Notice2022-25235
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
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
November 18, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 222 (Friday, November 18, 2022)</title>
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[Federal Register Volume 87, Number 222 (Friday, November 18, 2022)]
[Notices]
[Pages 69360-69362]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-25235]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96311; File No. SR-NASDAQ-2022-063]
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)
November 15, 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 November 4, 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).\3\ Specifically, with
respect to its schedule of credits for non-displayed midpoint orders
(other than Supplemental Orders) that provide liquidity, the Exchange
proposes to add a new supplemental credit in Tapes A, B and C and make
conforming changes to its schedule of credits.
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\3\ The Exchange initially filed the proposed pricing changes on
November 1, 2022 (SR-NASDAQ-2022-062). The instant filing replaces
SR-NASDAQ-2022-062, which was withdrawn on November 4, 2022.
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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. 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 executes at least 0.35% of
Consolidated Volume through providing midpoint orders and through
Midpoint Extended Life Orders (``M-ELO'') during the month, and (ii)
executes at least 0.20% of Consolidated Volume through providing
midpoint orders during the month.
The proposed credit will be in addition to other credits otherwise
available to members for adding non-displayed liquidity to the
Exchange, meaning that this supplemental credit is cumulative. Members
that receive this new supplemental credit will be entitled to a
combined credit (regular and supplemental) up to a maximum of $0.0028
per share executed for midpoint orders. Members that do not receive
this new supplemental credit are entitled to a combined credit (regular
and supplemental) up to a maximum of $0.0027 per share executed for
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. The Exchange believes that if such incentive
is effective, then any ensuing increase in 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,\4\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\5\ 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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\4\ 15 U.S.C. 78f(b).
\5\ 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' . . . .'' \6\
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\6\ 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
[[Page 69361]]
broader forms that are most important to investors and listed
companies.'' \7\
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\7\ 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 it is reasonable to establish 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
executes at least 0.35% of Consolidated Volume through providing
midpoint orders and through M-ELO during the month, and (ii) executes
at least 0.20% of Consolidated Volume through providing midpoint orders
during the month. 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. The Exchange believes that
if such incentive is effective, then any ensuing increase in liquidity
to the Exchange will 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 a new transaction credit because the proposal will encourage
the addition of non-displayed liquidity to the Exchange through
midpoint orders. 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 a new credit is
not unfairly discriminatory because the credit is available to all
members. Moreover, the proposal stands to improve the overall market
quality of the Exchange, to the benefit of all market participants, by
incentivizing members to increase liquidity adding activity in midpoint
orders 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 a new transaction
credit is intended to have market-improving effects, to the benefit of
all members. Any member may elect to achieve the level of liquidity in
midpoint orders and volume in M-ELO required in order to qualify for
the new credit.
The Exchange notes that its members are free to trade on other
venues to the extent they believe that the Exchange's fee schedule is
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 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
[[Page 69362]]
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 a new transaction credit is pro-
competitive in that the Exchange intends for the credit to increase
liquidity addition activity in midpoint orders 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.\8\
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\8\ 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#0a787f666f27696567676f647e794a796f69246d657c"><span class="__cf_email__" data-cfemail="bfcdcad3da92dcd0d2d2dad1cbccffccdadc91d8d0c9">[email protected]</span></a>. Please include
File Number SR-NASDAQ-2022-063 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-2022-063. 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-2022-063 and should be submitted
on or before December 9, 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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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-25235 Filed 11-17-22; 8:45 am]
BILLING CODE 8011-01-P
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