Notice2021-14388
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange's Transaction Credits and Charges at Equity 7, Section 118(a)
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
July 7, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 127 (Wednesday, July 7, 2021)</title>
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[Federal Register Volume 86, Number 127 (Wednesday, July 7, 2021)]
[Notices]
[Pages 35839-35845]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-14388]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92300; File No. SR-NASDAQ-2021-053]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend the Exchange's Transaction Credits and Charges at Equity 7,
Section 118(a)
June 30, 2021.
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 June 22, 2021, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
[[Page 35840]]
(``SEC'' or ``Commission'') the 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 Substance
of the Proposed Rule Change
The Exchange proposes to amend the Exchange's transaction credits
and charges at Equity 7, Section 118(a), as described further below.
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/nasdaq/rules">https://listingcenter.nasdaq.com/rulebook/nasdaq/rules</a>, 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 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 purpose of the proposed rule change is to amend the Exchange's
schedule of credits and charges, at Equity 7, Section 118(a).
Specifically, the Exchange proposes to: (1) Add a new credit of $0.0028
per share executed for members that add at least a certain threshold
volume of liquidity in securities in Tape B; (2) add a new credit of
$0.0030 per share executed for members that add and remove liquidity,
including adding at least a certain threshold volume of liquidity in
securities in midpoint orders or Midpoint Extended Life Orders (``M-
ELOs'') \3\ for securities in any Tape; (3) raise the qualifying
threshold for an existing credit of $0.00305 per share executed for
members that add and remove liquidity, including a certain volume of
liquidity in midpoint orders or M-ELOs in securities in any Tape; (4)
add new $0.0026 and $0.0027 per share executed credits for members that
provide liquidity, grow their liquidity adding activity relative to a
benchmark month, and achieve certain ratios of NBBO liquidity \4\ to
displayed liquidity provided; (5) add two new supplemental credits for
certain midpoint orders of $0.0001 or $0.0002 per share executed for
members that provide at least certain thresholds of midpoint liquidity
and grow their midpoint adding liquidity relative to a benchmark month;
and (6) amend the applicability of two existing charges for members
with orders that execute upon utilizing the ``RTFY'' routing option.\5\
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\3\ Pursuant to Equity 4, Rule 4702(b)(14), a ``Midpoint
Extended Life Order'' is an Order Type with a Non-Display Order
Attribute that is priced at the midpoint between the NBBO and that
will not be eligible to execute until a minimum period of 10
milliseconds has passed after acceptance of the Order by the System.
\4\ As defined in Equity 7, Section 114(g), ``NBBO liquidity
provided'' means liquidity provided from orders (other than
Designated Retail Orders, as that term is defined in Equity 7,
Section 118), that establish the NBBO, and display a quantity of at
least one round lot at the time of execution.
\5\ Pursuant to Equity 4, Section 4758(a)(1)(A)(v)(b), ``RTFY''
is a routing option available for an order that qualifies as a
Designated Retail Order under which orders check the System for
available shares only if so instructed by the entering firm and are
thereafter routed to destinations on the System routing table. If
shares remain unexecuted after routing, they are posted to the
Nasdaq Book. Once on the Nasdaq Book, should the order subsequently
be locked or crossed by another market center, the Nasdaq System
will not route the order to the locking or crossing market center.
RTFY is designed to allow orders to participate in the opening,
reopening and closing process of the primary listing market for a
security.
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New Credit for Adding Liquidity in Tape B Securities
The Exchange proposes to add a new credit of $0.0028 per share
executed to a member with shares of liquidity provided in all
securities through one or more of its Nasdaq Market Center MPIDs that
represent 0.45% or more of Consolidated Volume \6\ during the month,
which includes shares of liquidity provided with respect to securities
that are listed on exchanges other than Nasdaq or NYSE (``Tape B
Securities'') that represent 0.10% or more of Consolidated Volume.
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\6\ Equity 7, Section 118(a) defines ``Consolidated Volume'' to
mean the total consolidated volume reported to all consolidated
transaction reporting plans by all exchanges and trade reporting
facilities during a month in equity securities, excluding executed
orders with a size of less than one round lot. For purposes of
calculating Consolidated Volume and the extent of a member's trading
activity the date of the annual reconstitution of the Russell
Investments Indexes is excluded from both total Consolidated Volume
and the member's trading activity.
