T O TA L M A R K E T S
A BLUEPRINT FOR A
BETTER TOMORROW

Two years ago, Nasdaq launched Revitalize, our blueprint to reform U.S. equities markets tobetter serve American investors and companies of all sizes, and to position the U.S. for continued
leadership of global capital market.
After launching Revitalize, we have worked with a broad and diverse coalition in Washington, D.C.
to turn these ideas into reality to improve U.S. equity markets. In Congress, bipartisan members
worked together to pass seven bills in committee or on the house floor to improve capital formation.
Securities regulators have been strong partners, issuing 13 rules and announcements to help address
issues Revitalize highlighted. The industry actively and constructively debated the nuanced issues
highlighted in Revitalize, leading to action that will allow public investors to benefit from a morerobust and diverse public company ecosystem.
It is time we expand Revitalize to a serious and balanced debate focused on the market structure that
supports trading of public companies. Market structure has a significant impact on the cost of capitaland the return on equity that companies and their investors rely upon to grow and expand theirbusinesses. Market structure also defines the experience investors have in the public markets, whichplays a key role in how willing they are to invest their hard- earned dollars in public companies.
Our drive for progress is focused on reforming the vast array of regulations that have createda patchwork of complexity for investors and public companies of all types and sizes. While U.S.
regulators have worked diligently and with good intentions, many regulations no longer fit theever-evolving markets. In recent years, this chasm has only widened, as technological change has
only accelerated. Just as the Commission has taken important steps to modernize the disclosure
obligations of public companies, so too should it address outmoded rules governing market
structure that were promulgated years or even generations ago.
Over the coming pages, we examine the rules of yesterday, review the markets of today, and charta path to better markets tomorrow. We have come to our views after months of discussions withindustry participants, including a concentrated effort to engage with institutional investors andretail brokers. The recommendations for regulatory reform reflect our belief that nothing is more
powerful than free markets with clear, consistent, and fair rules that catalyze innovation — rather
than inhibit it. We view this as both a set of policy proposals and also the starting point of aconversation among all market participants on how to build future markets that better serve thecommon good.

Our recommendations focus on creating more market choice and opportunity acrossthree key areas:
1. Bolster liquidity for smaller publicly traded companies — Smaller, growing
companies are the lifeblood of our economy and our markets. We need toaddress shortcomings in the current market structure to ensure that small
issuers can continue to rely upon the public markets to provide the best
possible trading and investing experience for their investors.
2. Enhance effectiveness for Institutional investors – Many institutions thatmanage assets for retail investors suffer from one-size-fits-all regulation thathas benefits but also hinders innovation and increases cost.
3. Modernize data regulations to better serve Individual, long-term investors
Technology has provided investors with access to a wealth of data andchoice that was unheard of a generation ago. Overall, the experience forthese investors in today’s public markets is the best it has ever been.
However, a few straightforward reforms can unlock an even greater wave of
choice and opportunity for individual, long-term investors.
Tomorrow’s markets, if governed with properly-calibrated regulation, should embrace
rapid technological advancement for the betterment of all market participants andcontinue to unleash the dynamic, entrepreneurial spirit that drives the U.S. economy.
The ideas that follow will help us build these markets together. We look forward totransforming these ideas into action in the coming weeks and months.
Sincerely,

Adena Friedman
President and Chief Executive Officer

1
2
3
4
5
4

| April 2019

Highlights of Nasdaq’s Proposals
Centralize liquidity in small company stocks by giving companies the choice to trade on a market
without Unlisted Trading Privileges or Regulation NMS obligations.
Permit small to medium enterprises (SMEs) the opportunity to revoke unlisted trading privileges(UTP). This would concentrate their limited liquidity on their home exchange rather than fragment it
across 13 venues. Maintain off-exchange trading to continue to offer choice to investors, but create acentral source of price discovery, deeper lit liquidity, and on-exchange executions. This is simply restoringthese stocks to their pre-2000 status, before the Commission extended UTP to all stocks.
Simplify trading for institutional investors by eliminating the Order Protection Rule for thesmallest markets and allowing those small markets to innovate and operate outside some stringent
requirements of Regulation NMS.
Nasdaq believes there is a better way to maintain the benefits of the Order Protection Rule while
creating a better balance between value and obligation. Nasdaq proposes to give investors some
freedom to choose the small markets in which to trade by excluding the smallest markets from the Order
Protection Rule. At the same time, we would unlock exchange innovation by giving the smaller markets
the freedom to innovate, create differentiated market models, and compete on a more level playing fieldwith non-exchange dark pools, all within the conventions of Best Execution and SEC Rule 605.
Modernize the minimum quoting requirements and fee regimes for the markets to better recognize
different liquidity characteristics of small and large company stocks.
Today’s one-size-fits all quoting and fee regimes fits a segment of stocks, but other segments would
benefit from a more flexible approach that allows markets to better encourage and reward liquidity
in smaller companies and in high-priced stocks.
Change the definition of “professional” and “non-professional” users in market data agreements
to be more modern and flexible for retail brokers.
For many years, market data fees have differed for various categories of users. Exchanges haveargued and the Commission has accepted that it is equitable to allocate market data costs across adiverse group of users by distinguishing between them based upon their purpose and ability to pay
for the data (professional versus non-professional), the value they extract from the data (displayedon a screen versus non-displayed usage by a server), and the volume of data they purchase (tiers andenterprise caps), among others. However, some of the distinctions have become arbitrary and more
complex than is necessary and create undue administrative burden to manage. We should modernize
the user definitions to achieve the same general goals while streamlining the administrative burden.
Create more efficiency, choice, and industry participation in the Securities Information Processors
through a series of important reforms.
The SIP monopolies should be reviewed to ensure that they only include the data needed to meet
regulatory mandates, which in turn must match the needs of investors. This means removing
vestigial data from the SIPs, while also revisiting the outdated Vendor Display Rule. Nasdaq shares
the securities industry’s view that, as a public good, the SIP should be governed by a partnership
between the exchanges and the industry, with appropriate government oversight and extensive
public transparency. Investors should have more freedom to choose the market data they use.

