and NOM Market Maker
volume in Penny Pilot Options and Non-Penny Pilot Options that
either adds or removes liquidity on NOM. The term ``Non-NOM Market
Maker'' means a registered market maker on another options exchange
that is not a NOM Market Maker. The term ``NOM Market Maker'' means
a Participant that has registered as a Market Maker on NOM pursuant
to Chapter VII, Section 2 of the NOM Rules, and must also remain in
good standing pursuant to Chapter VII, Section 4 of the NOM Rules.
The term ``Firm'' applies to any transaction that is identified by a
Participant for clearing in the Firm range at OCC. The term
``Broker-Dealer'' applies to any transaction that is not subject to
any of the other transaction fees applicable within a particular
category.
---------------------------------------------------------------------------

    In this proposed rule change, NASDAQ is proposing two additional
tiers with similar criteria. Specifically, NASDAQ will provide a credit
of $0.0029 per share executed for displayed orders that provide
liquidity if a member (i) has shares of liquidity provided in all
securities during the month representing at least 0.10% of Consolidated
Volume during the month, through one or more of its Nasdaq Market
Center MPIDs, and (ii) qualifies for the Penny Pilot Tier 4 NOM Market
Maker Rebate to Add Liquidity under Chapter XV, Section 2 of the NOM
rules during the month through one or more of its NOM MPIDs. Similarly,
NASDAQ will provide a credit of $0.0027 per share executed for
displayed orders that provide liquidity if a member (i) has shares of
liquidity provided in all securities during the month representing at
least 0.05% of Consolidated Volume during the month, through one or
more of its Nasdaq Market Center MPIDs, and (ii) qualifies for the
Penny Pilot Tier 4 NOM Market Maker Rebate to Add Liquidity under
Chapter XV, Section 2 of the NOM rules during the month through one or
more of its NOM MPIDs. Under a contemporaneous NOM proposed rule
change,\13\ a NOM Participant will qualify for the Tier 4 NOM Market
Maker Rebate if it adds Market Maker liquidity in Penny Pilot Options
of 110,000 or more contracts per day in a month.
---------------------------------------------------------------------------

    \13\ SR-NASDAQ-2013-062 (April 1, 2013).
---------------------------------------------------------------------------

    As with existing tiers that require participation in both the
Nasdaq Market Center and NOM, the criteria for these new tiers, as well
as the new tier for Designated Retail Orders, establish volume
thresholds that must be met on both markets in order to receive a
higher rebate. In doing so, the pricing incentives recognize the
prevalence of trading in which members simultaneously trade different
asset classes within the same strategy. Because cash equities and
options markets are linked, with liquidity and trading patterns on one
market affecting those on the other, NASDAQ believes that pricing
incentives that encourage market participant activity in NOM also
support price discovery and liquidity provision in the Nasdaq Market
Center.
QMM and NBBO Setter Incentive Programs
    In November 2012,\14\ NASDAQ introduced two new pricing programs
designed to create incentives for members to improve market quality.
The programs are in effect on a pilot basis from November 1, 2012 until
April 30, 2013, and NASDAQ expects to file a proposed rule change next
month to remove the pilot limitation on the programs.\15\ In this
proposed rule change, NASDAQ is making several changes to the pilot
programs as currently in effect.
---------------------------------------------------------------------------

    \14\ Securities Exchange Act Release No. 68209 (November 9,
2012), 77 FR 69519 (November 19, 2012) (SR-NASDAQ-2012-126).
    \15\ As noted in the original filing to establish the programs,
NASDAQ will report to the Commission on the effects of the programs
on bid-ask spreads, depth of liquidity at the inside, and such other
factors as may be deemed relevant.
---------------------------------------------------------------------------

    Under the QMM Program, a member may be designated as a QMM with
respect to one or more of its MPIDs if:
     The member is not assessed any ``Excess Order Fee'' under
Rule 7018 during the month; \16\ and
---------------------------------------------------------------------------

    \16\ Rule 7018(m). Last year, NASDAQ introduced an Excess Order
Fee, aimed at reducing inefficient order entry practices of certain
market participants that place excessive burdens on the systems of
NASDAQ and its members and that may negatively impact the usefulness
and life cycle cost of market data. In general, the determination of
whether to impose the fee on a particular MPID is made by
calculating the ratio between (i) entered orders, weighted by the
distance of the order from the NBBO, and (ii) orders that execute in
whole or in part. The fee is imposed on MPIDs that have an ``Order
Entry Ratio'' of more than 100.
---------------------------------------------------------------------------

     through such MPID the member quotes at the national best
bid or best offer (``NBBO'') at least 25% of the time during regular
market hours \17\ in an average of at least 1,000 securities during the
month.\18\
---------------------------------------------------------------------------

