Notice2022-27051
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
December 14, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 239 (Wednesday, December 14, 2022)</title>
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[Federal Register Volume 87, Number 239 (Wednesday, December 14, 2022)]
[Notices]
[Pages 76527-76530]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-27051]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96467; File No. SR-NASDAQ-2022-070]
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)
December 8, 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 December 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), 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.
[[Page 76528]]
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 supplemental credits for displayed quotes/
orders (other than Supplemental Orders or Designated Retail Orders)
that provide liquidity, the Exchange proposes to (1) add a restriction
to and reduce an existing supplemental credit, (2) delete an existing
supplemental credit of $0.0001 currently labeled as ``M-ELO
Supplemental Credit B,'' and (3) make conforming changes to its
schedule of credits.
Reduction of Existing Growth Credit and Proposed Restriction
Currently, the Exchange provides a supplemental credit of $0.0001
per share 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 30% as a percentage of Consolidated Volume
during the month relative to the month of October or November 2021 and
(ii) has shares of liquidity provided of least 15 million average daily
volume (``ADV'') during the month. The Exchange proposes to reduce this
credit from $0.0001 per share to $0.00005 per share. Currently, this
credit is in addition to other credits otherwise available to members
for adding displayed liquidity to the Exchange (other than Supplemental
Orders or Designated Retail Orders). The Exchange proposes to add a
restriction to this existing credit whereby the credit cannot be
combined with the Qualified Market Maker (``QMM'') Program Tier 2
credit set forth in Equity 7, Section 114(e).\3\ The Exchange provides
this current $0.0001 supplemental credit to incentivize members to
increase their liquidity providing activity on the Exchange. However,
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
reduce the credit from $0.0001 to $0.00005 and to exclude firms already
benefitting from Tier 2 QMM Program credits from receiving this
modified supplemental growth credit of $0.00005.
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\3\ The credit may continue to be combined with the QMM Program
Tier 1 credit set forth in Equity 7, Section 114(e).
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Deletion of M-ELO Supplemental Credit B
Currently, the Exchange provides a credit of $0.0001 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 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 delete this credit. The Exchange provides this credit to
incentivize members to grow or add M-ELO or midpoint liquidity.
However, 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. As M-ELO volume has grown over time,
the current M-ELO Supplemental Credit C, which is more aligned with
current volumes, will continue to provide members an incentive to grow
or add M-ELO or midpoint liquidity during the month. Accordingly, the
Exchange proposes to streamline the M-ELO Supplemental Credits and
eliminate current M-ELO Supplemental Credit B.
Conforming Changes
The Exchange also proposes to rename current M-ELO Supplemental
Credit C as M-ELO Supplemental Credit B given the proposed deletion of
current M-ELO Supplemental Credit B. In addition, the Exchange proposes
to clarify that M-ELO Supplemental Credit A may not be combined with
proposed M-ELO Supplemental Credit B (current M-ELO Supplemental Credit
C), rather than with both M-ELO Supplemental Credits B and C, given the
removal of current M-ELO Supplemental Credit B. Similarly, the Exchange
proposes to clarify that proposed M-ELO Supplemental Credit B (current
M-ELO Supplemental Credit C) may not be combined with M-ELO
Supplemental Credit A, rather than with both M-ELO Supplemental Credits
A and B, given the removal of current M-ELO Supplemental Credit B.
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 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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[[Page 76529]]
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.'' \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, equitable, and not unfairly
discriminatory for the Exchange to add a restriction to an existing
credit for displayed orders (other than Supplemental Orders or
Designated Retail Orders) that provide liquidity to the Exchange and
reduce the amount of the credit from $0.0001 to $0.00005, as described
above. These changes would better align the growth incentives with the
Exchange's needs. 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 also reasonable, equitable, and not unfairly discriminatory
for the Exchange to eliminate the current M-ELO Supplemental Credit B
for displayed quotes/orders (other than Supplemental Orders or
Designated Retail Orders) that provide liquidity to the Exchange and
make related conforming changes. Elimination of current M-ELO
Supplemental Credit B and related conforming changes will streamline
and recalibrate the M-ELO Supplemental Credits to account for changes
in member behavior over time. As M-ELO volume has grown over time, the
proposed M-ELO Supplemental Credit B (i.e., the current M-ELO
Supplemental Credit C), which is more aligned with current volumes,
will continue to provide members an incentive to grow or add M-ELO or
midpoint liquidity during the month. To the extent that the Exchange
succeeds 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.
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 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.
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 intends for its proposed changes to
its credits to reallocate its limited resources more efficiently and
optimally, to recalibrate the credit schedule to reflect changing
market behavior, and to align the credit schedule 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
The Exchange believes that the proposed changes to its schedule of
credits as described 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 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 changes to the Exchange's 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.
[[Page 76530]]
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.
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<ls-thn-eq> Send an email to <a href="/cdn-cgi/l/email-protection#97e5e2fbf2baf4f8fafaf2f9e3e4d7e4f2f4b9f0f8e1"><span class="__cf_email__" data-cfemail="0775726b622a64686a6a626973744774626429606871">[email protected]</span></a>. Please
include File Number SR-NASDAQ-2022-070 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-2022-070. 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-2022-070 and should be submitted
on or before January 4, 2023.
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\9\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-27051 Filed 12-13-22; 8:45 am]
BILLING CODE 8011-01-P
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