Technology Drives Markets Forward
The public equity markets exist to facilitate job creation and wealth creation for millions ofpeople, ultimately driving economic growth for our country. The most important test of our
success is whether those who invest and raise capital are well served by the public markets: canwe help people save for homes, college, and retirement, and help businesses flourish, create jobs,
and contribute to a strong and growing economy? The policy choices we make about how ourmarkets operate day-to-day and evolve year-to-year critically impact how successfully the publicmarkets serve Main Street investors and navigate larger economic forces.
In the last twenty years, markets have harnessed remarkable new technologies to transform
equities trading. Trading that once required shouting ticket runners on a market floor,
migrated to powerful computers, which began to level the playing field and provide accessto data and tools to all participants, large and small. In these markets, as in other economic
sectors, technology has expanded possibilities in ways previously unimagined. However,technology alone cannot achieve all goals. It needs to be coupled with smart and everevolving rules of engagement to create a truly level playing field across a diverse set ofparticipants in the markets.

Equity mutual fundfees declined

U.S. stock average tradecommission2 down

40% 40%
between 2000 and 20171

ETF fees declined 38% between 2009 and 20173
U.S. stock average spreads down

88%
between 2000 and 20184

Technology itself has achieved tremendous benefits for the broader investor base. Today,
trades are executed at better prices than ever before (spreads collapsed by 88 percent
between 2000 and 2018), and at lower cost (commissions down 40 percent between 2009
and 2017); and investment products are less expensive (equity mutual fund fees were down
40 percent between 2000 and 2017, while ETF fees were down 38 percent between 2009
and 2017).
Individual investors have ubiquitous and easy access to real-time market data; quote andtrade data is free to access on television, websites, and smartphone applications.
1

Source: https://www.ici.org/pdf/2018_factbook.pdf [p.119, Figure 6.1]

2

Source: https://www.cnbc.com/2017/05/16/online-brokers-lower-trading-fees-theres-another-option-pay-nothing.html

3

Source: https://www.ici.org/pdf/2018_factbook.pdf [p.128, Figure 6.8]

4

Source: https://www.cnbc.com/2017/05/16/online-brokers-lower-trading-fees-theres-another-option-pay-nothing.html

April 2019 |5

Technology has also made markets safer. As trading technology has advanced, so too
has the technology powering surveillance. For example, Nasdaq surveillance software
runs dozens of algorithmic patterns over billions of equities quote and trade messages
every day. One in 10 servers operating Nasdaq markets is dedicated to surveillance of ourmarkets.

46,201

424,366

SEC filings reviewed in 2018

Alerts reviewed; 16% from 2017

6.7 Billion
Message per day processed by Nasdaq’s real-time regulatory systems

Nasdaq is convinced the technological evolution of the markets and resulting benefits
to investors is in its infancy. We continue to test new technologies to improve trading
and surveillance; including artificial intelligence, blockchain, and cloud computing. We
envision a future in which U.S. markets leverage the power of technology to differentiate,customize, and personalize the investor and issuer experience of the markets. We seed
and nurture our future markets’ potential, even as we celebrate what they accomplish
today. If we allow it, technology will accomplish far more to aid investors and shape ourmarkets in coming years.

The Growing Disconnect
Between Technology and Regulation
Technology is a powerful tool for good, enabling innovation, creating new opportunities
and capabilities that help markets evolve and better serve Main Street investors. At thesame time, it creates opportunities for manipulative trading practices and puts additionalpressure on regulators to keep pace and manage these risks. Technology and regulationmust advance together.
Nasdaq believes regulation has failed to keep pace with advancing technology. Regulations
developed in a “one-size-fits-all” format and adopted as long as 40 years ago are out ofstep with today’s markets. They have become more limiting and less flexible over time.

6| April 2019

Spread (Russell 3000)

12bn

60

10bn

50

8bn

40
6bn
30
4bn

20

2016

2013

2010

2007

0bn
2004

0
2001

2bn

1998

10

Average Daily Volume

ADV (bn shares)

70

1995

Since the 1990’s, the market has
automated and rules were enhanced toaccommodate the rise of automation,with decimalization and a protectedconsolidated quote. As this took hold,spreads collapsed, making trading
cheaper, and volumes increased.
Studies showed this dramatically
improved market efficiency and allowed
electronic arbitrageurs to reduce or
eliminate many market inefficiencies.

Spread vs. Volume

Average Spread (bps)

CHART 1: The addition oftechnology to trading haschanged the way trading
works, collapsing spreads andincreasing the amount of trading
and liquidity.

Source: Nasdaq Economic Research, Angel (2010), KCG, Rosenblatt.

Three areas of regulation in particular deserve re-examination: the Securities Information
Processor, or SIP rules, combined with the Vendor Display Rule or VDR, and the Order
Protection Rule or OPR. Each regulation had a laudable goal: the SIPs were designed toincrease exchange-level competition before the age of electronic trading; and the OPR toensure the best-priced orders were actually executed at a time when computer algorithms
did not exist to help investors and traders find them.
Each prescriptive regulation brought more trading activity under a strict governmental
regime. Essentially, the government layered mandate atop mandate atop mandate,resulting in fewer choices and more obligations across the industry.
Finding the proper path forward requires an understanding of how and why thoseregulations were created in the first place:

Listed Companies

Number of Registered Businesses

140

20%

120

100

-36%

80

60

2015

2012

2009

2003

2000

1997

1994

1991

40
1988

Many companies are waiting longer to
IPO or sometimes opting to stay private
forever. As a result, the number oflisted companies has fallen even as thecount of US registered businesses has
continued to rise.

Growth of Listed Companies vs. Number of Registered Businesses

Indexed to 1988

CHART 2: Listed companies are
falling even though the numberof registered businesses has
increased.

Source: World Bank, Census Bureau

April 2019 |7

•In 1978, the Commission ordered the exchanges to create centralized facilities
called SIPs that would collect and combine in one place the quotations andtrade prices (known as “market data”) from each exchange for each stock.5 Inan effort to help smaller markets compete and contribute to price discovery,
the government made centralized SIPs veritable monopolies; they became thesingle source for critical market data that brokers need to trade and to serve
investors. The SIPs’ monopoly position were strengthened with the Vendor
Display Rule in 1980, which required that brokers provide the SIP data to theirinvestors. The revenue SIPs earned from selling market data was then allocatedback to the exchanges in proportion with their level of activity. While this market
intervention may have been justified in 1978, the market has moved on. Thisantiquated regime led to today’s monopoly SIPs and is in need of updating.

•

The Commission later became concerned that the best publicly displayed orders
were still marginalized. To address this, in 2005, the Commission adopted theOrder Protection Rule or “OPR” that directed trading firms to attempt to executeorders posted at the best published price, essentially ignoring other importantfactors that contribute to best execution. This 2005 mandate was initially wellintended and has many benefits, but it can reduce the flexibility that long- term
investors have when attempting to satisfy the obligations to investors.

