Notice2022-17457
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
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Published
August 15, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 156 (Monday, August 15, 2022)</title>
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[Federal Register Volume 87, Number 156 (Monday, August 15, 2022)]
[Notices]
[Pages 50155-50157]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-17457]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95450; File No. SR-NASDAQ-2022-046]
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
August 9, 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 August 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 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 purpose of the proposed rule change is to amend the Exchange's
schedule of credits, at Equity 7, Section 118. Specifically, the
Exchange proposes to add (1) a new credit in Tapes A, B and C for
displayed quotes/orders (other than Supplemental Orders or Designated
Retail Orders) and (2) a new credit in Tapes A, B and C for non-
displayed midpoint orders (other than Supplemental Orders).
Credit for Displayed Quotes/Orders
The Exchange currently provides credits to members for displayed
quotes/orders (other than Supplemental Orders or Designated Retail
Orders). The Exchange is proposing to add a credit of $0.0020 per share
executed to Tapes A, B and C. The credit will be available to a member
that, through one or more of its Nasdaq Market Center MPIDs, (i)
increases its shares of liquidity provided in all securities by at
least 20% as a percentage of Consolidated Volume during the month
relative to the month of July 2022 and (ii) has shares of liquidity
provided of least 5 million average daily volume during the month. The
Exchange hopes that by proposing the new credit it will incentivize
members to increase their liquidity providing activity on the Exchange,
which will improve market quality.
Credit for Non-Displayed Midpoint Orders
The Exchange proposes to provide a new 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) that provide liquidity to the Exchange. This credit will be
in addition to other credits otherwise available to members for adding
non-displayed liquidity to the Exchange, but a member's activity will
qualify it to receive only one of the supplemental credits at a time,
meaning that they are not cumulative. Additionally, members that
receive a supplemental credit will be entitled to a combined credit
(regular and supplemental) up to a maximum of $0.0027 per share
executed.
Specifically, the Exchange proposes to provide a supplemental
credit of $0.0001 per share executed 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) if the member,
during the month (i) provides at least 10 million shares of midpoint
liquidity per day during the month; and (ii) increases providing
liquidity through midpoint orders by 50% or more relative to the
member's July 2022 consolidated volume provided through midpoint
orders.
The purpose of the new credit is to provide extra incentive to
members that provide non-displayed liquidity to the Exchange to do so
through midpoint orders, as well as to grow substantially the extent to
which they provide midpoint orders to the Exchange relative to a recent
benchmark month. The Exchange believes that if such incentives are
effective, then any ensuing increase in midpoint liquidity to the
Exchange will improve market quality, to the benefit of all
participants.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\3\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\4\ 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
[[Page 50156]]
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\3\ 15 U.S.C. 78f(b).
\4\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposal Is Reasonable
The Exchange's proposed changes to its schedule of credits 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'. . . .'' \5\
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\5\ 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.'' \6\
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\6\ 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 it is reasonable to establish new
transaction credits, at Equity 7, Section 118(a), because these new
credits will encourage the addition of and/or growth in the addition of
displayed liquidity and non-displayed midpoint liquidity to the
Exchange.
The Exchange believes that it is reasonable to establish a new
$0.0020 per share executed transaction credit, at Equity 7, Section
118(a), for a member that, through one or more of its Nasdaq Market
Center MPIDs, (i) increases its shares of liquidity provided in all
securities by at least 20% as a percentage of Consolidated Volume
during the month relative to the month of July 2022 and (ii) has shares
of liquidity provided of least 5 million average daily volume during
the month. The new credit will encourage substantial activity on the
Exchange, which will improve the overall market quality to the benefit
of all market participants. The Exchange believes that if the new
credit is effective, then liquidity adding activity on the Exchange
will increase and market quality will improve for the benefit of all
participants.
The Exchange also believes it is reasonable to establish a new
supplemental credit of $0.0001 per share executed 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)
if the member, during the month (i) provides at least 10 million shares
of midpoint liquidity per day during the month; and (ii) increases
providing liquidity through midpoint orders by 50% or more relative to
the member's July 2022 consolidated volume provided through midpoint
orders. This proposal is reasonable because it will provide extra
incentive to members that provide non-displayed liquidity to the
Exchange to do so through midpoint orders, as well as to grow
substantially the extent to which they provide midpoint orders to the
Exchange relative to a recent benchmark month. The Exchange believes
that if such incentive is effective, then any ensuing increase in
midpoint liquidity to the Exchange will once again improve market
quality, to the benefit of all participants.
The Exchange believes that it is reasonable to exclude from the
supplemental credit orders with midpoint pegging which execute at
prices less aggressive than the midpoint of the NBBO because such
orders already receive price improvements, such that members do not
require additional inducements to enter these orders on the Exchange.
The Exchange notes that those market participants that are
dissatisfied with the proposal are free to shift their order flow to
competing venues that offer more generous pricing or less stringent
qualifying criteria.
The Proposal is an Equitable Allocation of Credits
The Exchange believes its proposal will allocate its charges and
credits fairly among its market participants.
The Exchange believes that it is an equitable allocation to
establish new transaction credits because the proposal 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, then the Exchange
will experience improvements in its market quality, which stands to
benefit all market participants.
Any participant that is dissatisfied with the proposal is free to
shift their order flow to competing venues that provide more generous
pricing or less stringent qualifying criteria.
The Proposal is Not Unfairly Discriminatory
The Exchange believes that its proposal is 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
enhances price discovery and improves the overall quality of the equity
markets.
The Exchange believes that its proposal to adopt new credits is not
unfairly discriminatory because the credits are available to all
members. Moreover, the proposal stands to
[[Page 50157]]
improve the overall market quality of the Exchange, to the benefit of
all market participants, by incentivizing members to increase the
extent of their liquidity adding activity on the Exchange. Any
participant that is dissatisfied with the proposal 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 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 participant at a competitive disadvantage.
As noted above, the Exchange's proposal to add new transaction
credits is intended to have market-improving effects, to the benefit of
all members. Any member may elect to achieve the levels of liquidity
required in order to qualify for the new credits.
The Exchange notes that its members are free to trade on other
venues to the extent they believe that the 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 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 proposed new credits are 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.
The Exchange's proposal to add new transaction credits are pro-
competitive in that the Exchange intends for them to increase liquidity
addition 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
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.\7\
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\7\ 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#552720393078363a3838303b2126152630367b323a23"><span class="__cf_email__" data-cfemail="3240475e571f515d5f5f575c4641724157511c555d44">[email protected]</span></a>. Please include
File Number SR-NASDAQ-2022-046 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-2022-046. 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-2022-046 and should be submitted
on or before September 6, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-17457 Filed 8-12-22; 8:45 am]
BILLING CODE 8011-01-P
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