    \17\ Defined as 9:30 a.m. through 4:00 p.m., or such shorter
period as may be designated by NASDAQ on a day when the securities
markets close early (such as the day after Thanksgiving).
    \18\ A member MPID is considered to be quoting at the NBBO if it
has a displayed order at either the national best bid or the
national best offer or both the national best bid and offer. On a
daily basis, NASDAQ will determine the number of securities in which
the member satisfied the 25% NBBO requirement. To qualify for QMM
designation, the MPID must meet the requirement for an average of
1,000 securities per day over the course of the month. Thus, if a
member MPID satisfied the 25% NBBO requirement in 900 securities for
half the days in the month, and satisfied the requirement for 1,100
securities for the other days in the month, it would meet the
requirement for an average of 1,000 securities.
---------------------------------------------------------------------------

    Currently, a member that is a QMM with respect to a particular MPID
(a ``QMM MPID'') is eligible to receive certain financial benefits.
These benefits, and proposed modifications to them, are described
below:
     The QMM may receive an NBBO Setter Incentive credit of
$0.0005 with

respect to orders that qualify for the NBBO Setter Incentive Program
(i.e., displayed orders with a size of at least one round lot that set
the NBBO or join another trading center at the NBBO) \19\ and that are
entered through the QMM MPID. Beginning April 1, 2013, in order to
receive an NBBO Setter Incentive credit at the $0.0005 rate, the QMM
must also have a volume of liquidity provided through the QMM MPID (as
a percentage of Consolidated Volume) that exceeds the lesser of the
volume of liquidity provided through such QMM MPID during the first
month in which the MPID qualified as a QMM MPID (as a percentage of
Consolidated Volume) or 1.0% of Consolidated Volume.\20\ If a QMM does
not satisfy these volume requirements, it will receive an NBBO Setter
Incentive credit of $0.0002 per share executed with respect to orders
that qualify for the NBBO Setter Incentive Program.\21\
---------------------------------------------------------------------------

    \19\ The NBBO Setter Incentive program is described in more
detail below.
    \20\ The QMM will also receive the $0.0005 per share rate during
the first month in which an MPID becomes a QMM MPID.
    \21\ Beginning April 1, 2013, Designated Retail Orders will not
be eligible to receive an NBBO Setter Incentive credit.
---------------------------------------------------------------------------

     Currently, the QMM receives a credit of $0.0001 per share
executed with respect to all other displayed orders in securities
priced at $1 or more per share that provide liquidity and that are
entered through a QMM MPID (in addition to any credit payable under
Rule 7018).\22\ This aspect of the program is being changed only to
stipulate that Designated Retail Orders are not eligible to receive
this additional credit.
---------------------------------------------------------------------------

    \22\ If the QMM also participates in NASDAQ Investor Support
Program (the ``ISP'') NASDAQ will pay the greater of any applicable
credit under the ISP or the QMM program, but not a credit under both
programs.
---------------------------------------------------------------------------

     Currently, the QMM may receive a 25% discount on fees for
ports used for entering orders for that MPID, up to a total discount of
$10,000 per MPID per month.\23\ As provided in Rule 7015, the specific
fees subject to this discount are: (i) all ports using the NASDAQ
Information Exchange (``QIX'') protocol,\24\ (ii) Financial Information
Exchange (``FIX'') trading ports,\25\ and (iii) ports using other
trading telecommunications protocols.\26\ Beginning April 1, 2013, the
discount will be equal to the lesser of the QMM's total fees for such
ports or $5,000.
---------------------------------------------------------------------------

    \23\ The ports subject to the discount are not used for receipt
of market data.
    \24\ The applicable undiscounted fees are $1,200 per month for a
port pair or ECN direct connection port pair, and $1,000 per month
for an unsolicited message port. See Rule 7015(a).
    \25\ The applicable undiscounted fee is $500 per port per month.
See Rule 7015(b).
    \26\ The applicable undiscounted fee is $500 per port pair per
month. See Rule 7015(g).
---------------------------------------------------------------------------