We appreciate the rationale for these rules, but circumstances have changed. To move
forward we must acknowledge the transformation of our markets over the past 40 years.
All told, modern trading, data, and routing technology, coupled with current (and, hopefully,
updated) best execution obligations, can ensure that every order entering the trading
ecosystem will find the best market and the best price.
Considering all these developments, it becomes clear the proposed Transaction Fee Pilot
compounds these historical shortcomings. Rigid and prescriptive rules did not evolve
intelligently and did not benefit all investors and issuers equally. Instead, it led to a market
that works better for some than for others; creating haves and have-nots; favoring largecap securities over all others.
We must revisit and review the rules, take what we learn, and then adjust. Radical change
is not required, but common sense is. It’s time to roll back certain government mandates tobuild markets that are friendlier for all types of investors and issuers — and to re-establish
choice as a priority in the public markets.

58| April 2019

Securities Exchange Act Release No. 15009, 43 FR 34851, 34855 (Aug. 7, 1978).

Nasdaq Proposals for More Choice
Smart, technology-sensitive regulatory change can preserve what works well today, while
improving the markets for Main Street investors who are saving for their future as well as
institutions like pensions, mutual funds, and insurers that manage and protect Main Street
investors’ assets. The rules should do a better job supporting innovative companies thatleverage the public capital markets to grow their businesses and create jobs. The companies
should be rewarded with a market that properly reflects the value of their businesses, while
giving them efficient access to additional capital.

CHART 3: Smaller cap stocks
have much lower liquidity andwider spreads.

Importantly, studies have shown alink between higher cost of trading
and lower liquidity increasing the costof capital which in turn reduces thereturns on harder to trade stocks.

5

250

200

4

150

3

2

100

ADV (M)

206

Spread (bps)

Wider spreads make it more expensive
for investors to trade smaller stocks,
and less liquidity increases the market
impact that large trades have. Bothact to make it more expensive for
institutions to trade, increasing therequired returns to enter a stock;
thereby increasing the cost of capitalfor those investors as well as for small,
growth companies who may wantor need to raise additional equity togrow their businesses. It is a lose-lose
proposition.

Average Spread (BPS) vs. ADV by Market Cap

69
50

1
22

8

0

0
Micro

Small

Mid

Large

Less than$200m$200m to
$1bn

$1bn to$10bn

More than$10bn

Source: Nasdaq Economic Research (NMS Common Stocks, data as at Jan 2019)

Instead, we have a one-size-fits-all regulatory approach to issuing companies, whether they
are trillion-dollar behemoths or $100 million micro-cap stocks, or whether their shares are
priced from a dollar to thousands of dollars per share. For each stock, the range of daily
share volume can be as small as hundreds of shares or as large as hundreds of millions ofshares. Some companies have enormous research and market-making support; others havealmost none. Why must thousands of listed companies that differ in every conceivable
respect all trade under the same rules when technology allows a vastly more thoughtful
and efficient approach?
As regulators consider changing equity market rules, Nasdaq calls for a top-down
review of prescriptive rules that stifle innovation. More flexible rules will unleash
innovation and allow fair competition to determine the outcomes. This new framework
can create an inclusive market that cultivates capital formation for all issuers and their
public shareholders.
To the greatest degree, we have endeavored to focus on what our issuers and theirinvestors are requesting, and what our extensive experience has proven will work. We
neither flatly reject ideas that support our business nor avoid those that do not. Nasdaq
proposes reforms that will free the markets to innovate and give investors more choices.

April 2019 |9More Choice to Better Serve
Smaller Publicly-Traded Companies
Permit small to
medium enterprises
the opportunity
to revoke unlisted
trading privileges —concentrating theirlimited liquidity
on their homeexchange rather thanfragmenting it across
13 venues.

As established in Revitalize, smaller, growing companies are staying private longer, relying
more on private market liquidity, and providing growth opportunities to private market
investors.6 The result is a widening disparity of wealth in the country, as investors inprivate companies are, by rule, wealthy individuals or professional investors. Traditionally,
public equities markets have created opportunities for smaller retail investors to fundinnovative companies that go public and, thereby, fund growth in the economy, andcreate jobs. Historically, investing in early-stage companies provided retail investors theopportunities to share in their public growth and to use that opportunity to save for homes,
education, and retirement.
Among the many reasons companies are staying private longer, market structure
clearly plays a role. The one-size-fits-all market model that governs all U.S. trading
disproportionally rewards certain types of issuers and segments of the market, widens
spreads, and increases the cost of capital for smaller companies. [see chart 3].There is broad
recognition that smaller, thinly-traded companies trade differently than large, ultra-liquid
stocks. Why, with the vast power of technology to differentiate, must all publicly-traded
companies trade under the same set of rules? Nasdaq proposes the following reforms:•

Issuer Choice/Unlisted Trading Privileges (“UTP”) Revocation: Permit small to
medium enterprises the opportunity to revoke unlisted trading privileges. This would
concentrate their limited liquidity on their home exchange rather than fragment it
across 13 venues. Concentrating liquidity will improve price discovery, reduce market
volatility, and lead to better trade prices.

•

Innovation: Allow exchanges to innovate and tailor their trading rules to the unique
way small and medium-sized companies trade. Rigid rules and intense competition
have focused the markets on what serves a small group of large, deeply liquid stocks,
and largely eliminated the ability for exchanges to introduce new market featuresthat cater to smaller issuers, keeping marketplace competition primarily focused onfeatures that are not always conducive to smaller issuers.
We should be allowed to encourage market maker sponsorship and to develop new
execution alternatives, such as specialized, periodic auctions to gather liquidity andincreased price discovery. The industry is much more comfortable with electronic
auctions than when UTP was extended to all stocks in 2001 and when a one-size-fitsall regime was adopted.
Nasdaq supports solutions tailored to serve thinly-traded securities. Much of the
trading and routing functionality in use today was designed in response to UTP and
the OPR. For issuers that choose to list in a non-UTP structure, much of that complex
functionality will no longer be necessary to trade these companies’ shares.
Protecting Competition: Competition for listings and preserving over-the-countertrading will continue to discipline the listings process. Additionally, exchanges canbe governed appropriately by regulators to ensure that they continue to distributemarket data efficiently to support the new market model.

