Skip to Content

Notice

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Common Ownership

Document Details

Information about this document as published in the Federal Register.

Published Document

This document has been published in the Federal Register. Use the PDF linked in the document sidebar for the official electronic format.

Start Preamble September 3, 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 August 29, 2014 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.

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

NASDAQ proposes to harmonize the treatment of the aggregation of activity of affiliated members for the purposes of assessing charges or credits.

The Exchange requests that this filing become operative on December 1, 2014.

The text of the proposed rule change is set forth below. Proposed new language is in italics; deleted text is in brackets.

* * * * *

7027. Aggregation of Activity of Affiliated Members

(a) No Change

(b) No Change

(c) For purposes of this Rule 7027, the term[s set forth below shall have the following meanings:]

[(1) An] “affiliate” of a member shall mean any [wholly owned subsidiary, parent, or sister of the ]member under 75% common ownership or control of that [is also a ]member.

[(2) A “wholly owned subsidiary” shall mean a subsidiary of a member, 100% of whose voting stock or comparable ownership interest is owned by the member, either directly or indirectly through other wholly owned subsidiaries.]

[(3) A “parent” shall mean an entity that directly or indirectly owns 100% of the voting stock or comparable ownership interest of a member.]

[(4) A “sister” shall mean an entity, 100% of whose voting stock or comparable ownership interest is owned by a parent that also owns 100% of the voting stock or comparable ownership interest of a member.]

* * * * *

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 Statutory Basis for, the Proposed Rule Change

1. Purpose

The Exchange is proposing to amend Nasdaq Rule 7027 to harmonize the treatment of the aggregation of activity of affiliated members for the purposes of assessing charges or credits by making it consistent with the definition of “Common Ownership” in Chapter XV which relates to options pricing. The aggregation suggested by these rules Start Printed Page 53474impacts the Rule 7000 series where the charge assessed, or credit provided, by Nasdaq depends upon the volume of a member's activity. A member may request that Nasdaq aggregate its activity with the activity of its affiliates.[3] Therefore, for purposes of applying any provision of the Rule 7000 series where the charge assessed, or credit provided, by Nasdaq depends upon the volume of a member's activity, references to an entity (including references to a “member”, a “participant”, or a “Nasdaq Quoting Market Participant”) shall be deemed to include the entity and its affiliates that have been approved for aggregation.[4]

Currently, Nasdaq Rule 7027 states that for purposes of applying any provision of the Rule 7000 Series where the charge assessed, or credit provided, by Nasdaq depends upon the volume of a member's activity, a member may request that Nasdaq aggregate its activity with the activity of its affiliates.[5] The rule further stipulates that an affiliate is considered to be a wholly-owned subsidiary, parent, or sister of the member where the member holds 100 percent of the voting stock or other comparable ownership interest, either directly or indirectly, in the wholly owned subsidiary, parent, or sister member. The Exchange proposes to amend Rule 7027 to conform that rule to that of the NASDAQ Options Market LLC (“NOM”) at Chapter XV so that equities and options members are treated consistently with respect to affiliations of members for purposes of pricing. NOM's Rule provides, “Common Ownership” shall mean Participants under 75 percent common ownership or control.[6] The Exchange desires to take the current standard of 100 percent for equities members and align that standard to the 75 percent standard for Options Participants.

Pursuant to Rule 7027(a)(1), a member requesting aggregation of affiliate activity shall be required to certify to Nasdaq the affiliate status of entities whose activity it seeks to aggregate prior to receiving approval for aggregation, and shall be required to inform Nasdaq immediately of any event that causes an entity to cease to be an affiliate. Nasdaq shall review available information regarding the entities, and reserves the right to request additional information to verify the affiliate status of an entity. Nasdaq shall approve a request unless it determines that the certification is not accurate. Pursuant to Rule 7027(a)(2), if two or more members become affiliated on or prior to the sixteenth day of a month, and submit the required request for aggregation on or prior to the twenty-second day of the month, an approval of the request by Nasdaq shall be deemed to be effective as of the first day of that month. If two or more members become affiliated after the sixteenth day of a month, or submit a request for aggregation after the twenty-second day of the month, an approval of the request by Nasdaq shall be deemed to be effective as of the first day of the next calendar month.

The Exchange intends to amend the NOM options rules to similarly require the certifications and approvals as noted herein. The Exchange intends that this rule change and the options rule changes noted herein harmonize the process by which the Exchange gathers information related to affiliated members and then in turn, for purposes of pricing, treat both equities and options members alike with respect to the application of aggregated pricing.

The Exchange proposes to apply this pricing as of December 1, 2014 and issue a Trader Alert to its members.

