Notice2022-13039
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)
Primary source
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Published
June 17, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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[Federal Register Volume 87, Number 117 (Friday, June 17, 2022)]
[Notices]
[Pages 36562-36567]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-13039]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95091; File No. SR-NASDAQ-2022-036]
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)
June 13, 2022.
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 1, 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, to: (i) eliminate the Nasdaq Growth Program, at
Equity 7, Section 114(j); (ii) adjust or eliminate several of the
Exchange's transaction credits, at Equity 7, 118(a); (iii) add a new
credit to Equity 7, Section 118(a); and (iv) re-organize, re-format,
and re-state the Exchange's schedule of transaction fees and credits 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 proposed Rule change will (i) eliminate the Nasdaq Growth
Program, at Equity 7, Section 114(j); (ii) adjust or eliminate several
of the Exchange's transaction credits, at Equity 7, 118(a); (iii) add a
new credit to Equity 7, Section 118(a); and (iv) re-organize, re-
format, and re-state the Exchange's schedule of transaction fees and
credits at Equity 7, Section 118(a).
Elimination of the Nasdaq Growth Program
The Exchange presently offers the ``Nasdaq Growth Program,'' as set
forth in Equity 7, Section 114(j),\3\ which exists to incentivize
members to increase the extent to which they add liquidity to the
Exchange over time. Under the Nasdaq Growth Program, the Exchange
provides a credit of $0.0025 per share executed (in securities priced
at $1 or more) to members that provide a certain amount of liquidity to
the Exchange and also grow the extent to which they add such liquidity
over time. Specifically, a member is eligible for the credit if it
both: (A) adds greater than 750,000 shares a day on average during the
month through one or more of its Nasdaq Market Center MPIDs; and (B)
increases its shares of liquidity provided through one or more of its
Nasdaq Market Center MPIDs as a percent of Consolidated Volume \4\ by
20% versus the member's Growth Baseline or (ii) have met the growth
criteria in Equity 7, Section 114(j)(1)(A) and (j)(1)(B)(i) in three
separate months and maintained or increased its shares of liquidity
provided through one or more of its Nasdaq Market Center MPIDs as a
percent of Consolidated Volume compared to the Growth Baseline
established when the member met the
[[Page 36563]]
criteria for the third month.\5\ The Exchange provides this Nasdaq
Growth Program credit in lieu of other credits that it otherwise makes
available to a member for displayed quotes/orders (other than
Supplemental Orders or Designated Retail Orders) that provide liquidity
under Equity 7, Section 118 if the former credit is greater than the
latter credit.
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\3\ See Securities Exchange Act Release No. 78977 (September 29,
2016), 81 FR 69140 (October 5, 2016) (SR-NASDAQ-2016-132).
\4\ Pursuant to Equity 7, Section 118(a), the term
``Consolidated Volume'' shall 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 shall be excluded
from both total Consolidated Volume and the member's trading
activity. For the purposes of calculating the extent of a member's
trading activity during the month on Nasdaq and determining the
charges and credits applicable to such member's activity, all M-ELO
Orders that a member executes on Nasdaq during the month will count
as liquidity-adding activity on Nasdaq.
\5\ As defined in Equity 7, Section 114, the ``Growth Baseline''
is the member's shares of liquidity provided in all securities
through one or more of its Nasdaq Market Center MPIDs as a percent
of Consolidated Volume during the last month a member qualified for
the Nasdaq Growth Program under Equity 7, Section 114(j)(1)(B)(i).
If a member has not qualified for a credit under this program, its
May 2018 share of liquidity provided in all securities through one
or more of its Nasdaq Market Center MPIDs as a percent of
Consolidated Volume is used to establish a baseline.
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The Exchange proposes to eliminate the Nasdaq Growth Program
because it has not been successful in accomplishing its objectives.
That is, it has not induced members to grow materially the extent to
which they add liquidity to the Exchange over time. The Exchange has
limited resources to allocate to incentive programs like this one and
it must, from time to time, reallocate those resources to maximize
their net impact on the Exchange, market quality, and participants.
Going forward, the Exchange plans to reallocate the resources it
devotes to the Nasdaq Growth Program to other incentive programs that
it hopes will be more impactful.