•

6

10 | April 2019

The Promise of Market Reform: Reigniting America’s Economic Engine, available at https://business.nasdaq.com/media/
Nasdaq_Blueprint_to_Revitalize_Capital_Markets_April_2018_tcm5044-43175.pdf.

More Choice for Institutional Investors
Many institutions that manage assets for retail investors –pensions, mutual fund companies,
insurers – feel today’s markets are not designed for them. Regulation that fails to adapt andevolve adds unneeded cost and complexity, stifling innovation. We have heard from ourclients that smaller players feel they are crowded out of the market, and unable to competewith large banks and trading firms that benefit from the current model. To address theseconcerns, Nasdaq proposes the following reforms:
Exclude Small Markets from Order Protection: Nasdaq proposes to give investorssome freedom to choose the small markets in which to trade by excluding thesmallest markets from the Order Protection Rule. Instead, give the smaller and newmarkets the freedom to innovate, create differentiated market models, and compete
on a more level playing field with non-exchange, over-the-counter venues.

•

Any assessment of OPR must also include a review of the Duty of Best Execution and
SEC Rule 605 which, together, provide an important investor protection backstop to
OPR. Best Ex and Rule 605 once were primary tools of investor protection, requiringfirms to conduct a detailed review of their routing and trading practices and thenreport relevant information on the execution outcomes obtained for clients. After theCommission adopted OPR, Best Ex shrank in prominence and has become outdated.
Recall the market that existed before the Commission imposed OPR. Technology
had drastically changed how trading and investing was done. While technology had
evolved quickly, some of the established players were slow to adopt. As a result,the markets were disconnected in some ways. In crafting a solution, the Commission
attempted to balance benefits and costs of different paths. As stated in the release,
the Commission had “sought to avoid the extremes of: (1) isolated markets that
trade stocks without regard to trading in other markets and thereby fragment thecompetition among buyers and sellers in that stock; and (2) a totally centralized
system that loses the benefits of vigorous competition and innovation amongindividual markets.”77
8Give investors freedom tochoose the small markets
in which to trade byexcluding the smallest
markets from the Order
Protection Rule.

Give the smaller andnew markets freedoms
to innovate, create
differentiated market
models, and compete

The Commission also recognized that there were benefits to the technologicalevolution and that it could encourage change for participants that were slow to adopt.
In other words, there was a need to modernize the structure of the National Market
System (NMS) and therefore modernize what it meant to be an “exchange”. As a result,
the Commission focused on order competition.

on a more level

What benefits did it bring? The Order Protection Rule favors displayed limit orders
with the intention of increasing transparent price discovery. No longer could aspecialist have a monopoly in a given stock. They now had to compete with automatedmarket makers, retail limit orders, and institutional limit orders. In fact, that was oneof the reasons the Commission wanted to implement the Order Protection Rule — thebelief was that the “protection of displayed limit orders would help reward market
participants for displaying their trading interest and thereby promote fairer and morevigorous competition among orders seeking to supply liquidity.”8counter venues.

playing field with nonexchange, over-the-See Securities Exchange Act Release No. 51808, 70 FR 37496 37498-99 (June 29, 2005).
Id. at 37501.

April 2019 | 11

The Commission also believed that the price protection afforded by the new rules
would assure that investors who submit market orders will receive the best prices.9
Thus, the Order Protection Rule was designed to “promote market efficiency andfurther the interests of both investors who submit displayed limit orders andinvestors who submit marketable orders.”10
The Commission was right. Markets got far more efficient. No longer were spreads forliquid stocks wide and markets slow. Volume increased as the cost to trade decreased. (seefigures below). In other words it became cheaper and easier to execute round-trip stocktransactions (i.e. buying 1,000 shares and then selling those shares at some later time).
Protection of limit orders also eased burdens on firms representing limit orders in
the market on behalf of their clients. In particular, individual investor limit orders areprotected, which makes the fragmented market less of a concern to those individual
investors. Brokers no longer receive calls from individual investors asking why anothertrade occurred at a price that was worse than their limit price. If OPR was eliminated,the confusion would return and many individual investors would be calling theirbrokers with questions.
In essence this led to a sort of renaissance period for individual retail investors andtrading commissions and costs went down.

CHART 4: Retail commissions have fallen over time.
Automation of retail trading has not only allowed retail investors to trade withtighter spreads, but also helped the fixed (commission) costs to fall too.

$50

$40

$30

$20

$10

2018

2014

2010

2006

2002

1998

$0
1994

Average Commission Revenue per Trade

Retail Commissions Have Fallen

Source: Multiple data sources spliced together, including AAII Journal, Barclays Capital Equity Research, Company Filings(Schwab, E*Trade, TD Ameritrade)

9 Id.
10 Id. at 37505

12 | April 2019

What unintended consequences now exist that should be addressed?
The benefits of OPR have not accrued to all market participants evenly. While some participants find value inprotection, others see it as overly prescriptive obligations without commensurate worth. The barrier to entry tostart a new displayed market such as an exchange is low. However, if the new market is not offering innovation
or value, the burden to connect still exists. With many small markets, participants may feel obligated to connect
to each of them although the benefits of connecting to these new markets are not sufficient to warrant becoming
a customer. In addition, the one-size-fits-all nature of the rule amplified the importance of speed, making it a key
competitive differentiator for displayed markets. Market participants must invest in latency-reducing technology
in order to compete effectively. The well-intentioned rule meant to simplify a fragmented market has actuallycreated its current complexity.
Nasdaq believes there is a better way to maintain the benefits of OPR while creating a better balance
between value and obligation. Our proposal is to maintain the Order Protection Rule for markets that clearly
demonstrate value and contribute to price discovery while exempting smaller markets from protection. No
longer would every participant be required to connect to every small exchange. Instead, we would allow freemarket forces to determine whether there is value in each of these smaller exchanges. Further, any exchangethat is not protected under OPR would have greater ability to innovate. For example, without protection, amarket will be free of other Regulation NMS requirements (i.e. fair access) that limit the imagination of theexchange operators to find new ways to serve their clients.

CHART 5: In recent years the US
market has become increasingly
fragmented.

Number of Lit vs. Dark Venues
DARK

LIT

13

Fragmentation has increased as more
off-exchange venues have been created
which has led to many more choices
and conflicts in routing, as FINRA
recently detailed.