     Currently, the QMM may receive a credit of $0.0020 per
share executed for all midpoint orders in securities priced at $1 or
more per share entered through a QMM MPID (in lieu of any credit
payable under Rule 7018). Effective April 1, 2013, NASDAQ will
eliminate this provision, such that the applicable credit will be the
credit payable under Rule 7018.
     Currently, for a number of shares not to exceed the number
of shares of liquidity provided through a QMM MPID (the ``Numerical
Cap''), NASDAQ charges a fee of $0.0028 per share executed for orders
in securities priced at $1 or more per share that access liquidity on
the NASDAQ Market Center and that are entered through the same QMM
MPID; provided, however, that orders that would otherwise be charged
$0.0028 per share executed under Rule 7018 do not count toward the
Numerical Cap. For shares above the Numerical Cap, NASDAQ charges the
rate otherwise applicable under Rule 7018. Beginning on April 1, 2013,
the Numerical Cap will be the lower of the number of shares of
liquidity provided through a QMM MPID or 20 million shares per trading
day. Moreover, in order to be charged the execution rate of $0.0028 per
share executed, the QMM's volume of liquidity added, provided, and/or
routed through the QMM MPID during the month (as a percentage of
Consolidated Volume) must be not less than 0.05% lower than the volume
of liquidity added, provided, and/or routed through such QMM MPID
during the first month in which the MPID qualified as a QMM MPID (as a
percentage of Consolidated Volume).\27\
---------------------------------------------------------------------------

    \27\ This limitation will not apply during the first month in
which an MPID becomes a QMM MPID.
---------------------------------------------------------------------------

    Under the NBBO Setter Incentive program, NASDAQ provides an
enhanced liquidity provider rebate with respect to displayed liquidity-
providing orders that set the NBBO or join another trading center with
a protected quotation at the NBBO. The NBBO Setter Incentive credit is
paid on a monthly basis, and the amount is determined by multiplying
the applicable rate by the number of shares of displayed liquidity
provided to which a particular rate applies.\28\ Currently, a member
receives an NBBO Setter Incentive credit at the $0.0002 rate with
respect to all shares of displayed liquidity that are executed at a
price of $1 or more in the Nasdaq Market Center during a given month if
posted through an order that:
---------------------------------------------------------------------------

    \28\ Beginning April 1, 2013, a member will not be eligible to
receive an NBBO Setter Incentive credit with respect to a Designated
Retail Order.
---------------------------------------------------------------------------

     Displayed a quantity of at least one round lot at the time
of execution; and
     either established the NBBO or was the first order posted
on NASDAQ that had the same price as an order posted at another trading
center with a protected quotation that established the NBBO.

Beginning April 1, 2013, members must also provide a daily average
volume of at least 5 million shares of liquidity through orders that
satisfy the foregoing criteria (i.e., that qualify for an NBBO Setter
Incentive credit) in order to receive a credit at the $0.0002 rate.
Members with a lower daily average volume will receive a NBBO Setter
Incentive credit at a rate of $0.0001 per shares executed.
Alternatively, a member may receive a credit at the $0.0002 per share
executed rate if it is a QMM but does not satisfy new volume criteria
to be required for a QMM to receive a credit at the $0.0005 per share
executed rate.
    Under the current program, a member receives an NBBO Setter
Incentive credit at the $0.0005 rate with respect to all shares of
displayed liquidity that are executed at a price of $1 or more in the
NASDAQ Market Center during a given month if posted through an order
that:
     Displayed a quantity of at least one round lot at the time
of execution;
     either established the NBBO or was the first order posted
on Nasdaq that had the same price as an order posted at another trading
center with a protected quotation that established the NBBO; and
     was entered through a QMM MPID.

    As discussed above, beginning April 1, 2013, in order to receive an
NBBO Setter Incentive credit at the $0.0005 rate, the QMM must also
have a volume of liquidity provided through the QMM MPID (as a
percentage of Consolidated Volume) that exceeds the lesser of the
volume of liquidity provided through such QMM MPID during the first
month in which the MPID qualified as a QMM MPID (as a percentage of
Consolidated Volume) or 1.0% of Consolidated Volume. If it does not
satisfy this volume requirement, the QMM MPID will receive a credit at
the $0.0002 per share executed rate.
Modification to Tier for Members Entering Orders in the NASDAQ Closing
Cross
    Currently, NASDAQ charges $0.0029 per share executed for orders
that access liquidity when entered by a member with Market-on-Close
and/or Limit-on-Close orders executed in the NASDAQ

Closing Cross that represent more than 0.06% of Consolidated Volume
during the month. NASDAQ is proposing to modify the requirements for
this tier, such that the member must enter the required volume of
orders through a single MPID. As with other provisions of the fee
schedule requiring activity to be concentrated through a single MPID,
the change is designed to avoid providing excessive encouragement to
members aggregating 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 or reducing fees.\29\
---------------------------------------------------------------------------