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The Exchange notes that it presently offers three similarly
structured credits, ranging from $0.0029 to $0.0030 per share executed,
to members with orders that add liquidity to the Exchange representing
more than certain threshold percentages of Consolidated Volumes (0.625%
to 1.25%), including shares of liquidity provided with respect to
securities in Tape B that represent at least certain threshold
percentages of Consolidated Volume (0.15% to 0.40%).
The proposal will add to this series of credits a new lower credit
for members that add corresponding lower threshold volumes of liquidity
to the Exchange, and lower threshold volumes in securities in Tape B.
In doing so, the Exchange intends to expand opportunities for
participants to receive a credit if they add significant liquidity to
the Exchange, including significant liquidity in Tape B. For those
members that engage in significant liquidity adding activity on the
Exchange, but do not have sufficient activity to qualify for the
existing credits, the new credit may be more readily attainable. If so,
then such members may seek to qualify for the new credit by increasing
their liquidity adding activity on the Exchange. To the extent that
they do so, the quality of the market will improve, to the benefit of
all participants.
New and Amended Credits for Adding and Removing Liquidity and Executing
Midpoint and M-ELO Orders
The Exchange proposes to add a new credit of $0.0030 per share
executed to a member: (i) With shares of liquidity provided in all
securities through one or more of its Nasdaq Market Center MPIDs that
represent 0.875% or more of Consolidated Volume during the month; (ii)
that executes 0.25% or more of Consolidated Volume during the month
through providing midpoint orders and through MELO; and (iii) that
removes at least 1.35% of Consolidated Volume during the month.
The proposed new credit will be situated between two similarly-
structured credits that the Exchange presently provides to its members:
(1) A $0.00295 per share executed credit to a member that adds
liquidity representing 0.70% or more of Consolidated Volume during the
month, executes 0.20% or more of Consolidated Volume in midpoint and M-
ELO Orders, and removes at least 1.10% of Consolidated Volume during
the month; and (2) a $0.00305 per share executed credit to a member
that adds liquidity representing 1.20% or more of Consolidated Volume
during the month, executes 0.40% or more of Consolidated Volume in
midpoint and M-ELO Orders, and removes at least 1.10% of Consolidated
Volume during the month. As to the $0.00305 credit, the Exchange
proposes
[[Page 35841]]
to raise the liquidity removal threshold from 1.10% to 1.45% of
Consolidated Volume.
The Exchange intends for the new proposed credit to be more
challenging for members to achieve than the existing $.00295 credit,
but not quite as challenging to achieve as the $0.00305 credit. If
members that currently qualify for $0.00295 credit assess that the new
$0.0030 credit is readily attainable, whereas the $0.00305 is not so,
then they may increase their liquidity adding and removing activities
on the Exchange to qualify for it, and the quality of the market will
improve, to the benefit of all participants.
Meanwhile, the proposal to increase the liquidity removal
requirement for the $0.00305 credit from 1.10% to 1.45% of Consolidated
Volume will encourage those participants that already qualify for the
credit to increase the extent of their liquidity removal activity on
the Exchange in order to continue to qualify for it. From time to time,
the Exchange believes it is reasonable to recalibrate the criteria for
credits such as this one to ensure that the credits remain
appropriately challenging for participants to attain in light of
changes to their levels of activity on the Exchange.
New Growth Tiers for Adding Displayed Liquidity
The Exchange proposes to add two new credits that will encourage
its members to add and grow the extent to which they add significant
volumes on liquidity to the Exchange, including liquidity that
establishes the NBBO. First, the Exchange proposes to provide a $0.0026
per share executed credit to a member that, through one or more of its
Nasdaq Market Center MPIDs: (i) Provides shares of liquidity in all
securities that represent equal to or greater than 0.15% of
Consolidated Volume during the month; (ii) increases the extent to
which it provides liquidity in all securities by 20% or more as a
percentage of Consolidated Volume during the month relative to the
month of May 2021; and (iii) has a ratio of at least 50% NBBO liquidity
provided to liquidity provided by displayed quotes/orders (other than
Supplemental Orders or Designated Retail Orders) during the month.