15
75

13
16

44

29

10
2002

2009

2015

2018

Source: Nasdaq Economic Research, Thompson Reuters, Rosenblatt Securities

CHART 6: That has resulted in amarket where sourcing liquidity
has become more complicated.
Currently, liquidity in US stocks is
split between around 88 different sources,
with nearly 40% of trading occurring
off-exchange. Importantly, thanks to Reg
NMS the executions off exchange must be
no worse than those prices on-exchange.
As a result, dark pool operators leverage
the price discovery provided by the lit
exchanges, but then siphon orders andexecutions away from the exchange
liquidity pools.

Total Market Equity ShareTotal volume based on October-November 2018

NYSE (N)AMERICAN ENTERPRISE INVESTMENT SERVICES INC.
G1 EXECUTION SERVICES, LLC

MostlyRetail24%

NYSE ARCA (P)NYSE AMEX (A)Nasdaq (Q)

On-Exchange

Off-Exchange(TRF)

VIRTU AMERICAS LLC
CITADEL SECURITIES LLCLMNX LUMINEX TRADING & ANALYTICS LLC

65%
On-Exchange

Dark Pools MSTX MS TRAJECTORY CROSS (ATS-1)
11%
SGMT SIGMA X2
MSPL MS POOL (ATS-4)
UBSA UBS ATS
EDGA (J)Nasdaq PSX (X)EDGX (K)

Source: Nasdaq Economic Research, FINRA

April 2019 | 13

Every element of a smarter OPR regime deserves deeper consideration and debate. Asa starting point, we recommend considering:•

minimum market share in a single venue of 1.5% of U.S. equities
shares traded;•markets’ contribution to price discovery;•

how exempted markets that grow are re-evaluated for OPR
consideration; and•whether and how SIPs display exempted markets’ quotes and allocate
SIP revenue to themNasdaq looks forward to engaging the industry on these important aspects of the
proposal to move away from today’s “one size fits all” rules and towards a betterbalance between innovation and investor protection.
•

More Intelligent Tick Parameters and Rebates Nasdaq has called for a more intelligent
tick regime that better responds to and supports the wide variations that exist
between stocks and trading conditions among publicly-traded companies.11 There is
growing evidence that this one-size-fits-all approach is compromising the tradabilityof many securities, particularly low- and high-priced publicly traded securities.12
Nasdaq recognizes that tick size is an important variable in the cost of trading and theinvestor experience.
On February 15, 2019, Nasdaq’s Chief Economist, Phil Mackintosh, published anarticle highlighting these concerns and their impact on market quality.13 We foundthat too wide a tick size (i.e., tick constrained) results in increased trading costs anddoes not rightly balance incentives between providers and takers of liquidity. This canlead to long order queues and, as a result, excessive fragmentation.

CHART 7: One-Size Doesn’t fit
all: Spreads and tradability
aren’t consistent even for similar
liquid stocks

Spread (bps)% of Time Top of Book Size < 100

25%

20%

30

15%
20
10%
10

% of Time Size <100

40
Average Spread (bps)

The disadvantages of our one-sizefits-all market are evident looking
at spreads and odd lots across stock
prices, even for liquid large cap stocks.
Spreads (blue bars) are a measure ofinvestor costs, and thanks to the 1-centmarket-wide tick, they rise as prices
fall. However spreads also rise when
prices get too high, partly because
traders are more likely to post odd lots
(less than 100 shares) inside the market
quotes (green line).

Spread vs. Odd Lot %Spreads based on Large Cap Common Stock; Odd Lots based onLarge Cap Nasdaq 100 Components

5%

0

0%
less than $25$25-$100>$100

Source: Nasdaq Economic Research, Large cap stocks only, spread data from Jan ‘19, Percentage of odd lots
inside the NBBO based on Nasdaq 100 stocks.

11 See, e.g., Petition Requesting the Commission Exercise its Exemptive Authority Under Rule 612(c) of Regulation NMS, available
at: https://www.sec.gov/spotlight/regnms/jointnmsexemptionrequest043010.pdf
12 The Tick Size pilot that recently ended was well-intentioned but suffered the same “one size fits all” rigidity of OPR, VDR, andRegulation NMS
13 See, e.g https://www.nasdaq.com/article/the-data-is-already-out-there-to-design-better-markets-cm1100953

14 | April 2019

On the other hand, too small of a tick size can result in increased volatility and areduction in price competition that impairs price discovery, thus once again creating
an imbalance between providers and takers of liquidity. Today’s one-size-fitsall approach to tick size is particularly suboptimal for small and medium growthcompanies as it can stunt growth by unnecessarily degrading market quality.
The way companies think about their stock price and whether to split their stock haschanged drastically over the last two decades, leading to the recent phenomenon of
an increase in high priced stocks. Nasdaq supports a more flexible tick size regime
that considers key variables, such as average daily volume and price. If implemented
properly, optimal tick sizes has the potential to increase liquidity, promote quotecompetition, and reduce trading costs – all of which will serve to protect investors by
improving market quality.

CHART 8: Stock Splits have declined and stock prices are rising.
Data shows that since 2007, stock splits have become far less popular.

The number of stock splits by S&P 500 companies
has fallen in recent years
100

50

0
1990

1995

2000

2005

2010

2015
Source: Wall St Journal

Since then the average stock price has almost doubled, and the average price of an
S&P500 stock is now $119. As we showed in Chart 7, that leads to wider spreads andmore odd-lot trading which is decreasing the tradability of stocks which has beenshown to increase the costs of capital.

April 2019 | 15

Average Stock Prices Have Doubled

$44

$50

$40

Nasdaq supports an$30

intelligent approach$20

to odd-lot display thatconsiders share price,

$23

$10

notional value,

2018

2016

2014

2012

2008

determinants.

