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Notice2022-08912

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange's Transaction Fees at Equity 7, Section 118(a)

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Published

April 27, 2022

Issuing agencies

Securities and Exchange Commission

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<title>Federal Register, Volume 87 Issue 81 (Wednesday, April 27, 2022)</title>
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[Federal Register Volume 87, Number 81 (Wednesday, April 27, 2022)]
[Notices]
[Pages 25059-25062]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-08912]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94774; File No. SR-NASDAQ-2022-032]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend the Exchange's Transaction Fees at Equity 7, Section 118(a)

April 21, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 25060]]

(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on April 12, 2022, 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 transaction fees at
Equity 7, Section 118, 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 fees, at Equity 7, Section 118(a), to incent members to
grow the extent to which they participate in Nasdaq's routing strategy
for Designated Retail Orders (``RFTY'').
RFTY is an order routing option designed to enhance execution
quality and benefit retail investors by providing price improvement
opportunities to Designated Retail Orders (``DROs'').\3\ As set forth
in Equity 7, Section 118(a), for securities in each Tape, the Exchange
presently charges a $0.0030 per share executed fee to a member for
shares executed above 4 million shares during the month for RFTY orders
that remove liquidity from the Nasdaq Market Center or that execute in
a venue with a protected quotation under Regulation NMS other than the
Nasdaq Market Center. For purposes of calculating the 4 million share
threshold described above and assessing the charge set forth herein,
the Exchange excludes RFTY orders that execute at taker-maker venues.
The Exchange charges no fee per share executed to a member for shares
executed up to 4 million shares during the month for RFTY orders that
remove liquidity from the Nasdaq Market Center or that execute in a
venue with a protected quotation under Regulation NMS.
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\3\ See Securities Exchange Act Release No. 34-75987 (September
25, 2015), 80 FR 59210 (October 1, 2015) (SR-NASDAQ-2015-112). A DRO
is an agency or riskless principal order that meets the criteria of
FINRA Rule 5320.03 and that originates from a natural person and is
submitted to Nasdaq by a member that designates it pursuant to this
rule, 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. An
order from a ``natural person'' can include orders on behalf of
accounts that are held in a corporate legal form--such as an
Individual Retirement Account, Corporation, or a Limited Liability
Company--that has been established for the benefit of an individual
or group of related family members, provided that the order is
submitted by an individual. Members must submit a signed written
attestation, in a form prescribed by Nasdaq, that they have
implemented policies and procedures that are reasonably designed to
ensure that substantially all orders designated by the member as
``Designated Retail Orders'' comply with these requirements.
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In adopting the existing fee structure for RFTY, the Exchange
intended to provide incentives for members to adopt RFTY while also
allowing the Exchange to mitigate the costs it incurs when RFTY routes
large volumes of orders to venues that charge access fees.\4\ Although
the Exchange continues to believe that the RFTY fee structure is
appropriate, it also recognizes that the specter of incurring fees
inhibits new or existing light users of RFTY from increasing their use
of this strategy, even as the Exchange works to augment the value that
RFTY offers. The Exchange now proposes to amend the RFTY fee structure
to provide a new incentive for new or existing light RFTY users to grow
the extent of their use of RFTY during the month.\5\ The Exchange
intends for this new incentive to be temporary,\6\ and hopes that even
after it no longer applies, participants that benefited from it will
continue to make significant use of RFTY, notwithstanding the
associated fees, in recognition of the value it provides to them and
their customers.
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\4\ See Securities Exchange Act Release No. 34-90164 (October
13, 2020), 85 FR 66379 (October 19, 2020) (SR-NASDAQ-2020-067).
\5\ The proposed amendment is applicable both to existing RFTY
users as well as to new users that exceed 4 million shares executed
using RFTY during regular market hours during a month. Since new
users would, by definition, lack March 2022 baseline RFTY volume
against which to measure subsequent growth, such new users would
meet the growth requirement through whatever volume of RFTY shares
they execute during regular market hours during the first month of
use.
\6\ The Exchange has yet to propose a date for sunsetting this
incentive; it will do so in a future rule filing.
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Specifically, the Exchange proposes to amend Equity 7, Section
118(a) to state that the Exchange will charge no fee per share executed
during regular market hours to a member that executes orders using
RFTY, when the member exceeds the 4 million share executed threshold
for RFTY orders described above, if the member also grows the volume of
its shares executed using RFTY during regular market hours during the
month by at least 100 percent relative to a baseline month of March
2022.\7\ Again, the Exchange intends for this amendment to reward RFTY
users that grow substantially the extent of their use of the RFTY
strategy during regular market hours.\8\
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\7\ The proposal also corrects typographical errors in the Rule
whereby the Exchange, in several instances, mistakenly refers to
RFTY as ``RTFY.'' The Exchange anticipates submitting another rule
filing in the near future to make the same corrections to other
instances in typographical error in the Rulebook.
\8\ The Exchange proposes to apply this incentive to members
with shares executed using RFTY during regular market hours, and to
members that grow shares executed using RFTY during regular market
hours, because the Exchange believes that the full functionality and
value of RFTY will be most apparent to members during regular market
hours, when market makers and liquidity providers are available to
execute orders. The Exchange wishes to target use and growth of RFTY
during that time period.
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[[Page 25061]]