Second, the Exchange proposes to provide a higher credit to a member
that engages in higher levels of this same activity. Namely, the
Exchange proposes to provide a $0.0027 per share executed credit to a
member that, through one or more of its Nasdaq Market Center MPIDs: (i)
Provides shares of liquidity in all securities that represent equal to
or greater than 0.20% of Consolidated Volume during the month; (ii)
increases the extent to which it provides liquidity in all securities
by 35% or more as a percentage of Consolidated Volume during the month
relative to the month of May 2021; and (iii) has a ratio of at least
60% NBBO liquidity provided to liquidity provided by displayed quotes/
orders (other than Supplemental Orders or Designated Retail Orders)
during the month.
Again, the Exchange intends for these new credits to improve market
quality by encouraging members to add significant volumes of liquidity
during the month, by growing such activity over time, and by providing
liquidity that is valued by participants because it sets the NBBO.
Supplemental Credits for Midpoint Orders
The Exchange proposes to provide two new supplemental credits for
midpoint orders (excluding buy (sell) orders with Midpoint pegging that
receive an execution price that is lower (higher) than the midpoint of
the NBBO) that provide liquidity to the Exchange. These credits will be
in addition to other credits otherwise available to members for adding
non-displayed liquidity to the Exchange, but a member's activity will
qualify it to receive only one of the two new supplemental credits at a
time, meaning that they are not cumulative. Additionally, members that
receive a supplemental credit will be entitled to a combined credit
(regular and supplemental) up to a maximum of $0.0027 per share
executed, meaning that if a member is entitled to a regular credit of
$0.0026 per share executed as well as the $0.002 [sic] per share
executed supplemental credit, the total combined credit provided to the
member will be $0.0027 per share executed, rather than the full $0.0028
per share executed.
Specifically, the Exchange proposes to provide supplemental credits
for midpoint orders (excluding buy (sell) orders with Midpoint pegging
that receive an execution price that is lower (higher) than the
midpoint of the NBBO) as follows: (1) $0.0001 per share executed if the
member, during the month (i) provides at least 15 million shares of
midpoint liquidity per day during the month; and (ii) increases
providing liquidity through midpoint orders by 10% or more relative to
the member's May 2021 average daily volume provided through midpoint
orders; or (2) $0.0002 per share executed if the member, during the
month (i) provides at least 15 million shares of midpoint liquidity per
day during the month; and (ii) increases providing liquidity through
midpoint orders by 30% or more relative to the member's May 2021
average daily volume provided through midpoint orders.
The purpose of these new credits is to provide extra incentives to
members that provide non-displayed liquidity to the Exchange to do so
through midpoint orders, as well as to grow substantially the extent to
which they provide midpoint orders to the Exchange relative to a recent
benchmark month. The Exchange believes that if such incentives are
effective, then any ensuing increase in midpoint liquidity to the
Exchange will once again improve market quality, to the benefit of all
participants.
The Exchange notes that it proposes to cap combined regular and
supplemental credits at $0.0027 per share executed to manage the costs
to the Exchange of providing these incentives. The Exchange has only
limited resources available to it for incentive programs, and it must
ensure that it allocates such resources appropriately to optimize their
intended impacts.
Amend Applicability of Existing Charges for Routed Orders Using RTFY
Additionally, the Exchange proposes to amend the applicability of
two of its existing transaction fees. First, it proposes to amend the
existing $0.0030 per share executed fee that it assesses to members
that use the RTFY order routing option to execute orders which remove
more than 4 million shares of liquidity from the Exchange or execute in
a venue with a protected quotation under Regulation NMS other than
Nasdaq. Second, it proposes to amend the $0.00 per share executed fee
that it applies to members that use the RTFY order routing option to
execute orders which remove up to 4 million shares of liquidity from
the Exchange or execute in a venue with a protected quotation under
Regulation NMS other than Nasdaq. The Exchange proposes to amend these
charges by stating that it will not count RTFY-routed shares that
execute in so-called ``taker-maker'' venues when it calculates whether
a member has exceeded the 4 million share threshold that applies to
both charges. The Exchange also proposes to exclude taker-maker RTFY
executions from any fees that a member incurs for RTFY executions to
the extent that the member exceeds the 4 million share threshold
through executions at non-taker-maker venues.