Adjustments to Transaction Credits for Displayed Quotes/Orders (Other
Than Supplemental Orders or Designated Retail Orders) That Provide
Liquidity to the Exchange
Next, the Exchange proposes to adjust several existing credits to
its members for displayed quotes/orders (other than Supplemental Orders
or Designated Retail Orders) that provide liquidity to the Exchange.
For all of these credits described below, the purpose of the changes is
to recalibrate the credits to account for changes in member behavior
over time that have rendered the credits less challenging for members
to attain. That is, the Exchange proposes to reduce the amount of the
credits because members now readily meet the volume requirements to
qualify for them, such that the credits reward these members for
remaining static in their activity on the Exchange. By reducing the
amount of these credits, the Exchange wishes to incent such members to
strive to qualify for higher available credits by further increasing
the extent to which they add liquidity to the Exchange.
Currently, the Exchange provides a $0.0025 per share executed
credit for securities in all three Tapes to a member with shares of
liquidity provided in all securities through one or more of its Nasdaq
Market Center MPIDs that represent more than 0.10% of Consolidated
Volume. The Exchange proposes to reduce the amount of this credit to
$0.0020 per share executed for securities in all three Tapes.
Currently, the Exchange also provides a $0.0020 per share executed
credit for securities in Tape C to a member with shares of liquidity
provided in all securities representing less than 0.10% of Consolidated
Volume, through one or more of its Nasdaq Market Center MPIDs; provided
that (i) the member also provides a daily average of at least 250,000
shares of liquidity provided in securities listed on an exchange other
than Nasdaq, or (ii) the member routes a daily average volume of at
least 10,000 shares during the month via the QDRK routing strategy. The
Exchange proposes to reduce the amount of this credit for securities in
Tape C to $0.0018 per share executed.
Currently, the Exchange provides a $0.0025 per share executed
credit for securities in all three Tapes to a member that provides a
daily average of at least 4 million shares of liquidity, of which more
than 1.5 million shares per day must consist of non-displayed
liquidity, excluding midpoint orders, or Midpoint Extended Life Orders
(``M-ELOs''). The Exchange proposes to reduce the amount of this credit
to $0.0020 per share executed for securities in all three Tapes.
Finally, the Exchange currently provides a credit of $0.0020 per
share executed for securities in Tapes A and B and $0.0015 per share
executed for securities in Tape C for all other displayed quotes/orders
that provide liquidity to the Exchange. The Exchange proposes to reduce
the amount of this credit to $0.0018 per share executed for securities
in Tapes A and B, and to $0.0013 per share executed for securities in
Tape C.
Elimination of Two Credits for Non-Displayed Orders (Other Than
Supplemental Orders) That Provide Liquidity to the Exchange
The Exchange proposes to eliminate two credits for non-displayed
orders (other than Supplemental orders) that provide liquidity to the
Exchange.
Presently, the Exchange provides a credit of $0.0019 per share
executed for securities in Tapes and B [sic], and $0.0013 per share
executed for securities in Tape C, to a member with midpoint orders
(excluding buy (sell) orders with Midpoint pegging that receive an
execution price that is lower (higher) than the midpoint of the NBBO)
if the member (i) executes a combined volume of 1 million or more
shares in midpoint orders provided and M-ELO executed during the month
through one or more of its Nasdaq Market Center MPIDs and (ii) has a
10% or greater increase in midpoint orders provided and M-ELO executed
through one or more of its Nasdaq Market Center MPIDs during the month
over the month of April 2019. The Exchange proposes to eliminate this
credit.
The Exchange also provides a credit of $0.00125 per share executed
for securities in Tapes A and B, and $0.0010 per share executed for
securities in Tape C, to a member with other non-displayed orders if
the member, during the month (i) provides 0.30% or more of Consolidated
Volume through non-displayed orders (including midpoint orders) and
through M-ELO Orders; and (ii) increases providing liquidity through
non-displayed orders (including midpoint orders) and through M-ELO
Orders by 0.10% or more as a percentage of Consolidated Volume relative
to the member's August 2020 Consolidated Volume provided through non-
displayed orders (including midpoint orders) and through M-ELO. The
Exchange also proposes to eliminate this credit.
The Exchange proposes to eliminate these two credits because the
baseline months for the growth elements of these tiers--April 2019 and
August 2020--are no longer relevant benchmarks, as substantial
increases in trading volumes have occurred since times. As such, these
credits no longer provide growth incentives that are aligned with the
Exchange's needs. Again, the Exchange has limited resources to devote
to incentive programs, and it is appropriate for the Exchange to
reallocate these incentives periodically in a manner that best achieves
the Exchange's overall mix of objectives.
