Notice2022-15118
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its Schedule of Credits, at Equity 7, Section 118
Primary source
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Published
July 15, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 135 (Friday, July 15, 2022)</title>
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[Federal Register Volume 87, Number 135 (Friday, July 15, 2022)]
[Notices]
[Pages 42521-42523]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-15118]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95226; File No. SR-NASDAQ-2022-039]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Its Schedule of Credits, at Equity 7, Section 118
July 11, 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 July 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 schedule of credits,
at Equity 7, Section 118(a)(1), 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 eliminate a credit
that the Exchange provides to members for displayed liquidity under
Equity 7, Section 118(a)(1).
Currently, the Exchange provides a $0.0018 per share executed
credit for securities in Tape C \3\ to a member with shares of
liquidity provided in all securities representing less than 0.10% of
Consolidated Volume,\4\ 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 \5\
routing strategy. The Exchange proposes to eliminate this credit.
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\3\ There are three Tapes, which are based on the listing venue
of the security: Tape C securities are Nasdaq-listed; Tape A
securities are New York Stock Exchange-listed; and Tape B securities
are listed on exchanges other than Nasdaq and NYSE.
\4\ Pursuant to Equity 7, Section 118(a), the term
``Consolidated Volume'' means 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. 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 count as liquidity-adding
activity on Nasdaq.
\5\ QDRK is a routing option under which orders check the System
for available shares and simultaneously route the remaining shares
to destinations on the System routing table that are not posting
Protected Quotations within the meaning of Regulation NMS. If shares
remain un-executed after routing, they are posted on the book. Once
on the book, should the order subsequently be locked or crossed by
another market center, the System will not route the order to the
locking or crossing market center.
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The Exchange offers this credit as a means of improving market
quality by providing its members with an incentive to increase
liquidity on the Exchange. However, the Exchange has observed over time
that this credit has not been successful in accomplishing its
objective. That is, it has not induced members to add liquidity to the
Exchange and members are not targeting this credit for growth or
general use of the QDRK strategy. The Exchange has limited resources
available to it to offer its members market-improving incentives, and
it allocates those limited resources to those segments of the market
where it perceives the need to be greatest and/or where it determines
that the incentive is likely to achieve its intended objective.
Accordingly, the Exchange proposes to eliminate the credit noted above.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\6\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\7\ 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.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange's proposed change to its schedule of credits 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'. . . .'' \8\
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\8\ 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
[[Page 42522]]
``has been remarkably successful in promoting market competition in its
broader forms that are most important to investors and listed
companies.'' \9\
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\9\ 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. As such, the
proposal represents a reasonable attempt by the Exchange to increase
its liquidity and market share relative to its competitors.
The Exchange believes that its proposal is reasonable, equitable,
and not unfairly discriminatory to eliminate the $0.0018 per share
executed credit for securities in Tape C. The credit has not been
effective in achieving its intended objective of incentivizing members
to provide liquidity to the Exchange. The Exchange has limited
resources available to it to offer its members market-improving
incentives, and it allocates those limited resources to those segments
of the market where it perceives the need to be greatest and/or where
it determines that the incentive is likely to achieve its intended
objective.
The proposal is also equitable and not unfairly discriminatory
because the proposed change to the credits will apply uniformly to all
similarly situated members. All market participants stand to benefit to
the extent that the proposal is successful in freeing limited resources
and improving market quality. Any member that is dissatisfied with the
credits is free to shift their order flow to competing venues that
provide more favorable rates or less stringent qualifying criteria.
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 place any
category of Exchange participants at a competitive disadvantage.
Members are free to trade on other venues to the extent they believe
that the credits provided are not attractive or the qualifying criteria
for such credits is too stringent. 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
The Exchange believes that the proposed change to its schedule of
credits to eliminate the $0.0018 per share executed credit for
securities in Tape C as noted above will not impose a burden on
competition because the Exchange's execution services are completely
voluntary and subject to extensive competition both from the other live
exchanges and from off-exchange venues, which include alternative
trading systems that trade national market system stock. 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 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 fees in
response, and because market participants may readily adjust their
order routing practices, the Exchange believes that the degree to which
fee changes in this market may impose any burden on competition is
extremely limited.
The proposed change to the Exchange's credits is reflective of this
competition because, as a threshold issue, the Exchange is a relatively
small market so its ability to burden intermarket competition is
limited. In this regard, even the largest U.S. equities exchange by
volume only has 17-18% 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 more
than 40% of industry volume in recent months.
In sum, if the changes proposed herein are unattractive to market
participants, it is likely that the Exchange will either fail to
increase its market share or even 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) of the Act \10\ and paragraph (f) of Rule 19b-4 \11\
thereunder.
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f).
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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#a7d5d2cbc28ac4c8cacac2c9d3d4e7d4c2c489c0c8d1"><span class="__cf_email__" data-cfemail="fc8e899099d19f9391919992888fbc8f999fd29b938a">[email protected]</span></a>. Please include
File Number SR-NASDAQ-2022-039 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.
[[Page 42523]]
All submissions should refer to File Number SR-NASDAQ-2022-039. 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-2022-039 and should be submitted
on or before August 5, 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. 2022-15118 Filed 7-14-22; 8:45 am]
BILLING CODE 8011-01-P
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