    \29\ See Securities Exchange Act Release No. 64003 (March 2,
2011), 76 FR 12784 (March 8, 2011) (SR-NASDAQ-2011-028) (discussing
introduction of fees designed to discourage aggregation for purposes
of earning a rebate).
---------------------------------------------------------------------------

2. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with
the provisions of Section 6 of the Act,\30\ in general, and with
Sections 6(b)(4) and 6(b)(5) of the Act,\31\ 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.
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78f.
    \31\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The proposed changes to the $0.0034 per share pricing tier for
Designated Retail Orders are reasonable because they will make it
easier for a wider range of members to achieve this pricing tier,
thereby resulting in a higher credit for members introducing Designated
Retail Orders to the market. The change is consistent with an equitable
allocation of fees because it broadens the availability of fee
reductions used as a means to encourage greater retail participation in
NASDAQ. Because retail orders are likely to reflect long-term
investment intentions, they promote price discovery and dampen
volatility. Accordingly, their presence in the NASDAQ market has the
potential to benefit all market participants, and it is therefore
equitable to provide financial incentives with respect to such orders.
NASDAQ further believes that the change is not unreasonably
discriminatory because it will continue to broaden the retail pricing
incentives already provided through Designated Retail Order pricing,
the Routable Order Program (the ``ROP'') and the ISP by offering a
meaningful pricing incentive ($0.0034 per share executed) to all
members that are able to concentrate Designated Retail Orders through a
single MPID, while also continuing to offer a credit of $0.0033 per
share executed that is available to all members that are able to attest
that orders designated by them for participation in the program meet
the definition of a Designated Retail Order.
    The new tiers for members active in both the NASDAQ Market Center
and NOM are reasonable because they reflect the availability of a
significant price reduction for members that support liquidity on both
markets. The changes are consistent with an equitable allocation of
fees because the pricing tiers require significant levels of liquidity
provision, which benefits all market participants, and because activity
in NOM also supports price discovery and liquidity provision in the
NASDAQ Market Center due to the increasing propensity of market
participants to be active in both markets and the influence of each
market on the pricing of securities in the other. The new tiers are not
unreasonably discriminatory because market participants may qualify for
a comparable or a higher rebate through alternative means that do not
require participation in NOM, including through existing volume-based
NASDAQ Market Center tiers, the use of Designated Retail Orders,
participation in the ROP, or through a combination of qualification for
volume-based tiers and participation in the ISP.\32\
---------------------------------------------------------------------------

    \32\ The change made by NOM with respect to the requirements for
the Penny Pilot Tier 8 Customer and Profession Rebate to Add
Liquidity is reasonable because it is intended to incentivize NOM
Market Makers to post additional liquidity, an incentive that is
strengthened by the availability of a higher rebate in the NASDAQ
Market Center. The change is consistent with an equitable allocation
of fees because it has the potential to increase liquidity provided
on both markets, and is not unreasonably discriminatory because
members have alternative means to earn a comparable rebate on NASDAQ
that do not require use of NOM.
---------------------------------------------------------------------------

    The changes to the QMM Program and the NBBO Setter Incentive
Program are reasonable, equitable, and not unreasonably discriminatory
because they merely serve to limit the extent of the incentives
associated with the programs, thereby causing the credits received by
program participants to become more consistent with credits received by
members that are not participants, while maintaining an incentive
structure designed to benefit all market participants by encouraging
quoting at or near the NBBO in a wide range of securities. NASDAQ hopes
thereby to maintain the benefits associated with the programs while
reducing their costs and making the programs sustainable in the longer
term. Specifically:
     The change with respect to the availability of an NBBO
Setter Incentive Credit of $0.0005 per share executed for QMMs is
reasonable because it does not prevent a QMM from earning the credit at
the specified level, but does provides an incentive for QMMs to
increase their participation in NASDAQ above a prior benchmark level
(or 1.0% of Consolidated Volume), thereby benefitting the Exchange and
other market participants through high levels of liquidity provision.
The change is consistent with an equitable allocation of fees because
members that contribute significantly to market quality by satisfying
the requirements of both the QMM and the NBBO Setter Incentive program
while participating actively in the NASDAQ Market Center justifiably
earn the higher credit of $0.0005 per share executed. The change is not
unreasonably discriminatory because a QMM that does not achieve the
higher requirements may still receive a credit of $0.0002 for orders
that set the NBBO.
     Similarly, the modified requirements for the $0.0002 per
share NBBO Setter Incentive credit to be earned by a non-QMM are
reasonable because volume thresholds are widely used by NASDAQ and
other exchanges as requirements for the receipt of favorable pricing,
and NASDAQ is introducing a credit of $0.0001 per share for NBBO
setting orders of a member that do not meet the requirement to ensure
that financial incentives continue to be provided with respect to these
beneficial orders. The change is consistent with an equitable
allocation of fees in that it introduces a volume-based requirement for
one tier of the program: such volume-based tiers are widely used by
NASDAQ and other exchanges as a means of increasing participation or
other desirable activity in their markets. The change is not
unreasonably discriminatory because a credit of $0.0001 will now
offered for NBBO setting orders that do not meet the volume
requirement, and because comparable credits may be earned through other
means, including participation in the ISP.
     The modification with respect to port fees is reasonable
because it does not alter the fact that QMMs continue to be provided a
discount as compared with other members, thereby resulting in lower
overall fees for QMMs. The change is consistent with an equitable
allocation of fees and not unreasonably discriminatory because the
discount, like other QMM incentives, serves to encourage beneficial
quoting conduct by QMMs, but the change will make the

