Notice2024-03451
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
February 21, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 35 (Wednesday, February 21, 2024)</title>
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[Federal Register Volume 89, Number 35 (Wednesday, February 21, 2024)]
[Notices]
[Pages 13125-13128]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-03451]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99535; File No. SR-NASDAQ-2024-005]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Equity 7, Section 118
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 February 1, 2024, 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 pricing schedule at
Equity 7, Section 118, 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 (i) provide an
additional calculation for purposes of determining whether a member
qualifies for credits set forth in Equity 7, Section 118(a) that
pertain to providing liquidity; and (ii) amend certain fees assessed
for transactions in the Nasdaq Closing Cross and Nasdaq Opening Cross
under Equity 7, Section 118(d)(1) and Equity 7, Section 118(e)(1)
respectively.
Proposed Changes to Equity 7, Section 118(a)
Presently, the Exchange provides its members with various credits
for executing orders that add liquidity to the Exchange and charges
them various fees for executing orders that remove liquidity from the
Exchange, as set forth in Equity 7, Section 118(a) of the Exchange's
Rules. The charges and credits in Equity 7, Section 118(a) apply to the
use of the order execution and routing services of the Nasdaq Market
Center by members for all securities priced at $1 or more that it
trades. Members may qualify for tiers of discounted fees and premium
credits based, in part, upon the volume of their activities on the
Exchange as a percentage of total ``Consolidated Volume.''
Pursuant to Equity 7, Section 118(a), the term ``Consolidated
Volume'' means the total consolidated volume reported to all
consolidated transaction reporting plans by all exchanges and trade
reporting facilities during a month in equity securities, excluding
executed orders with a size of less than one round lot. For purposes of
calculating Consolidated Volume and the extent of a member's trading
activity, the following are excluded from both total Consolidated
Volume and the member's trading activity: (1) the date of the annual
reconstitution of the Russell Investments Indexes; (2) the dates on
which stock options, stock index options, and stock index futures
expire (i.e., the third Friday of March, June, September, and
December); (3) the dates of the rebalance of the MSCI Equities Indexes
(i.e., on a quarterly basis); (4) the dates of the rebalance of the S&P
400, S&P 500, and S&P 600 Indexes (i.e., on a quarterly basis); and (5)
the date of the annual reconstitution of the Nasdaq-100 and Nasdaq
Biotechnology Indexes. For the purposes of calculating the extent of a
member's trading activity during the month on Nasdaq and determining
the charges and credits applicable to such member's activity, all M-ELO
Orders that a member executes on Nasdaq during the month count as
liquidity-adding activity on Nasdaq. In addition, volume from ETC
Eligible LOC Orders and ETC Orders is not utilized to determine
eligibility for any pricing tiers set forth in Section 118(a) to the
extent that such eligibility is based upon MOC or LOC volume.
Generally, the ratio of consolidated volumes in securities priced
at or above $1 (``dollar plus volume'') relative to consolidated
volumes inclusive of securities priced below a dollar is usually stable
from month to month, such that ``Consolidated Volume'' has been a
reasonable baseline for determining tiered incentives for members that
execute dollar plus volume on the Exchange. However, there have been a
few months where volumes in securities priced below a dollar (``sub-
dollar volume'') have been elevated, thereby impacting the ratio
mentioned above.
Anomalous rises in sub-dollar volume stand to have a material
adverse impact on members' qualifications for pricing tiers/incentives
because such qualifications depend members upon achieving threshold
percentages of volumes as a percentage of Consolidated Volume, and an
extraordinary rise in sub-dollar volume stands to elevate Consolidated
Volume. As a result, members may find it more difficult, if not
practically impossible, to qualify for or to continue to qualify for
their existing incentives during months where there are such rises in
sub-dollar volumes, even if their dollar plus volumes have not
diminished relative to prior months.
The Exchange believes that it would be unfair for its members that
execute significant dollar plus volumes on the Exchange to fail to
achieve or to lose their existing incentives for such volumes due to
anomalous behavior that is extraneous to them. Therefore, the
[[Page 13126]]
Exchange wishes to amend its Rules to help avoid extraordinary spikes
in sub-dollar volumes from adversely affecting a member's qualification
of incentives for their dollar plus stock executions.
