Notice2022-22839
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(a)
Primary source
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Published
October 21, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 203 (Friday, October 21, 2022)</title>
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[Federal Register Volume 87, Number 203 (Friday, October 21, 2022)]
[Notices]
[Pages 64123-64125]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-22839]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96091; File No. SR-NASDAQ-2022-053]
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(a)
October 17, 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 October 3, 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), 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(a). Specifically, with
respect to its schedule of credits for displayed quotes/orders (other
than Supplemental Orders or Designated Retail Orders) that provide
liquidity, the Exchange proposes to amend the criteria for an existing
credit of $0.0029 per share executed.
The Exchange proposes to amend its existing credit of $0.0029 per
share executed to a member: (i) with shares of liquidity provided in
all securities through one or more of its Nasdaq Market Center MPIDs
that represent more than 0.60% of Consolidated Volume during the month,
including shares of liquidity provided with respect to securities that
are listed on exchanges other than Nasdaq or NYSE that represent more
than 0.10% of Consolidated Volume, and (ii) that adds at least 0.175%
of Consolidated Volume during the month in non-displayed orders
(excluding midpoint orders) for securities in any tape during the
month. The Exchange proposes to amend this credit by lowering the
threshold percentage of Consolidated Volume added during the month in
non-displayed orders (excluding midpoint orders) for securities in any
tape during the month. Specifically, the Exchange proposes lowering
this threshold percentage from 0.175% to 0.15%.
The Exchange proposes to amend the existing criteria because it
proved too difficult for members to meet in combination with the other
criterion set forth in the credit, and has hindered the credit in
achieving its intended effect. The Exchange has limited resources at
its disposal to devote to incentives and it periodically reassesses the
allocation of those resources when they prove to be ineffective. The
lower threshold proposed will be more readily attainable for members
and will continue to incent members to add substantial volumes of non-
displayed liquidity to the Exchange. From time to time, the Exchange
believes it is reasonable to recalibrate the criteria for credits such
as this one to ensure that the credits remain relevant to current
levels of liquidity providing activity on the Exchange.
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 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 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.
[[Page 64124]]
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 require a member to
(i) provide shares of liquidity provided in all securities through one
or more of its Nasdaq Market Center MPIDs that represent more than
0.60% of Consolidated Volume during the month, including shares of
liquidity provided with respect to securities that are listed on
exchanges other than Nasdaq or NYSE that represent more than 0.10% of
Consolidated Volume, and (ii) add at least 0.15% (instead of 0.175%) of
Consolidated Volume during the month in non-displayed orders (excluding
midpoint orders) for securities in any tape during the month in order
to qualify for the existing $0.0029 per share executed credit. The
Exchange believes that it is reasonable to lower the threshold
percentage of Consolidated Volume in non-displayed orders (excluding
midpoint orders) for securities in any tape in order to qualify for the
credit to ensure that this credit remains relevant to current levels of
liquidity providing activity on the Exchange.
The Exchange believes it is reasonable to establish a lower
threshold because it proved too difficult for members to meet in
combination with the other criterion set forth in the credit, and has
hindered the credit in achieving its intended effect. The Exchange has
limited resources at its disposal to devote to incentives and it
periodically reassesses the allocation of those resources when they
prove to be ineffective. The proposal to lower the requirement that a
member add at least 0.175% of Consolidated Volume to 0.15% of
Consolidated Volume (during the month in non-displayed orders
(excluding midpoint orders)) is reasonable because the proposed
amendment will be more readily attainable for members and will still
incent members to add substantial volumes of non-displayed liquidity to
the Exchange.
The Exchange believes its proposal will allocate its charges and
credits fairly among its market participants. The Exchange also
believes it is equitable to recalibrate or revise existing criteria for
its credits to ensure that the credits remain appropriate for
participants to attain.
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 decrease the non-
displayed volume threshold percentage to qualify for an existing
$0.0029 transaction credit is not unfairly discriminatory because the
credit is available to all members. The Exchange also believes it is
not unfairly discriminatory to recalibrate or revise existing criteria
for its credits to ensure that the credits are effective and readily
attainable.
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. Any
member may elect to achieve the levels of liquidity required in order
to qualify for the credit. The Exchange notes that its members are free
to trade on other venues to the extent they believe that the Exchange's
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
The Exchange believes that the proposed change to its schedule of
credits to amend the criteria to qualify for an existing $0.0029
transaction credit 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
[[Page 64125]]
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 qualifying criteria for an existing
credit 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.
If the changes proposed herein are unattractive to market
participants, it is likely that the Exchange will lose market share as
a result. Accordingly, the Exchange does not believe that the proposed
changes will impair the ability of members or competing order execution
venues to maintain their competitive standing in the financial markets.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
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 \7\ and paragraph (f) of Rule 19b-4 \8\
thereunder.
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\7\ 15 U.S.C. 78s(b)(3)(A).
\8\ 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#cfbdbaa3aae2aca0a2a2aaa1bbbc8fbcaaace1a8a0b9"><span class="__cf_email__" data-cfemail="1c6e697079317f7371717972686f5c6f797f327b736a">[email protected]</span></a>. Please include
File Number SR-NASDAQ-2022-053 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-2022-053. 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-2022-053 and should be submitted
on or before November 14, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-22839 Filed 10-20-22; 8:45 am]
BILLING CODE 8011-01-P
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