Nasdaq plans to eliminate Market Quality Program

Maria Nikolova

To date, none of the conditions for the commencement of the MQP have occurred despite efforts by the Exchange to make the program more enticing to market makers.

Nasdaq index 5000 pts

The Nasdaq Stock Market LLC has informed the United States Securities and Exchange Commission (SEC) of its plans to eliminate its Market Quality Program (MQP) and delete corresponding Rule 5950.

Nasdaq established the MQP in 2013 to promote market quality in certain securities listed on Nasdaq (MQP Securities), including by providing financial incentives to market makers in MQP Securities (MQP Market Makers) to maintain certain quoting and liquidity standards for them.

The MQP was designed to be a one year pilot program poised to commence if and when certain conditions are satisfied:

  1. the Exchange’s acceptance of an MQP Company (the latter is defined as the trust or company housing the Exchange Traded Fund or, if the ETF is not a series of a trust or company, then the ETF itself) on behalf of an MQP Security;

  2. the entry of a relevant MQP Market Maker into the Program.

To date, however, neither of these conditions for the commencement of the MQP have occurred in the face of efforts by Nasdaq to make the MQP more enticing to market makers. Because the MQP has yet to even satisfy the necessary pre-conditions for launching its pilot period, neither the Exchange nor the Commission has been able to assess whether or to what extent the Program is successful.

At the SEC’s suggestion and pursuant to its general initiative to end pilot programs that have failed to achieve their stated objectives, Nasdaq is now proposing to eliminate the MQP and delete Rule 5950, which comprises the Program. The Exchange stresses that it intends to develop a replacement market quality program in the future that it hopes will be more successful in attracting market maker interest than the existing Program.

Nasdaq notes that it has limited resources available to it to devote to the operation of special programs like MQP and as such, it is reasonable and equitable for the Exchange to allocate those resources to those programs that are effective and away from those programs that are ineffective.

The Securities and Exchange Commission (SEC) invites comments from interested persons regarding the proposal. Feedback may be submitted by the following methods:

Electronic Comments:

  • Use the Commission’s Internet comment form (http://www.sec.gov/rules/sro.shtml); or
  • Send an e-mail to [email protected] Please include File Number SR-Nasdaq-2018-074 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-2018-074.

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