Adjustment to Existing Credits and Addition of New Credit for Non-
Displayed Orders (Other Than Supplemental Orders) That Provide
Liquidity to the Exchange
The Exchange proposes to adjust and add to a series of credits that
the Exchange presently offers to members that either grow the extent of
their volumes of M-ELO or midpoint orders relative to a baseline month
or execute a substantial number of such orders on the Exchange during
the month.
Presently, the Exchange provides a credit of $0.0001 per share
executed to
[[Page 36564]]
a member, through one or more of its Nasdaq Market Center MPIDs,
either: (i) increases the extent of its ADV of M-ELO Orders and/or
midpoint orders (that execute against M-ELO Orders) in all securities
by an ADV of 1 million shares or more during the month relative to the
month of June 2021; or (ii) executes a combined volume of at least 3
million shares ADV through midpoint orders provided and M-ELO Orders
during the month and increases the extent of its ADV of midpoint orders
provided and M-ELO Orders in all securities by 100% or more during the
month relative to the month of June 2021. Alternatively, the Exchange
provides a credit of $0.00015 per share executed to a member which,
through one or more of its Nasdaq Market Center MPIDs, either: (i)
increases the extent of its ADV of M-ELO Orders and/or midpoint orders
(that execute against M-ELO Orders) in all securities by an ADV of 2
million shares or more during the month relative to the month of June
2021; or (ii) executes a combined volume of at least a 4 million shares
ADV through midpoint orders provided and M-ELO Orders during the month
and increases the extent of its ADV of midpoint orders provided and M-
ELO Orders in all securities by 150% or more during the month relative
to the month of June 2021. The Exchange proposes to lower first of
these credits from $0.0001 to $0.00005 per share executed and lower the
second of these credits from $0.00015 to $0.00010 per share executed.
Next, the Exchange proposes to add a new credit of $0.0015 per
share executed for a member that, through one or more of its Nasdaq
Market Center MPIDs, executes a combined volume of at least a 5 million
shares ADV through midpoint orders provided and M-ELO Orders during the
month. This new proposed credit will not be combinable with the other
two existing credits.
Together, the adjustments to the two existing credits, and the
addition of the third, will re-align existing incentives for members to
grow or add M-ELO or midpoint liquidity while introducing a new
incentive for members to add even larger volumes of M-ELO and midpoint
orders during the month to attain the highest existing level of
credits. To the extent that the Exchange succeeds through these
proposals in increasing the addition of midpoint or M-ELO liquidity or
executions on the Exchange, all participants will benefit from the
increase in market quality.
Additionally, and as part of the reorganization described below,
the Exchange proposes to relocate the two existing credits and the new
credit in the section of the schedule entitled ``Supplemental credit to
member for displayed quotes/orders (other than Supplemental Orders or
Designated Retail Orders) that provide liquidity (per share executed.''
The Exchange believes that the three credits are, in fact, supplemental
credits and belong logically in that section of the schedule.
Finally, for ease of reference, the Exchange proposes to refer to
these three credits as ``M-ELO Supplemental Credits,'' and label them
M-ELO Supplemental Credit A ($0.00005), B ($0.0001), and C ($0.00015),
respectively.
Elimination of Supplemental Credit for Certain Midpoint Orders
Presently, the Exchange provides a supplemental credit 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). A member currently receives a credit of either: (a) $0.0001 per
share executed for orders in securities in all three Tapes 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 ADV provided through midpoint orders; or (b)
$0.0002 per share executed for orders in securities in all three Tapes
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 ADV provided through midpoint orders. The
Exchange proposes to eliminate the $0.001 per share executed credit but
retain the $0.0002 per share executed credit.
The Exchange proposes to eliminate the credit because many members
now readily meet the volume requirements to qualify for it, such that
the credit in many cases rewards these members for remaining static in
their activity on the Exchange. By eliminating the lower of these two
credits, the Exchange wishes to incent such members to strive to
qualify for the higher credit by further increasing the extent to which
they add liquidity to the Exchange.
Reorganization and Re-Formatting of Exchange's Schedule of Transaction
Credits and Charges
In addition to the above changes to the substance of the Exchange's
schedule of credits and fees, at Equity 7, Section 118(a), the Exchange
also proposes non-substantive amendments to the schedule that will re-
organize and re-format it to render it shorter, better and more
logically organized, and easier to read and comprehend.