issuers, brokers, or dealers. The proposal is also consistent with
Section 11A of the Act relating to the establishment of the national
market system for securities.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposal is Reasonable
The Exchange's proposal is 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'. . . .'' \11\
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\11\ 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.'' \12\
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\12\ 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.
The Exchange is also subject to intense competition for retail order
flow with off-exchange competitors, including wholesale market makers.
The Exchange believes its proposed amendment to the RFTY fee
schedule is a reasonable attempt to incent new and existing RFTY users
to grow the extent of their usage substantially. Under the proposed
rule change, RFTY users that grow their volumes of RFTY shares executed
during regular market hours during the month by at least 100 percent
relative to March 2022 will not incur fees for executing their orders
using RFTY during regular market hoursthat [sic] exceed 4 million
shares that month.\13\ The Exchange notes that it employs similar
growth programs in other contexts for similar purposes.\14\
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\13\ As noted above, the Exchange believes it is reasonable to
apply this incentive to members with shares executed using RFTY
during regular market hours, and to members that grow shares
executed using RFTY during regular market hours, because the
Exchange believes that the full functionality and value of RFTY will
be most apparent to members during regular market hours, when market
makers and liquidity providers are available to execute orders. The
Exchange wishes to target use and growth of RFTY during that time
period.
\14\ See, e.g., Equity 4, Section 114(j) (Nasdaq Growth
program), Equity 7, Section 118(a) (providing a credit to members
that, among other things, increase the extent of their average daily
volumes of Midpoint Extended Life Orders by 100% or more during the
month relative to June 2021).
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The Exchange notes that those participants that are dissatisfied
with the proposed amendment to the RFTY fee schedule are free to shift
their order flow to competing venues that offer more favorable terms
for routing and executing retail orders. Such participants may also
refrain from using RFTY or adjust their use of RFTY to avoid incurring
execution fees.
The Proposal Is an Equitable Allocation of Fees and Is Not Unfairly
Discriminatory
The Exchange believes its proposal will allocate its charges fairly
among its market participants and is not unfairly discriminatory.
The Exchange believes that it is an equitable allocation and not
unfairly discriminatory to continue to charge a transaction fee to
certain participants that execute more than 4 million shares using RFTY
during regular market hours during the month, while charging no fees to
other participants that execute similar volumes using RFTY, because in
the latter case, the Exchange's decision to charge no fees during
regular market hours is a reward to participants that double the extent
of the share volume they execute using RFTY during regular market hours
during the month, relative to a baseline month of March 2022.\15\ As
noted above, the Exchange expects this incentive to be a temporary
measure to boost usage in RFTY and to compete for retail order flow. As
also discussed earlier, the Exchange employs similar growth programs in
other contexts for similar purposes.
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\15\ As noted above, the proposed incentive program is available
both to new and existing RFTY users, although in practice, the
Exchange expects that only existing users will qualify for it.
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B. Self-Regulatory Organization's Statement on Burden on Competition

The Exchange 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.
Intramarket Competition
The Exchange does not believe that its proposal will
inappropriately burden any category of market participant. Although
under the proposal, the Exchange will charge a transaction fee to
certain participants that execute more than 4 million shares using RFTY
during regular market hours during the month, and charge no fees to
other participants that execute similar volumes using RFTY, the
Exchange believes this is appropriate because in the latter case, the
Exchange's decision to charge no fees is a reward to participants that
double the extent of the share volume they execute using RFTY during
regular market hours during the month, relative a baseline month of
March 2022. As noted above, the Exchange expects this incentive to be a
temporary measure to boost usage in RFTY and to compete for retail
order flow. As also discussed earlier, the Exchange employs similar
growth programs in other contexts for similar purposes.
Those participants that are dissatisfied with the proposed
amendment to the RFTY fee schedule are free to shift their order flow
to competing venues that offer more favorable terms for routing and
executing retail orders. Such participants may also refrain from using
RFTY or adjust their use of RFTY to avoid incurring execution fees.

[[Page 25062]]

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 proposal is reflective of this
competition.
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 50% of industry volume.
In sum, if the change proposed herein is 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
change 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.\16\
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\16\ 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#7002051c155d131f1d1d151e0403300315135e171f06"><span class="__cf_email__" data-cfemail="85f7f0e9e0a8e6eae8e8e0ebf1f6c5f6e0e6abe2eaf3">[email&#160;protected]</span></a>. Please include
File Number SR-NASDAQ-2022-032 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-2022-032. 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-2022-032 and should be submitted
on or before May 18, 2022.
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\17\ 17 CFR 200.30-3(a)(12).

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-08912 Filed 4-26-22; 8:45 am]
BILLING CODE 8011-01-P

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