Notice2021-25130
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Equity 7, Section 118 of the Fee Schedule
Primary source
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Published
November 18, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 220 (Thursday, November 18, 2021)</title>
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[Federal Register Volume 86, Number 220 (Thursday, November 18, 2021)]
[Notices]
[Pages 64536-64539]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-25130]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93558; File No. SR-NASDAQ-2021-088]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Equity 7, Section 118 of the Fee Schedule
November 12, 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 November 1, 2021, 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 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 pricing schedule 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
[[Page 64537]]
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, at Equity 7, Section 118(a). Specifically, the
Exchange proposes to amend the criteria for two existing credits of
$0.0029 per share executed with respect to its schedule of credits for
displayed quotes/orders (other than Supplemental Orders or Designated
Retail Orders) that provide liquidity in Tapes A, B and C.
The Exchange proposes to amend two existing credits in Tapes A, B
and C of $0.0029 per share executed. One of the existing credits
applies to members (i) with shares of liquidity provided in all
securities through one or more of its Nasdaq Market Center MPIDs that
represent more than 0.675% of Consolidated Volume during the month. The
other credit applies to members (i) with shares of liquidity accessed
in all securities through one or more of its Nasdaq Market Center MPIDs
that represent more than 0.80% of Consolidated Volume during the month,
and (ii) with shares of liquidity provided in all securities through
one or more of its Nasdaq Market Center MPIDs that represent more than
0.60% of Consolidated Volume.
The Exchange proposes to amend the credits in all three Tapes by
also requiring a member to execute an average daily volume (``ADV'') of
at least 350,000 shares of Midpoint Extended Life Orders (``M-ELOs'')
\3\ during the month. The proposed amendments will increase the extent
to which members engage in M-ELO activity on the Exchange and grow the
extent of such activity over time. From time to time, the Exchange
believes it is reasonable to recalibrate the criteria for credits such
as these to ensure that the credits remain appropriately challenging
for participants to attain in light of changes to their levels of
activity on the Exchange.
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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.
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2. Statutory Basis
The Exchange believes that its proposals are consistent with
Section 6(b) of the Act,\4\ in general, and further the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\5\ 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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\4\ 15 U.S.C. 78f(b).
\5\ 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'. . . .'' \6\
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\6\ 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.'' \7\
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\7\ 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 amend the credit of
$0.0029 per share executed, which applies to members (i) with shares of
liquidity provided in all securities through one or more of its Nasdaq
Market Center MPIDs that represent more than 0.675% of Consolidated
Volume during the month, and the credit of $0.0029 per share executed,
which applies to members (i) with shares of liquidity accessed in all
securities through one or more of its Nasdaq Market Center MPIDs that
represent more than 0.80% of Consolidated Volume during the month, and
(ii) with shares of liquidity provided in all securities through one or
more of its Nasdaq Market Center MPIDs that represent more than 0.60%
of Consolidated Volume. The proposed additional requirement of
executing an ADV of at least 350,000 shares of M-ELOs during the month
will encourage members that currently qualify for the credit to
increase the extent to which members engage in M-ELO activity.
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. The
Exchange has limited resources at its disposal to devote to incentives
and it periodically reassesses the allocation of those resources when
they prove to be ineffective.
[[Page 64538]]
Additionally, these proposals are reasonable because they will provide
extra incentives to members to engage in substantial amounts of MELO-
related activity on the Exchange during a month. The Exchange believes
that if such incentives are effective, then any ensuing increase in M-
ELOs and executions on the Exchange will improve the quality of the M-
ELO market, and the market overall, to the benefit of M-ELO and all
market participants.
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 modify
the eligibility requirements for its transaction credits because the
proposals will encourage members to increase the extent to which they
add liquidity to the Exchange. To the extent that the Exchange succeeds
in increasing the levels of liquidity and activity on the Exchange,
including in segments for which there is an observed need or demand,
such as non-displayed, MELO, and Tape B securities, 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 or revise 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.
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 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 provision or activity on the
Exchange, including in segments for which there is an observed need or
demand, such as non-displayed, M-ELO, and Tape B securities. The
Exchange also believes it is not unfairly discriminatory to recalibrate
or revise 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.
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 amend 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 or
activity required in order to qualify for the amended credits.
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 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 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 credit 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 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 in response,
and because market participants may readily adjust their order routing
practices, the Exchange believes that the degree to which credit
changes in this market may impose any burden on competition is
extremely limited.
The proposed amended credits 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 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 amend its transaction credits are pro-
competitive in that the Exchange intends for the changes to increase
liquidity addition and activity on the Exchange, thereby rendering the
Exchange a more attractive and vibrant venue to market 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.
[[Page 64539]]
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Pursuant to Section 19(b)(3)(A)(ii) of the Act,\8\ the Exchange has
designated this proposal as establishing or changing a due, fee, or
other charge imposed by the self-regulatory organization on any person,
whether or not the person is a member of the self-regulatory
organization, which renders the proposed rule change effective upon
filing.
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\8\ 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 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#6b191e070e46080406060e051f182b180e08450c041d"><span class="__cf_email__" data-cfemail="255750494008464a4848404b5156655640460b424a53">[email protected]</span></a>. Please include
File Number SR-NASDAQ-2021-088 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-2021-088. 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-2021-088 and should be submitted
on or before December 9, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-25130 Filed 11-17-21; 8:45 am]
BILLING CODE 8011-01-P
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