Most notably, the Exchange proposes to consolidate the schedule of
charges and fees and restate it as a single chart. Presently, the Rule
lists the contents of the schedule three times successively--once for
securities in Tape A, once for securities in Tape B, and once for
securities in Tape C. This format is cumbersome for participants to
read and onerous for the Exchange to maintain. The proposed amendments
will shorten and simplify the schedule by listing all of the Exchange's
transaction credits and charges one time. It will do so by reformatting
the schedule into a chart with rows listing each tier of credit/charge
and columns listing the applicable amounts of those credits/charges for
transactions in securities in each of the three Tapes. In the proposed
amended and restated schedule, when a credit or charge does not apply
to securities in a particular Tape, the chart will so indicate with the
term ``N/A.'' \6\
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\6\ The proposed rule change is similar to the formatting and
organization changes made to the Exchange's sister exchange, Nasdaq
BX, Inc., in 2019. See Securities Exchange Act Release No. 85912
(May 22, 2019); 84 FR 24834 (May 29, 2019) (SR-BX-2019-013).
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The Exchange also proposes to re-format and emphasize in bold type
the headings for the credits and fees that comprise the schedule so
that members can distinguish these sections more easily. The proposal
will simplify the schedule by removing redundant explanatory text, such
as the phrase ``per share executed'' for each credit/charge (the
headings of the chart already indicate that all credits and charges
apply on a per share executed basis), ``charge to . . .'' (as the
headings of the schedule already state where they are charges and
credits), and ``in additional to the credits provided for . . .''
(which is not needed for credits already under the heading
``Supplemental credit to member . . .'').
The proposed amendments will consolidate existing definitions of
certain terms used within Section 118(a) into a single bulleted
definitions paragraph at the outset of the Rule, including the terms
``ADV'' (or ``Average Daily Volume''), ``Consolidated Volume,'' and
``Designated Retail Order.'' The proposal will not make any substantive
changes to the meanings of these terms.
The proposal will also re-format aspects of the schedule where
presently, multiple credits and charges are listed in the same cells,
and are thus difficult to read. For example, the proposed rule
[[Page 36565]]
will separate the single cells listing a ``charge or credit to [a]
member entering TFTY, MOPB, MOPP, SAVE, SOLV, CART, QDRK, QCST or
directed order that executes in a venue other than the Nasdaq Market
Center'' into multiple rows corresponding to each of them individually.
Additionally, the proposal will amend the existing line item
entitled ``Credit to other members'' by retitling it ``Credit for all
other displayed quotes/order that provide liquidity (per share
executed).'' This proposal will clarify that this credit applies to
members for all other displayed quotes/orders not otherwise covered by
all of the preceding credits for displayed quotes or orders that
provide liquidity to the Exchange (rather than a subset thereof).
The Exchange will relocate several charges and credits that are
either misplaced or logically belong in other sections of the schedule.
For example, in the section entitled ``Charge to enter orders that
execute in the Nasdaq Market Center,'' the Exchange proposes to move
the $0.0030 per share executed credit for ``all other orders that
execute in the Nasdaq Market Center'' to the end of the section, as it
is a baseline charge absent the availability of discounted charges.