The Exchange proposes to exclude RTFY-routed shares executed at
taker-maker venues from the fee qualification
[[Page 35842]]
calculations and from the fees themselves because taker-maker venues
typically do not charge fees to Nasdaq for RTFY to access their
liquidity, whereas maker-taker venues do so. In other words, the
Exchange charges a fee to participants that use RTFY to execute large
volumes of shares at venues other than Nasdaq to help Nasdaq to recover
the costs it incurs for when such shares access liquidity at maker-
taker venues. Because taker-maker venues do not contribute
substantially to Nasdaq's RTFY routing costs, Nasdaq believes that it
is reasonable to exclude RTFY shares that execute on taker-maker venues
from Nasdaq's determination as to whether a participant's RTFY activity
during a month meets the 4 million share threshold to incur the $0.0030
per share executed fee. For the same reason, it is also reasonable to
exclude RTFY shares executed on taker-maker venues from any RTFY
execution fees otherwise incurred.
2. Statutory Basis
The Exchange believes that its proposals are consistent with
Section 6(b) of the Act,\7\ in general, and further the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\8\ in particular, in that they
provide for the equitable allocation of reasonable dues, fees and other
charges among members and issuers and other persons using any facility,
and are not designed to permit unfair discrimination between customers,
issuers, brokers, or dealers. The proposals are also consistent with
Section 11A of the Act relating to the establishment of the national
market system for securities.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposals Are Reasonable
The Exchange's proposals are reasonable in several respects. As a
threshold matter, the Exchange is subject to significant competitive
forces in the market for equity securities transaction services that
constrain its pricing determinations in that market. The fact that this
market is competitive has long been recognized by the courts. In
NetCoalition v. Securities and Exchange Commission, the D.C. Circuit
stated as follows: ``[n]o one disputes that competition for order flow
is `fierce.' . . . As the SEC explained, `[i]n the U.S. national market
system, buyers and sellers of securities, and the broker-dealers that
act as their order-routing agents, have a wide range of choices of
where to route orders for execution'; [and] `no exchange can afford to
take its market share percentages for granted' because `no exchange
possesses a monopoly, regulatory or otherwise, in the execution of
order flow from broker dealers'. . . .'' \9\
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\9\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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The Commission and the courts have repeatedly expressed their
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. In Regulation
NMS, while adopting a series of steps to improve the current market
model, the Commission highlighted the importance of market forces in
determining prices and SRO revenues and, also, recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \10\
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\10\ Securities Exchange Act Release No. 51808 (June 9, 2005),
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
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Numerous indicia demonstrate the competitive nature of this market.
For example, clear substitutes to the Exchange exist in the market for
equity security transaction services. The Exchange is only one of
several equity venues to which market participants may direct their
order flow. Competing equity exchanges offer similar tiered pricing
structures to that of the Exchange, including schedules of rebates and
fees that apply based upon members achieving certain volume thresholds.
Within this environment, market participants can freely and often
do shift their order flow among the Exchange and competing venues in
response to changes in their respective pricing schedules. Within the
foregoing context, the proposals represent reasonable attempts by the
Exchange to increase its liquidity and market share relative to its
competitors.
The Exchange believes that it is reasonable to establish new
transaction credits, at Equity 7, Section 118(a), because each of these
new credits will encourage the addition of and/or growth in the
addition of various types of displayed and non-displayed liquidity to
the Exchange, including M-ELO, midpoint, Tape B securities, and NBBO-
setting liquidity, as well as the removal of liquidity in one instance.
First, the proposed new credit of $0.0028 per share executed--which
will apply to members that add liquidity representing 0.45% or more of
Consolidated Volume during the month, and add shares of liquidity in
Tape B Securities of 0.10% or more of Consolidated Volume--will provide
a new opportunity to members to earn a credit for providing significant
volumes of liquidity to the Exchange without having to meet the more
stringent qualifying criteria that apply to existing similarly-
structured $0.00295 and $0.0030 per share credits. Similarly, the
proposed new credit of $0.0030 per share executed--which will apply to
members that (i) add liquidity to the Exchange representing 0.875% or
more of Consolidated Volume during the month, (ii) execute 0.25% or
more of Consolidated Volume during the month in providing midpoint or
M-ELO Orders, and (iii) remove from the Exchange liquidity representing
at least 1.35% of Consolidated Volume during the month--will encourage
members that currently qualify for an existing $0.00295 per share
executed credit for providing a significant amount of liquidity to the
Exchange, including midpoint and M-ELO orders, and for removing a
significant amount of liquidity from the Exchange, to further increase
the extent of these activities on the Exchange to earn a higher $0.0030
credit, particularly if they deem the criteria for the new credit to be
more readily achievable than are the criteria to qualify for the
existing $0.00305 per share executed credit.