Accordingly, the Exchange proposes to amend its pricing schedule at
Equity 7, Section 118(a) to state that, for purposes of calculating a
member's qualifications for credits that pertain to providing liquidity
set forth in Section 118(a), the Exchange will calculate a member's
volume and total Consolidated Volume twice. First, the Exchange will
calculate a member's volume and total Consolidated Volume as presently
set forth in Equity 7, Section 118(a) (i.e., inclusive of volume that
consists of executions in securities priced less than $1). Second, the
Exchange will calculate a member's volume and total Consolidated Volume
exclusive of volume that consists of executions in securities priced
less than $1, while also increasing the distinct qualifying volume
percentage thresholds, as set forth in Section 118(a), by 10%.
Thereafter, the Exchange proposes to assess which of these two
calculations would qualify the member for the most advantageous credits
for the month and then it will apply those to the member.
Although the Exchange wishes to avoid extraordinary spikes in sub-
dollar volumes from adversely affecting a member's qualification of
incentives for their dollar plus stock executions, the Exchange
proposes to include certain limits on the proposal to efficiently
allocate the Exchange's limited resources for incentives. Specifically,
as noted above, the Exchange proposes to limit the application of the
proposed calculation excluding sub-dollar volumes to those incentives
in Section 118(a) that pertain to providing liquidity. In addition, as
noted above, the Exchange proposes to increase the distinct qualifying
volume percentage thresholds set forth in Section 118(a) by 10% for
purposes of the proposed calculation excluding sub-dollar volumes.\3\
The Exchange wishes to impose such limitations in order to limit the
cost impact on the Exchange, while still providing some relief to
members in months with extraordinary spikes in sub-dollar volumes. 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.
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\3\ For example, the Exchange provides a credit of $0.00305 per
share executed for displayed orders (other than Supplemental Orders
or Designated Retail Orders) to a member with shares of liquidity
provided in all securities through one or more of its Nasdaq Market
Center MPIDs that represent more than 1.50% of Consolidated Volume.
See Equity 7, Section 118(a). Under the proposal, in addition to
calculating the member's volume and total Consolidated Volume
exclusive of volume that consists of executions in securities priced
less than $1, the distinct qualifying volume percentage threshold
would be increased by 10%. Therefore, for purposes of this example,
in order to qualify for the credit using volumes excluding sub-
dollar activity, the member would need to demonstrate shares of
liquidity provided in all securities through one or more of its
Nasdaq Market Center MPIDs that represent more than 1.65% of
Consolidated Volume (i.e., 1.5% + (10%)(1.5%)).
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Proposed Changes to Equity 7, Section 118(d)(1) and (e)(1)
Equity 7, Section 118(d)(2) provides pricing tiers applicable to
Market-on-Close and Limit-on-Close orders executed in the Nasdaq
Closing Cross and ETC Eligible Limit-on-Close and ETC Orders executed
in the Extended Trading Close, ranging from $0.0008 to $0.0016 per
share executed. Equity 7, Section 118(d)(1) provides that the fee for
all other quotes and orders executed in the Nasdaq Closing Cross is
$0.00085 per share executed. The Exchange proposes to increase the fee
assessed members for all quotes and orders executed in the Nasdaq
Closing Cross (other than Market-on-Close and Limit-on-Close orders
executed in the Nasdaq Closing Cross and ETC Eligible Limit-on-Close
and ETC Orders executed in the Extended Trading Close) from $0.00085 to
$0.0011 per share executed. Increasing this fee to $0.0011 per share
executed would bring the fee more in line with other pricing in the
Nasdaq Closing Cross, which ranges from $0.0008 to $0.0016 per share
executed.
Equity 7, Section 118(e)(1) provides that Market-on-Open, Limit-on-
Open, Good-till-Cancelled, and Immediate-or-Cancel orders executed in
the Nasdaq Opening Cross are assessed a fee of $0.0015 per share
executed. Equity 7, Section 118(e)(1) provides that the fee for all
other quotes and orders executed in the Nasdaq Opening Cross is
$0.00085 per share executed. The Exchange proposes to increase the fee
assessed members for all quotes and orders (other than Market-on-Open,
Limit-on-Open, Good-till-Cancelled, and Immediate-or-Cancel orders)
executed in the Nasdaq Opening Cross from $0.00085 to $0.0011 per share
executed. Increasing this fee to $0.0011 per share executed would bring
the fee more in line with other pricing in the Nasdaq Opening Cross,
which is set at $0.0015 per share executed.