fees paid by QMMs for ports more consistent with the fees paid by
others.
     The elimination of the QMM credit for midpoint orders is
reasonable because QMMs, like other members, will continue to receive a
higher credit with respect to midpoint orders, which provide price
improvement, than with respect to other forms of non-displayed orders.
The change is consistent with an equitable allocation of fees and not
unreasonably discriminatory because the change will cause the credits
paid to QMMs with respect to midpoint orders to be identical to the
credits paid to other members with respect to the same orders.
     The change with respect to the $0.0028 per share executed
pricing tier for QMMs is reasonable because it will maintain the
availability of the pricing incentive in question while limiting the
associated cost (by altering the number of shares to which the discount
may apply) and providing an incentive for QMMs to maintain their
participation in NASDAQ near or above a prior benchmark level. The
change is consistent with an equitable allocation of fees because
members that contribute significantly to market quality by satisfying
the requirements of the QMM program while participating actively in the
NASDAQ Market Center justifiably may be charged a lower fee with
respect to order executions. The change is not unreasonably
discriminatory because a QMM that does not achieve the higher
requirements would pay a fee that is only slightly higher ($0.0029 or
$0.0030 per share executed, depending on other aspects of its
participation in NASDAQ).
     The change to provide that NBBO Setter Incentive credits
and QMM credits will not be paid with respect to Designated Retail
Orders is reasonable because Designated Retail Orders are already
eligible to receive a high credit of $0.0034 or $0.0033 per share
executed. The change is consistent with an equitable allocation of fees
and is not unreasonably discriminatory because NASDAQ believes that the
credit provided with respect to Designated Retail Orders provides
sufficient incentive with respect to the market benefits associated
with the orders in question, such that an additional credit is not
warranted.
    The change with respect to the tier for members active in the
NASDAQ Closing Cross is reasonable because it does not materially alter
the availability of the discount in question, but merely requires a
member receiving the discount to concentrate its activity through a
single MPID. Accordingly, the change is consistent with an equitable
allocation of fees and not unreasonably discriminatory because it is
consistent with other provisions of NASDAQ's fee schedule that are
designed to avoid providing excessive encouragement to members
aggregating 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 or paying reduced fees.\33\
---------------------------------------------------------------------------

    \33\ See Securities Exchange Act Release No. 64003 (March 2,
2011), 76 FR 12784 (March 8, 2011) (SR-NASDAQ-2011-028) (discussing
introduction of fees designed to discourage aggregation for purposes
of earning a rebate).
---------------------------------------------------------------------------

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. 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, although some of the proposed changes impose conditions
on the availability of certain previously introduced pricing
incentives, the incentive programs in question remain in place and are
themselves reflective of the need for exchanges to offer significant
financial incentives to attract order flow. Moreover, if the changes
are unattractive to market participants, it is likely that NASDAQ will
lose market share as a result. Similarly, certain of the changes
broaden the availability of incentive programs, thereby reducing costs
to market participants and possibly encouraging competitive responses
from other trading venues. 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

    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) of the Act \34\ and paragraph (f) of Rule 19b-4
thereunder.\35\ 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.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78s(b)(3)(A).
    \35\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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_ADDRESS>Please
include File Number SR-NASDAQ-2013-063 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-2013-063. 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 3:00 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-2013-063 and should be submitted on or before May
10, 2013.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\36\
---------------------------------------------------------------------------

    \36\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-09191 Filed 4-18-13; 8:45 am]
BILLING CODE 8011-01-P