Meanwhile, the proposal to increase the liquidity removal
requirement for the $0.00305 credit from 1.10% to 1.45% of Consolidated
Volume will encourage those participants that already qualify for the
credit to increase the extent of their liquidity removal activity on
the Exchange in order to continue to qualify for it. From time to time,
the Exchange believes it is reasonable to recalibrate the criteria for
credits such as this one to ensure that the credits remain
appropriately challenging for participants to attain in light of
changes to their levels of activity on the Exchange.
It is also reasonable for the Exchange to establish $0.0026 and
$0.0027 per share executed credits to members that: (i) Provide
liquidity greater than certain threshold percentages of Consolidated
Volume during the month; (ii) increase their liquidity providing
activity in all securities by specified percentages of Consolidated
Volume during the month relative to the month of May 2021; and (iii)
achieve specified ratios of NBBO liquidity provided to liquidity
provided by displayed quotes/orders (other than Supplemental Orders or
Designated Retail Orders) during the month. These two new credits will
encourage its members to add and grow the extent to which they add
significant volumes of
[[Page 35843]]
liquidity to the Exchange, including liquidity that establishes the
NBBO.
Next, the Exchange believes it is reasonable to establish two new
supplemental credits for midpoint orders (other than buy (sell) orders
with Midpoint Pegging that receive execution prices that are lower
(higher) than the midpoint of the NBBO) as follows: (1) $0.0001 per
share executed if the member, during the month (i) provides at least 15
million shares of midpoint liquidity per day during the month; and (ii)
increases providing liquidity through midpoint orders by 10% or more
relative to the member's May 2021 average daily volume provided through
midpoint orders; or (2) $0.0002 per share executed if the member,
during the month (i) provides at least 15 million shares of midpoint
liquidity per day during the month; and (ii) increases providing
liquidity through midpoint orders by 30% or more relative to the
member's May 2021 average daily volume provided through midpoint
orders. These proposals are reasonable because they will provide extra
incentives to members that provide non-displayed liquidity to the
Exchange to do so through midpoint orders, as well as to grow
substantially the extent to which they provide midpoint orders to the
Exchange relative to a recent benchmark month. The Exchange believes
that if such incentives are effective, then any ensuing increase in
midpoint liquidity to the Exchange will once again improve market
quality, to the benefit of all participants.
The Exchange believes that it is reasonable to exclude from the
supplemental credits orders with Midpoint Pegging which execute at
prices less aggressive than the midpoint of the NBBO because such
orders already receive price improvements, such that members do not
require additional inducements to enter these orders on the Exchange.
Furthermore, the Exchange believes that it is reasonable to cap the
amount of combined regular and supplemental credits it proposes to
offer members under this program to $0.0027 per share executed. This
cap will allow the Exchange to manage its costs of providing these
incentives. The Exchange has only limited resources available to it for
incentive programs, and it must ensure that it allocates such resources
appropriately to optimize their intended impacts.
Finally, the Exchange believes that it is reasonable to exclude
RTFY-routed shares that are executed at taker-maker venues from its
calculations for determining whether RTFY participants will incur a
$0.0030 per share executed fee when their shares execute at away venues
as well as from the fee itself, to the extent it is otherwise
applicable to a member. Taker-maker venues typically do not charge fees
to Nasdaq for RTFY to access their liquidity, whereas maker-taker
venues do so. The Exchange charges a fee to participants that use RTFY
to execute large volumes of shares at venues other than Nasdaq to help
Nasdaq to recover the costs it incurs for such shares to access
liquidity at maker-taker venues. Because taker-maker venues do not
contribute substantially to Nasdaq's RTFY routing costs, Nasdaq
believes that it is reasonable to exclude RTFY shares that execute on
taker-maker venues from Nasdaq's determination as to whether a
participant's RTFY activity during a month meets the 4 million share
threshold to incur the $0.0030 per share executed fee. For the same
reason, it is also reasonable to exclude RTFY shares executed on taker-
maker venues from any RTFY execution fees otherwise incurred.
The Exchange notes that those market participants that are
dissatisfied with the proposals are free to shift their order flow to
competing venues that offer more generous pricing or less stringent
qualifying criteria.