2. Statutory Basis

The Exchange believes that its proposal is consistent with Section 6(b) of the Act [7] in general, and with Sections 6(b)(4) and (b)(5) of the Act,[8] in particular, in that the proposal will harmonize the treatment of the aggregation of activity of affiliated members for the purposes of assessing charges or credits with the treatment of the aggregation of activity of affiliated members in relation to options pricing so that more members will be able to benefit from lower charges and/or increased credits. The proposal will further serve to reduce disparity of treatment between members with regards to the pricing of different services and reduce any potential for confusion in how activity can be aggregated. The Exchange believes the rule change avoids disparate treatment of members that have divided their various business activities between separate corporate entities as compared to members that operate those business activities within a single corporate entity. By way of example, subject to appropriate information barriers, many firms that are members of the Exchange operate both a market making desk and a public customer business within the same corporate entity. In contrast, other members may be part of a corporate structure that separates those business lines into different corporate affiliates, either for business, compliance or historical reasons, and those affiliates are not also considered wholly owned affiliates. Those corporate affiliates, in turn, are required to maintain separate memberships with the Exchange. Absent the proposed change, such corporate affiliates that cannot be considered wholly owned but are under common control would not receive the same treatment as members who are considered wholly owned affiliates. Accordingly, the Exchange believes that its proposed policy is fair and equitable, and not unreasonably discriminatory in permitting both wholly owned and common control. In addition to ensuring fair and equal treatment of its members, the Exchange does not want to create incentives for its members to restructure their business operations or compliance functions simply due to the Exchange's pricing structure.

The Exchange believes that this proposed rule change may enable additional equity members to aggregate pricing because the standard will be reduced from 100 percent to 75 percent for these members. There are no current equity members that would no longer be entitled to the aggregation as a result of this rule change. Further, the Exchange seeks to harmonize the manner in which aggregated pricing is treated on its three markets, NASDAQ, NASDAQ OMX PHLX LLC and NASDAQ OMX BX, Inc. and as between equities and options, by developing one standard for aggregated pricing and one method for collecting such information on aggregated pricing to ensure proper validation of that pricing in the manner in which it is occurring on Nasdaq for equity members today.

Today, BATS Exchange, Inc. (“BATS”) equity members are permitted to aggregate share volume calculations for wholly owned affiliates. BATS allows a member to aggregate volume with other members that control, are controlled by, or are under common Start Printed Page 53475control with such member.[9] To the extent two or more affiliated companies maintain separate Nasdaq memberships and can demonstrate their affiliation by showing they control, are controlled by, or are under common control with each other, Nasdaq will permit such members to count overall volume of the affiliates in calculating volume. BATS does not specify a specific percentage for such aggregation in its rule. Nasdaq is specifying 75 percent, similar to the percentage applied to Options Participants.

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

Nasdaq does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. The Exchange is merely seeking to harmonize the treatment of the aggregation of activity of affiliated members for the purposes of assessing charges or credits with those rules contained in Chapter XV which relate to options pricing. The Exchange also believes that certain market participants may be able to aggregate because the standard is decreasing from 100 percent to 75 percent.

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

Because the foregoing proposed rule change does not: (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act [10] and subparagraph (f)(6) of Rule 19b-4 thereunder.[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: (i) necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) 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. The Exchange has provided the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change.

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

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-2014-083. 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-2014-083 and should be submitted on or before September 30, 2014.

Start Signature

For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.[12]

Kevin M. O' Neill,

Deputy Secretary.

End Signature End Preamble

Footnotes

3.  See Rule 7027(a)(1).

Back to Citation

4.  See Rule 7027(b).

Back to Citation

5.  An “affiliate” of a member shall mean any wholly owned subsidiary, parent, or sister of the member that is also a member. See Rule 7027(c)(1). A “wholly owned subsidiary” shall mean a subsidiary of a member, 100 percent of whose voting stock or comparable ownership interest is owned by the member, either directly or indirectly through other wholly owned subsidiaries. See Rule 7027(c)(2). A “parent” shall mean an entity that directly or indirectly owns 100 percent of the voting stock or comparable ownership interest of a member. See Rule 7027(c)(3). A “sister” shall mean an entity, 100 percent of whose voting stock or comparable ownership interest is owned by a parent that also owns 100 percent of the voting stock or comparable ownership interest of a member. See Rule 7027(c)(4).

Back to Citation

6.  See NOM Rules at Chapter XV.

Back to Citation

8.  15 U.S.C. 78f(b)(4) and (5).

Back to Citation

9.  See Securities Exchange Act Release No. 64211 (April 6, 2011), 76 FR 20414 (April 12, 2014) [sic] (SR-BATS-2011-012).

Back to Citation

10.  15 U.S.C. 78s(b)(3)(a)(ii).

Back to Citation

[FR Doc. 2014-21360 Filed 9-8-14; 8:45 am]

BILLING CODE 8011-01-P