Additionally, the Exchange proposes to move from the displayed credits
section of the schedule to the section listing supplemental credits for
displayed orders/quotes that provide liquidity (other than Supplemental
orders or Designated Retail Orders) the following three credits, as
these credits logically are supplemental, rather than regular credits:
(a) a $0.0005 per share executed credit for securities in Tape B for a
member with shares of liquidity provided in all securities through one
or more of its Nasdaq Market Center MPIDs that represent at least 1.75%
of Consolidated Volume, including shares of liquidity provided with
respect to securities that are listed on exchanges other than Nasdaq or
NYSE that represent at least 0.60% of Consolidated Volume; (b) a
$0.0001 per share executed credit for securities in Tape B for a member
with shares of liquidity provided in securities that are listed on
exchanges other than Nasdaq or NYSE during the month representing at
least 0.10% of Consolidated Volume through one or more of its Nasdaq
Market Center MPIDs; and (c) a $0.0005 per share executed credit for
securities in Tape A for a member with shares of liquidity provided in
Tape A securities through one or more of its Nasdaq Market Center MPIDs
that represent at least 0.75% of Consolidated Volume, and shares of
liquidity provided in Tape B securities through one or more of its
Nasdaq Market Center MPIDs that represent at least 0.60% of
Consolidated Volume. Similarly, the Exchange proposes to relocate to
the regular displayed credits section of the schedule two credits that
are misplaced now in the supplemental credits section: (a) a $0.0026
per share executed credit for securities in all Tapes 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; (ii) increases the extent to
which it provides liquidity in all securities as a percentage of
Consolidated Volume by 20% or more during the month relative to the
month of May 2021; and (iii) has a ratio of at least 50% NBBO liquidity
provided (as defined in Equity 7, Section 114(g)) to liquidity provided
by displayed quotes/orders (other than Supplemental Orders or
Designated Retail Orders) during the month; and (b) a $0.0027 per share
executed credit for securities in all Tapes 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; (ii) increases the extent to which it
provides liquidity in all securities as a percentage of Consolidated
Volume by 35% or more during the month relative to the month of May
2021; and (iii) has a ratio of at least 60% NBBO liquidity provided (as
defined in Equity 7, Section 114(g)) to liquidity provided by displayed
quotes/orders (other than Supplemental Orders or Designated Retail
Orders) during the month. Finally, the Exchange proposes to relocate to
the section entitled ``Supplemental credit to member for displayed
quotes/orders (other than Supplemental Orders) that provide liquidity
(per share executed) the following credit, which was also misplaced in
error: a $0.0005 per share executed credit for securities in Tape B to
a member with shares of liquidity provided in securities that are
listed on exchanges other than Nasdaq or NYSE during the month
representing at least 0.10% of Consolidated Volume through one or more
of its Nasdaq Market Center MPIDs.
Other non-substantive changes include correcting current
inconsistencies in terminology, capitalizing defined terms, de-
capitalizing undefined terms, and de-capitalizing the first word in the
row. Misspellings of certain terms, including ``RTFY,'' ``TFYY,'' and
``MELO,'' will be corrected to ``RFTY,'' ``TFTY,'' and ``M-ELO,''
respectively. The proposal also reconciles terminological
inconsistencies among the three existing statements of the schedule,
e.g., ``nondisplayed'' and ``non-displayed'', and ``of'' and ``of
which.'' The proposal also duly capitalizes the defined terms
``Order,'' ``Customer,'' and ``Market Hours.''
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\7\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\8\ in particular, in that it provides for the
equitable allocation of reasonable dues, fees and other charges among
members and issuers and other persons using any facility, and is not
designed to permit unfair discrimination between customers, 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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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5).
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The Proposals are Reasonable, an Equitable Allocation of Fees, and are
not Unfairly Discriminatory
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
[[Page 36566]]
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.
The Exchange is also subject to intense competition for retail order
flow with off-exchange competitors, including wholesale market makers.
The Exchange believes it is reasonable, equitable, and not unfairly
discriminatory to eliminate the Nasdaq Growth Program because the
Program has not been successful in inducing members to grow materially
the extent to which they add liquidity to the Exchange over time. The
Exchange has limited resources to allocate to incentive programs like
this one and it must, from time to time, reallocate those resources to
maximize their net impact on the Exchange, market quality, and
participants. Going forward, the Exchange plans to reallocate the
resources it devotes to the Nasdaq Growth Program to other incentive
programs that it hopes will be more impactful.
It is also reasonable, equitable, and not unfairly discriminatory
for the Exchange to adjust several existing credits for displayed
quotes/orders (other than Supplemental Orders or Designated Retail
Orders) that provide liquidity to the Exchange. These adjustments will
recalibrate the credits to account for changes in member behavior over
time that have rendered the credits less challenging for members to
attain. That is, the Exchange proposes to reduce the amount of the
credits because many members now readily meet the volume requirements
to qualify for them, such that the credits in many cases reward these
members for remaining static in their activity on the Exchange. By
reducing the amount of these credits, the Exchange wishes to incent
such members to strive to qualify for higher available credits by
further increasing the extent to which they add liquidity to the
Exchange.