The Proposals Are Equitable Allocations of Credits
The Exchange believes that it is an equitable allocation to
establish new transaction credits and otherwise modify the eligibility
requirements for its transaction credits because the proposals will
encourage members to increase the extent to which they add liquidity to
or remove liquidity from the Exchange. To the extent that the Exchange
succeeds in increasing the levels of liquidity addition or removal
activity on the Exchange, including in categories of liquidity for
which there is an observed need or demand, such as midpoint, M-ELO, and
Tape B securities, and NBBO-setting liquidity, then the Exchange will
experience improvements in its market quality, which stands to benefit
all market participants. The Exchange also believes it is equitable to
recalibrate existing criteria for its credits to ensure that the
credits remain appropriately challenging for participants to attain in
light of changes to their levels of activity on the Exchange.
Finally, the Exchange believes that it is equitable to exclude
RTFY-routed shares that are executed at taker-maker venues from the
Exchange's determinations as to whether RTFY participants will incur a
$0.0030 per share executed fee when their shares execute at away
venues, as well as from the fee itself, to the extent that it is
otherwise applicable to a member. Taker-maker venues typically do not
charge fees to Nasdaq for RTFY to access their liquidity, whereas
maker-taker venues do so. Because taker-maker venues do not contribute
substantially to Nasdaq's RTFY routing costs, which the $0.0030 fee
exists to defray, Nasdaq believes that it is equitable to exclude
shares that execute on taker-maker venues from Nasdaq's determination
as to whether a participant's RTFY activity during a month meets the 4
million share threshold to incur the $0.0030 per share executed fee.
For the same reason, it is also equitable to exclude RTFY shares
executed on taker-maker venues from any RTFY execution fees otherwise
incurred.
Any participant that is dissatisfied with the proposals is free to
shift their order flow to competing venues that provide more generous
pricing or less stringent qualifying criteria.
The Proposals Are Not Unfairly Discriminatory
The Exchange believes that its proposals are not unfairly
discriminatory. As an initial matter, the Exchange believes that
nothing about its volume-based tiered pricing model is inherently
unfair; instead, it is a rational pricing model that is well-
established and ubiquitous in today's economy among firms in various
industries--from co-branded credit cards to grocery stores to cellular
telephone data plans--that use it to reward the loyalty of their best
customers that provide high levels of business activity and incent
other customers to increase the extent of their business activity. It
is also a pricing model that the Exchange and its competitors have long
employed with the assent of the Commission. It is fair because it
incentivizes customer activity that increases liquidity, enhances price
discovery, and improves the overall quality of the equity markets.
The Exchange believes that its proposals to adopt new credits or
otherwise amend the qualifying criteria for its transaction credits are
not unfairly discriminatory because these credits are available to all
members. Moreover, these proposals stand to improve the overall market
quality of the Exchange, to the benefit of all market participants, by
incentivizing members to increase the extent of their liquidity adding
or removal activity on the Exchange, including in categories of
liquidity for which there is an observed need or demand, such as
midpoint, M-ELO, and Tape B securities, and NBBO-setting liquidity. The
Exchange also
[[Page 35844]]
believes it is not unfairly discriminatory to recalibrate existing
criteria for its credits to ensure that the credits remain
appropriately challenging for participants to attain in light of
changes to their levels of activity on the Exchange.
Meanwhile, the Exchange's proposal is not unfairly discriminatory
to exclude RTFY-routed shares that are executed at taker-maker venues
from the Exchange's determination as to whether RTFY participants will
incur a $0.0030 per share executed fee when their shares execute at
away venues, as well as from the fee itself, to the extent it is
otherwise applicable to a member. Although the proposal stands to
benefit RTFY participants that execute large volumes of shares at
taker-maker venues, insofar as such participants will no longer stand
to pay a routing fee because of such execution activity, the Exchange
believes it is fair to provide this benefit because taker-maker venues
typically do not charge fees to Nasdaq for RTFY to access their
liquidity, whereas maker-taker venues do so. Because taker-maker venues
do not contribute substantially to Nasdaq's RTFY routing costs, which
the $0.0030 fee exists to defray, Nasdaq believes that it is fair to
exclude shares that execute on taker-maker venues from Nasdaq's
determination as to whether a participant's RTFY activity during a
month meets the 4 million share threshold to incur the $0.0030 per
share executed fee. For the same reason, it is also not unfairly
discriminatory to exclude RTFY shares executed on taker-maker venues
from any RTFY execution fees otherwise incurred.