2010

$0

and other relevant

Source: Nasdaq Economic Research, Bloomberg data

A smarter minimum tick size regime will also enable a better path forward forassessing the right level for fees and rebates. Government-mandated caps ontransaction fees and related rebates could then be adjusted to align with the different
minimum tick sizes. Our collective, primary goal should be to ensure that market
incentives are designed to maximize liquidity and price competition while minimizing
the potential for market distortions or increasing the perception of conflicts inrouting. The current SEC proposal for the access fee pilot strives for importantchange, but does not properly align pricing and rebates with the costs of capital, thus
creating new distortions that could fundamentally harm liquidity and widen spreads
even further for smaller companies. Our proposal seeks to create better alignment ofinterests and costs across the wide spectrum of companies in the public markets.
•

Update Odd-lot Display to Reflect Modern Markets. As a consequence of the rise instock prices and the inflexible tick sizes noted above, we have experienced an increasein odd-lots. The prescriptive definition of a 100-share round lot is out of step withtoday’s markets and it has the potential to distort the trading interest and prices
investors see. Technology-driven market changes warrant a review of the tradinginterest eligible to be displayed as part of the national best price, protected in themarket, and accessible to investors. [See chart 7 and 8]. Consider three quotations:2,500 shares of a $10 stock; 250 shares of a $100 stock; and a 25 share of a $1,000
stock. All have a “notional” value of $25,000 but only the first two contribute to pricediscovery and only the first two are price-protected.
Nasdaq supports an intelligent approach that considers share price, notional value,
and other relevant determinants. For instance, perhaps whether a quote from aparticular market is displayed in the SIP feeds could be based on the notional value ofthat quote rather than the number of shares it represents.
Investors are currently able to get more information regarding odd-lots on individual
data feeds from the exchanges. Investors would be better served if the SIP andproprietary feeds were harmonized with regards to odd-lots and provided themost accurate reflection of prices.14 Nasdaq supports adding odd-lots to the NBBO
14 Nasdaq recently updated how it represents multiple instances of odd-lots on the SIPs by aggregating odd-lots into a round lot
and displaying the aggregated value as Nasdaq’s best price. See Nasdaq Rule 4756(c); see also Securities Exchange Act Release
No. 84671 (Nov. 28, 2018), available at https://www.sec.gov/rules/sro/nasdaq/2018/34-84671.pdf

16 | April 2019and the BBOs of each Exchange, but it must be done smartly to avoid unintended
consequence. For instance, does it make equal sense to display and protect 25 sharesof a $1 stocks, a $100 stock, and a $1,000 stock? We think it is best to align thedisplay and protection with value represented by the order.
We welcome the opportunity to work with the investor community and regulators
to find the best way to reflect true investor buying and selling interest in the SIP
monopolies and through the proprietary exchange feeds.

More Choice for Individual Long-Term Investors
Technology has provided retail investors with access to a wealth of data and choice thatwas unheard of a generation ago. However, outdated and rigid regulations prevent firms
and vendors from fully leveraging technology to offer innovative new products andservices. A number of straightforward regulatory reforms to update the SIPs can unlock
an even greater wave of choice and opportunity for retail and long-term investors toensure that they can compete on a level playing field in tomorrow’s markets.
•

Revisit the SIP Government’s role is rarely to mandate a monopoly. The SIPs area historical anomaly that runs counter to more than a century of pro-competition,
anti-monopoly legislation and judicial precedent. Regulation interfering in naturalcompetitive behavior must be carefully driven by specific policy goals and wellsupported, clear outcomes.
In this case, SIPs were originally created in the 1970s, an era when modern
technology was in its infancy. SIPs were created under a Congressional mandate
to promote a national market for the trading of equity securities. Over time, theexchanges created three consolidated “tapes” – one for NYSE-listed stocks, anotherfor stocks listed on AMEX and other regional exchanges, and later, a third for overthe-counter stocks that evolved into the SIP for Nasdaq-listed stocks. That createdthree bureaucratic, government-mandated monopolies, each with arcane rules andgovernance, designed in a drastically different time in the evolution of exchanges.

The SIP monopoly
should be reviewed
to ensure that it only
includes data to meet
regulatory mandates.

The purpose of the SIPs was to ensure that competition for trading among exchanges
could occur without harming the ability for investors to receive the market
information that they needed to make an informed investment/trading decision.
Therefore, they were created primarily to provide the National Best Bid and Offer andthe Consolidated Last Sale across all markets trading the same stocks.
Almost 15 years ago, as part of the creation of Regulation NMS, the scope of the
SIP was examined again in light of new trading rules that were introduced to createeven more competition among exchanges and alternative trading venues. At thattime, the Order Protection Rule was introduced, and it was purposefully decided thatorder protection would apply only to the BBO of exchange, rather than the depth ofbook of each exchange. Had the Commission applied depth of book price protection,
the US markets would be burdened by even stronger SIP monopolies.
Instead, the Commission decided to embrace competition among exchanges andother trading venues. Therefore, it codified into the rules that the SIPs were only
required to contain the data needed for firms to comply with the Order Protection
Rule – the NBBO, the exchange BBOs, and the Last Sale. It then specifically statedthat the exchanges were free to compete to sell their proprietary data on market
terms based on competitive forces.15 Now, almost 40 years since the SIP’s inception,
it is again time to revisit the SIP.

15 See, e.g., SEC Rule 603(b), 17 CFR 242.603 (“Any national securities exchange, national securities association, broker, or
dealer that distributes information with respect to quotations for or transactions in an NMS stock to a securities information
processor, broker, dealer, or other persons shall do so on terms that are not unreasonably discriminatory”)

April 2019 | 17

•

Remove Extraneous Data from the SIPs. The SIP monopoly should be reviewed toensure that it only includes the data needed to meet regulatory mandates, which
in turn must match the needs of investors. This means not forcing the industry toprocess and consume content they neither want nor need, including:•

Remove Over-the-Counter Bulletin Board (“OTCBB”) data from the Nasdaq SIP.
OTCBB data was included in the Nasdaq SIP at its inception in 1990, when FINRA
operated the SIP and Nasdaq as a single, integrated system. Since that time, the
SIP was fully separated from Nasdaq systems in 2002, and Nasdaq registeredas an independent exchange in 2006. Additionally, the OTCBB business has
substantially declined versus competitors such as OTC Markets Group.
And yet, OTCBB data remains a part of the Nasdaq UTP Plan and it continues to beearmarked at over six percent of all Nasdaq UTP revenue. In 2008, the Operating
Committee for the Nasdaq UTP Plan unanimously supported and formallysubmitted Amendment 21 to remove OTCBB data, but the Commission neveracted on it.16 A strong case can be made that the revenue allocated to FINRA for
OTCBB data should be reallocated to investors. This would enable the Operating
Committee to reduce all SIP fees by six percent.

•Remove “concurrent use” data from the CTA SIP. The CTA Plan contains an
idiosyncratic provision that benefits individual stock exchanges rather thanserving the purposes of the SIPs. Section XIII of the CTA Plan permits thedissemination of data unrelated to the core mission of the CTA SIP, such as thedissemination of data for corporate bonds and indexes.17 While the mere presenceof this “concurrent use” data does not harm investors, it inappropriately leverages
the monopoly power of the CTA SIP and the government mandate that created it.
It allows exchanges to grow proprietary businesses on the back of a government
mandated distribution vehicle.
Keeping the SIP true to its purpose of providing only that data that supports aregulatory mandate would continue to exclude data, such as depth of book or
auction data, that serves competitive purposes amongst the exchanges, but does
not meet a rule-based regulatory requirement.18 Excluding data that does notserve a clear regulatory mandate would also ensure customers do not pay formore data than they need, such as the current surcharge for OTCBB data.