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 and fees
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 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
[[Page 13127]]
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.
The Exchange believes that the proposal to amend Equity 7, Section
118(a) is reasonable and equitable because, in its absence, members may
experience material adverse impacts on their ability to qualify for
certain incentives during a month with an anomalous rise in sub-dollar
volumes. The Exchange does not wish to penalize members that execute
significant volumes on the Exchange due to anomalous and extraneous
trading activities of a small number of firms in sub-dollar securities.
The proposed rule would seek to provide a means for members that
provide liquidity to avoid such a penalty by determining whether
calculating member volume and total Consolidated Volume to include or
exclude sub-dollar volume \8\ would result in Exchange members
qualifying for the most advantageous credits, and then applying the
calculations that would result in the incentives for providing
liquidity that are most advantageous to each member. The Exchange
believes it is reasonable to limit the proposal by applying the
proposed calculation to incentives that pertain to providing liquidity
and increasing the distinct qualifying volume percentage thresholds by
10% when using the proposed calculation excluding sub-dollar volumes
because 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. The Exchange believes that the proposed rule
change is an equitable allocation and is not unfairly discriminatory
because the Exchange does not intend for the proposal to advantage any
particular member and the Exchange will apply the proposed calculation
to all similarly situated members.
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\8\ As noted above, in considering whether a member meets
qualifying credit criteria using the proposed calculation excluding
sub-dollar volumes, the distinct qualifying volume percentage
thresholds would be increased by 10%.
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The Exchange also believes it is reasonable, equitable, and not
unfairly discriminatory for the Exchange to increase certain fees
assessed for transactions in the Nasdaq Closing Cross and Nasdaq
Opening Cross under Equity 7, Section 118(d)(1) and Equity 7, Section
118(e)(1) respectively, as described above. 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. The
proposed increase in fees would better align the fees with other
pricing in the Opening and Closing Crosses. Specifically, the
Exchange's proposal to increase the fee assessed members for all quotes
and orders (other than Market-on-Close and Limit-on-Close orders
executed in the Nasdaq Closing Cross and ETC Eligible Limit-on-Close
and ETC Orders executed in the Extended Trading Close) executed in the
Nasdaq Closing Cross to $0.0011 per share executed is reasonable
because the proposed fee is comparable to other pricing in the Nasdaq
Closing Cross, which ranges from $0.0008 to $0.0016 per share executed.
Similarly, the Exchange's proposal to increase the fee assessed members
for all quotes and orders (other than Market-on-Open, Limit-on-Open,
Good-till-Cancelled, and Immediate-or-Cancel orders) executed in the
Nasdaq Opening Cross to $0.0011 per share executed is reasonable
because the proposed fee is comparable to other pricing in the Nasdaq
Opening Cross, which is $0.0015 per share executed. The Exchange
believes that proposal is an equitable allocation and is not unfairly
discriminatory because the Exchange will apply the same fees to all
similarly situated members.
Those participants that are dissatisfied with the changes to the
Exchange's schedule of credits and fees are free to shift their order
flow to competing venues that provide more favorable fees or generous
incentives.
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.
The Exchange intends for its proposed changes to its credits and
fees to reallocate its limited resources more efficiently and to align
them with the Exchange's overall mix of objectives. The Exchange
intends for its proposed change in Equity 7, Section 118(a) to help
avoid pricing disadvantages due to anomalous spikes in sub-dollar
volumes and is not intended to provide a competitive advantage to any
particular member. The Exchange intends for its proposed fee changes in
Equity 7, Section 118(d)(1) and (e)(1) to bring such fees more in line
with other fees for orders executed in the Nasdaq Opening and Closing
Crosses, as described above. The Exchange notes that its members are
free to trade on other venues to the extent they believe that the
proposal 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 proposal is reflective of this
competition.
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 upwards of 40% of industry volume.
[[Page 13128]]
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
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)(ii) of the Act.\9\
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\9\ 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#7103041d145c121e1c1c141f0502310214125f161e07"><span class="__cf_email__" data-cfemail="dfadaab3baf2bcb0b2b2bab1abac9facbabcf1b8b0a9">[email protected]</span></a>. Please include
file number SR-NASDAQ-2024-005 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-2024-005. 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 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. 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-2024-005, and
should be submitted on or before March 13, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Dated: February 14, 2024.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-03451 Filed 2-20-24; 8:45 am]
BILLING CODE 8011-01-P
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