It is reasonable, equitable, and not unfairly discriminatory for
the Exchange to eliminate two credits for non-displayed orders (other
than Supplemental orders) that provide liquidity to the Exchange. The
baseline months for the growth elements of these tiers--April 2019 and
August 2020--are no longer relevant benchmarks, as substantial
increases in trading volumes have occurred since these dates. As such,
these credits no longer provide growth incentives that are aligned with
the Exchange's needs. Again, the Exchange has limited resources to
devote to incentive programs, and it is appropriate for the Exchange to
reallocate these incentives periodically in a manner that best achieves
the Exchange's overall mix of objectives.
It is reasonable, equitable, and not unfairly discriminatory for
the Exchange to lower two existing credits for members that add or grow
the extent to which they add midpoint or M-ELO liquidity to the
Exchange, as well as add a new such credit. Together, the adjustments
to the two existing credits, and the addition of the third, will re-
align existing incentives for members to grow or add M-ELO or midpoint
liquidity while introducing a new incentive for members to add even
larger volumes of M-ELO and midpoint orders during the month to attain
the highest existing level of credits. To the extent that the Exchange
succeeds through these proposals in increasing the addition of midpoint
or M-ELO liquidity or executions on the Exchange, all participants will
benefit from the increase in market quality.
Furthermore, it is reasonable, equitable, and not unfairly
discriminatory for the Exchange to eliminate one of its 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). Many members now readily meet the volume
requirements to qualify for this credit, such that it rewards these
members for remaining static in their activity on the Exchange. By
eliminating the lower of these two credits, the Exchange wishes to
incent such members to strive to qualify for the higher credit by
further increasing the extent to which they add liquidity to the
Exchange.
The Exchange notes that the credits affected by this proposal are
voluntary. Moreover, nothing about the Exchange's volume-based tiered
pricing model, as set forth in Equity 7, 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 enhances price discovery and improves
the overall quality of the equity markets.
Those participants that are dissatisfied with the elimination of
the Nasdaq Growth Program or the amendments to the Exchange's schedule
of credits are free to shift their order flow to competing venues that
provide more generous incentives or less stringent qualifying criteria.
Finally, the Exchange believes that it is reasonable to re-
organize, re-format, and re-state its schedule of credits and charges,
Equity 7, Section 118(a). As noted above, the existing schedule is
needlessly long, complex, and repetitive, and it contains unintended
inconsistencies in terminology and capitalization, as well as several
typographical errors. The Exchange believes that its proposals to
address these issues will render the schedule shorter, simpler, more
consistent, better and more logically organized, and more readable, to
the benefit of investors, participants, and the public. It will also
ease the burden to the Exchange of administering the schedule when it
proposes to make substantive changes thereto, as it will no longer need
to make three amendments to the schedule to accomplish a single change.
The Exchange does not intend for the reorganization, reformatting, or
restatement of the schedule to themselves effect any substantive
changes to existing credits or charges.
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 proposals will place any
category of Exchange participant at a competitive disadvantage.
As noted above, the Exchange's intends for its proposed substantive
changes to its credits to reallocate its limited resources more
efficiently and
[[Page 36567]]
for optimized effect, to recalibrate them to reflect changing market
behavior, and to align them with the Exchange's overall mix of
objectives. The Exchange notes that its members are free to trade on
other venues to the extent they believe that these proposals 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.
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 proposals are 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.
Finally, the Exchange does not believe that its proposal to re-
organize, re-format, and re-state its schedule of credits and fees, at
Equity 7, Section 118(a), will have any impact on competition, as it
will merely render the schedule shorter, simpler, more consistent,
better and more logically organized, and more readable, to the benefit
of investors, participants, and the public. It will also ease the
burden to the Exchange of administering the schedule when it proposes
to make substantive changes thereto, as it will no longer need to make
three amendments to the schedule to accomplish a single change. The
Exchange does not intend for the reorganization, reformatting, or
restatement of the schedule to themselves effect any substantive
changes to existing credits or charges.
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 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#b1c3c4ddd49cd2dedcdcd4dfc5c2f1c2d4d29fd6dec7"><span class="__cf_email__" data-cfemail="addfd8c1c880cec2c0c0c8c3d9deeddec8ce83cac2db">[email protected]</span></a>. Please include
File Number SR-NASDAQ-2022-036 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-10
All submissions should refer to File Number SR-NASDAQ-2022-036.
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-2022-036 and should
be submitted on or before July 8, 2022.
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. 2022-13039 Filed 6-16-22; 8:45 am]
BILLING CODE 8011-01-P
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