16 Amendment 21, which the Operating Committee unanimously approved and filed with the Commission, was published forcomment and remains pending today, nearly nine years later. See https://www.sec.gov/rules/sro/nms/2010/34-62021.pdf .
17 Available at https://www.nyse.com/publicdocs/ctaplan/notifications/trader-update/CTA%20Plan%20-%20Composite%20as%20
of%20August%2027,%202018.pdf.
18 Nasdaq recognizes that there are divergent, strongly-held views about adding depth-of-book data to the SIP and on a Trade At
rule. We should respect both positions in the market structure of tomorrow.

18 | April 2019

Distribute the SIPs, and Consolidate the Plans that govern them: The Nasdaq SIP runs onstate-of-the art technology, requiring just 16 microseconds of processing time (on par with
Nasdaq’s proprietary exchange feeds), and provides retail investors with inexpensive,
easily accessed, valuable data.19 Nonetheless, there exists a perception, real or not, thatinvestors are disadvantaged by the cost or location of the SIP.

Technological improvements have sped
all aspects of the market. The SIP’s
are not slow. In fact, the UTP SIP now
publishes an NBBO in less time than the
Nasdaq matching engine can match andorder and return a fill, both of which
are much faster than the time it takesfor orders to travel from other venues
to the SIP.

Nasdaq Prop Feed vs. SIP Feed Latency
120

110

100
Microseconds

CHART 9: SIP now processes
quote data much faster than thetime it takes to transmit aroundthe network, and well inside thetimeframe the SEC’s defined as“de-minimis”.

80
60
60
40

32

25
16

20

17

0
NasdaqMatching
EngineUTP Quote UTP Trade CTA Quote CTA Trade NYSE Arca
Matching
EngineSource: Nasdaq Economic Research, UTP Plan, CTA Plan

To address this perception, Nasdaq supports:•

Establishing Distributed SIPs. The SIP Operating Committees are developing plansto replicate the current SIP technology in multiple, major data centers, including
Mahwah, Carteret, Secaucus, and potentially Chicago. Exchanges would then send theirregulatory data to each instance of the SIPs, and each SIP would calculate a National
Best Bid and Offer (NBBO). Due to physics of speed/latency and specific physicalconfigurations within each data center, the NBBO calculation at any given microsecond would differ slightly coming from each data center. These slight differences
would require adaptation of Commission rules, such as the rules governing national
market system plans and the calculation of the NBBO, as well as updated guidance on
the Duty of Best Execution.
Distributed SIPs would reduce time spent transmitting quote information between an
exchange (and firms) located in one data center and a SIP (and other firms) locatedin a different data center. Some investor advocates claim – wrongly in Nasdaq’sview - this transmission time creates an unfair disparity between consolidated data
feeds and proprietary exchange feeds. Others claim firms would spend less moneyon connectivity, potentially pooling their resources in one data center rather thanmaintaining trading infrastructure at multiple data centers.
Regardless of the rationale, investors have claimed the right to choose where toobtain consolidated data. Nasdaq believes investors should have that choice, too.
The SIPs will remain a government-mandated monopoly, but a distributed SIP is an
important first step in the direction of choice.

19 The CTA SIP that governs the data for NYSE- and AMEX-listed stocks, on the other hand, currently operates with over 100
microseconds of latency, which is not up to the standard that investors have come to expect in the modern markets.

April 2019 | 19

The diagram below demonstrates that some market participants would save between 400
and 700 microseconds of data transmission time if each major colocation center included
an instance of the SIP technology. For example, SIP data recipients located in Secaucus
currently receive Tape B quote updates on BZX only after it has travelled to Mahwah,
been processed by SIAC, and returned to Secaucus. This takes ~480 microseconds, ~400
of which are due to travel time. If instead a SIAC instance were located in Secaucus, themarket data update would be subject to the 80 microsecond processing time. Participants
currently transmitting data between Mahwah and Carteret would save 700 of the 720
microseconds that round-trip currently takes; between Carteret and Secaucus, the timesavings would be 500 of the 520 microseconds of total transmission time.

CURRENTPROPOSEDM A HWA H(C TA )M A HWA H(C TA , U T P )200 μs350 μsSECAUCUSSECAUCUS(C TA , U T P )150 μsCARTERET(UTP)

20 | April 2019CARTERET(C TA , U T P )•Nasdaq recommends
charging customers
based on actually

Combining the SIP processors and administrators into a single SIP. Nasdaq
supports the SIP Operating Committee’s ongoing work on Distributed SIPs andwill become a more vocal advocate for it. However, while that work is being
completed, Nasdaq recommends that serious consideration be given over the longterm to consolidating the national market system plans and network processors tocreate a single consolidated data feed for all U.S. equities.
When the Commission originally fashioned the National Market System, each SIP
was created and registered separately. As a result, there were three consolidated
data feeds: one for stocks listed on the New York Stock Exchange, one for theAmerican Stock Exchange (and all regional exchanges), and a third for Nasdaq. NYSE
and Amex are commonly-owned, and all exchanges trade all exchange-listed stocks,
the same three consolidated feeds still exist, though their governance has been
harmonized somewhat.

using the data in amanner consistent
with the category,rather than by whether

Nasdaq supports considering a single consolidated tape for all exchange-listed
equities. Now that all exchanges trade all listed stocks, there no longer exists a
rational basis for maintaining separate network processors and administrators
based on historical listings decisions. It is time to remove this historical anomaly.
Nasdaq generally prefers to reduce the power of the monopoly SIPs; we especiallyobject to preserving duplicative, inefficient, costly monopoly SIPs.

the person works fora bank, brokerage oradvisory company.