Any participant that is dissatisfied with the proposals is free to
shift their order flow to competing venues that provide more generous
pricing or less stringent qualifying criteria.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule changes will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
Intramarket Competition
The Exchange does not believe that its proposals will place any
category of Exchange participant at a competitive disadvantage.
As noted above, Nasdaq's proposals to add and amend its transaction
credits are intended to have market-improving effects, to the benefit
of all members. Any member may elect to achieve the levels of liquidity
required in order to qualify for the new or amended credits.
Likewise, the Exchange's proposal will not duly burden competition
to exclude RTFY-routed shares that are executed at taker-maker venues
from the Exchange's determinations as to whether RTFY participants will
incur a $0.0030 per share executed routing fee, and from the fee
itself, to the extent that it is otherwise applicable to a member.
Although the proposal stands to benefit RTFY participants that execute
large volumes of shares at taker-maker venues, insofar as such
participants will no longer stand to pay a routing fee because of such
execution activity, the Exchange believes it is fair to provide this
benefit because taker-maker venues typically do not charge fees to
Nasdaq for RTFY to access their liquidity, whereas maker-taker venues
do so. Because taker-maker venues do not substantially contribute to
Nasdaq's RTFY routing costs, which the $0.0030 fee exists to defray,
Nasdaq believes that it is fair to exclude shares that execute on
taker-maker venues from Nasdaq's determination as to whether a
participant's RTFY activity during a month meets the 4 million share
threshold to incur the $0.0030 per share executed fee. For the same
reason, it is also fair to exclude RTFY shares executed on taker-maker
venues from any RTFY execution fees otherwise incurred.
The Exchange notes that its members are free to trade on other
venues to the extent they believe that the proposed qualification
criteria for or amounts of these credits or fees are not attractive. As
one can observe by looking at any market share chart, price competition
between exchanges is fierce, with liquidity and market share moving
freely between exchanges in reaction to fee and credit changes. The
Exchange notes that its pricing tier structure is consistent with
broker-dealer fee practices as well as the other industries, as
described above.
Intermarket Competition
In terms of inter-market competition, the Exchange 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, the Exchange
must continually adjust its credits and 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 credits and
fees in response, and because market participants may readily adjust
their order routing practices, the Exchange believes that the degree to
which credit or fee changes in this market may impose any burden on
competition is extremely limited.
The proposed new and amended credits and fees are reflective of
this competition because, even as one of the largest U.S. equities
exchanges by volume, the Exchange has less than 20% market share, which
in most markets could hardly be categorized as having enough market
power to burden competition. Moreover, as noted above, price
competition between exchanges is fierce, with liquidity and market
share moving freely between exchanges in reaction to fee and credit
changes. This is in addition to free flow of order flow to and among
off-exchange venues which comprises upwards of 44% of industry volume.
The Exchange's proposals to add new and amend its transaction
credits are pro-competitive in that the Exchange intends for them to
increase liquidity addition or removal activity on the Exchange,
thereby rendering the Exchange a more attractive and vibrant venue to
market participants. Meanwhile, the Exchange's proposal to exclude from
the RTFY routing fees and fee calculation shares executed in taker-
maker venues is pro-competitive in that it will render the Exchange's
RTFY routing option more attractive to participants.
In sum, if the changes proposed herein are unattractive to market
participants, it is likely that the Exchange will lose market share as
a result. Accordingly, the Exchange 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)(ii) of the Act.\11\
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\11\ 15 U.S.C. 78s(b)(3)(A)(ii).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if
[[Page 35845]]
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.
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
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#ea989f868fc7898587878f849e99aa998f89c48d859c"><span class="__cf_email__" data-cfemail="b0c2c5dcd59dd3dfddddd5dec4c3f0c3d5d39ed7dfc6">[email protected]</span></a>. Please include
File Number SR-NASDAQ-2021-053 on the subject line.
Paper Comments
<bullet> 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-2021-053. 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 website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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 website 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NASDAQ-2021-053 and should be submitted
on or before July 28, 2021.
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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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-14388 Filed 7-6-21; 8:45 am]
BILLING CODE 8011-01-P
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