Notice2023-17758
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Equity 7, Section 118
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Published
August 18, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 159 (Friday, August 18, 2023)</title>
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[Federal Register Volume 88, Number 159 (Friday, August 18, 2023)]
[Notices]
[Pages 56667-56670]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-17758]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98128; File No. SR-NASDAQ-2023-028]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Equity 7, Section 118
August 14, 2023.
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, 2023, 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) to establish a new credit tier, 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 56668]]
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 schedule of
credits it provides to members, pursuant to Equity 7, Section 118(a),
by establishing a new credit tier.
Specifically, the Exchange proposes to provide a new credit for
displayed quotes/orders (other than Supplemental Orders or Designated
Retail Orders) of $0.0030 per share executed to a member with: (i)
shares of liquidity provided in all securities that represent 0.70% or
more (in securities priced at or greater than $1) of Consolidated
Volume (in securities priced at or greater than $1); (ii) shares of
liquidity provided with respect to securities that are listed on
exchanges other than Nasdaq or NYSE that represent 0.15% or more of
Consolidated Volume; and (iii) shares of non-displayed liquidity (other
than midpoint orders) provided in all securities that represent 0.10%
or more of Consolidated Volume. The new credit of $0.0030 per share
executed would apply to displayed quotes/orders (other than
Supplemental Orders or Designated Retail Orders) in Tape A, Tape B, and
Tape C. Members would not be permitted to combine the new $0.0030 per
share executed with QMM credits set forth in Equity 7, Section 114(e).
The purpose of this credit is to provide members with a new
incentive to add significant amounts of liquidity to the Exchange and,
in particular, to add significant volumes of liquidity in securities in
Tape B and in non-displayed liquidity (other than midpoint orders) in
all Tapes. An increase in liquidity adding activity on the Exchange
would help to improve the quality of the market for 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 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. 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 a new
$0.0030 per share executed credit as a means of incentivizing members
to provide meaningful amounts of liquidity to the Exchange,
particularly in securities in Tape B as well as non-displayed orders
(other than midpoint orders) in securities in any Tape. To the extent
that the Exchange succeeds in increasing liquidity adding activity on
the Exchange, including in securities in Tape B and non-displayed order
flow (other than midpoint orders), then the Exchange would experience
improvements in its market quality, which would benefit all market
participants.
The Exchange also believes that it is equitable to establish a new
$0.0030 per share executed credit. Again, this proposed credit stands
to improve the market quality of the Exchange, to the benefit of all
participants, by incentivizing members to provide meaningful amounts of
liquidity to the Exchange, particularly in securities in Tape B as well
as in non-displayed orders (other than midpoint orders) in securities
in any Tape. The Exchange also believes that it is equitable to target
the credit, in part, to liquidity adding activity in securities in Tape
B, and non-displayed orders (other than midpoint orders) in any Tape,
because the Exchange believes that the market for such securities and
orders would benefit from additional liquidity. The Exchange notes that
it has limited funds to apply in the form of incentives, and thus must
deploy those limited funds to incentives that it believes will be the
most effective at improving market quality in areas that the Exchange
determines are in need of improvement.
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
[[Page 56669]]
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 proposed $0.0030 per share executed
credit is not unfairly discriminatory because the credit is available
to all members. Moreover, the proposed credit stands to improve the
overall market quality of the Exchange, to the benefit of all
participants, by incentivizing members to provide meaningful amounts of
liquidity to the Exchange, including in securities in Tape B as well as
in non-displayed orders (other than midpoint orders) in securities in
any Tape. It is not unfairly discriminatory to target the credit, in
part, to liquidity adding activity in securities in Tape B and non-
displayed orders (other than midpoint orders) in all Tapes, because the
Exchange believes that the market for such securities and orders would
benefit from additional liquidity. The Exchange notes that it has
limited funds to apply in the form of incentives, and thus must deploy
those limited funds to incentives that it believes will be the most
effective at improving market quality in areas that the Exchange
determines are in need of improvement.
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. To the
contrary, the proposed change will provide an opportunity for members
to receive a new credit based on their market-improving behavior. Any
member may elect to provide the levels of market activity required in
order to receive 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 schedule of
credits 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 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 and
credit changes in this market may impose any burden on competition is
extremely limited.
Even as one of the largest U.S. equities exchanges by volume, the
Exchange has less than 20% 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.
The Exchange's proposal is pro-competitive in that the Exchange
intends for the proposal to increase liquidity on the Exchange and
thereby render the Exchange a more attractive and vibrant venue to
market participants.
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.\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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#88fafde4eda5ebe7e5e5ede6fcfbc8fbedeba6efe7fe"><span class="__cf_email__" data-cfemail="e391968f86ce808c8e8e868d9790a3908680cd848c95">[email protected]</span></a>. Please include
file number SR-NASDAQ-2023-028 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-2023-028. 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="https://www.sec.gov/rules/sro.shtml">https://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
[[Page 56670]]
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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-NASDAQ-2023-028 and should
be submitted on or before September 8, 2023.
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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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-17758 Filed 8-17-23; 8:45 am]
BILLING CODE 8011-01-P
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