By consolidating the tapes, we can harmonize the technology infrastructure that
supports the SIPs and more can be aligned. The markets will become simpler, andinvestors and firms will save money.
•

Redefine Professional and Non-Professional Users. For many years, market data
fees have differed for various categories of users. Exchanges have argued and theCommission has accepted that it is equitable to allocate market data costs acrossa diverse group of users by distinguishing between them based upon their ability
to pay for the data (professional versus non-professional), the value they extractfrom the data (displayed on a screen versus non-displayed usage by a server), andthe volume of data they purchase (tiers and enterprise caps), among others.
While these distinctions add flexibility for firms consuming data, each line wedraw, each distinction we make complicates market data administration and adds
costs, especially for retail brokerage firms managing millions of investor accounts.
Exchanges and firms enter into lengthy contracts, negotiate detailed customer
reporting regimes, draft complicated policies, and deploy complex technologicalsolutions to support this flexibility. This often leads to ambiguity and disputes.
The greatest difficulties have arisen from the distinction between “professional”
and “non-professional” data users.
The definition of pro and non-pro is outdated and must be redefined to betterreflect the status of industry professionals versus retail non-professionals.
Nasdaq recommends charging customers based on actually using the data in amanner consistent with the category, rather than by whether the person works fora bank, brokerage or advisory company. A custodial or administrative employee
shouldn’t be considered a professional user simply because he or she works at
a major bank; likewise, a person trading hundreds of thousands of dollars daily
at a home office shouldn’t be considered a non-professional retail investor. For
example, if a person owns a plumbing service in the legal form of a limited liability
company or LLC and attempts to register that LLC as a market data customer, shewill be charged a professional price even if the LLC has no connection with trading.
It is time to eliminate these disparities. Finding the right balance in the definition
will be important. We are prepared to modernize the definition for the benefit ofMain Street investors and the brokers who serve them.
April 2019 | 21

•Reward Transparency: Prior to 2005, revenue attributable to consolidated data
sales was distributed among the exchanges according to the trades and shareseach exchange executed as a percentage of the whole. No market data revenue
was allocated based on quotations displayed on the exchanges. In Regulation
NMS, the Commission determined that such market data revenue should be used
to encourage and reward the public display of quotations. 20 To accomplish this,the Commission determined market data revenue should no longer be completely
determined according to trade executions; it was to be evenly split between trade
executions and displayed quotations.

If the goal of
consolidated data is
to improve market
quality, the revenue

The reallocation of market data revenue has worked well, but needs
improvement. Over time, certain exchanges skewed the expected allocation ofrevenue by attracting displayed quotations without executing a commensurate
number of trades. In essence, the revised SIP revenue allocation formula now
rewards displayed quotes that add little to no value compared to otherdisplayed quotations.

allocation formula

Nasdaq recommends the SIP revenue allocation formula be modified to reward displayedquotes where investors receive an execution. If the goal of consolidated data is toimprove market quality, the revenue allocation formula should aim to improve the qualityof quotes on public exchanges, where available liquidity is always on display and an
execution can be accomplished. All quotes are important but quotes that are actually
executed add more information and value to the market in the form of price discovery
and transparency. The revenue allocation formula should be adjusted to reflect this.

rewarding displayed

Nasdaq would welcome a dialogue with the industry to understand how best to
identify displayed quotations that actually lead to trade executions, and also to
determine whether more revenue should be allocated to displayed quotations.
•

Clarify the Vendor Display Rule: Nasdaq, on behalf of the industry, has been
asking Commission staff for the last four years to clarify the Vendor Display Rule
because a No Action Letter in 2015 created ambiguity and confusion.21 Nasdaq
believes the No Action Letter misstates the rule and contradicts clear statements
the Commission made when liberalizing the rule in Regulation NMS. In theabsence of further clarity from the Commission, firms serving Main Street clients
have been left in the dark. We estimate this has cost Main Street investors tensof millions of dollars in incremental data costs over the last four years, as well as
underscores the rule’s complexity, rigidity, and intrusiveness.

•

Expand SIP Voting Rights: Nasdaq shares the securities industry’s view that, as apublic good, the SIP should be governed by a partnership between the exchanges
and the industry, with appropriate government oversight and extensive public
transparency. This partnership must recognize the exchanges’ unique regulatory
responsibilities and ensure that exchanges can fulfill them.
Today, under Regulation NMS, all voting rights are held by exchanges and FINRA,
with advisory input from the industry.22 The Operating Committee selects six
non-voting Advisors.23 Advisors may submit their views on Plan matters prior to adecision by the Operating Committee on such matters; they do not have the rightto vote on those matters.

20 See Reg NMS Approval Order, supra at n. 7.
21 See Denial of No-Action Request under Rule 603(c) of Regulation NMS (July 22, 2015), available st https://www.sec.gov/divisions/marketreg/mr-noaction/2015/bats-one-072215-vendor-display.pdf Whereas Rule 603(c) restricts the VDR to contexts weretrading decisions can be “implemented”, the No Action Letter applies it to contexts when trading decisions can be “made”, which
contradicts the plain language of the rule and expands its application substantially.
22 See 17 CFR 242.608.
23 Each SRO also has the right to select one member of the Advisory Committee that is not employed by or affiliated with any
participant or its affiliates or facilities. Nasdaq does not recommend granting voting rights to these SRO-selected Advisors.

22 | April 2019should aim to improve
the quality of quotes
on public exchanges,

quotes where investors
receive an execution.

Nasdaq recommends two non-exchange votes for members of the brokerage,
institutional and investor community.24 Under Nasdaq’s proposal, the two Advisor
votes would be apportioned equally among the six Advisors, meaning each
Advisor would have one-third of a vote. Advisors would vote on any new or
modified product, fee, contract, or pilot program that is offered or used pursuant
to the Plan, but not on Plan amendments that require unanimous support as that could
undermine the exchanges’ ability to fulfill their regulatory obligations. Advisors would
also vote along with the exchanges to select new, replacement advisors.
Allowing non-exchange voting rights will significantly impact how SIP Operating
Committees conduct business. In order to cast informed votes, non-exchange
advisors will need access to relevant information, some of which has previously
been withheld as confidential. Additionally, non-exchange advisors will be called
upon to view Plan matters through a regulatory lens, as much Plan businessinvolves regulatory responsibilities that have previously been administered only
by exchanges.
These changes will require Operating Committees to build on recent improvementsin Plan transparency by further enhancing policies governing conflicts of interest
and confidentiality. Voting Advisors will be required to adhere to existing conflictsof interest and confidentiality policies, such as those that require exchanges and theiraffiliates to recuse themselves when they might receive a unique benefit not sharedwith other exchanges.

Conclusion
Nasdaq was founded as the world’s first electronic stock market nearly half a century ago
on the conviction that technology could create markets that are fast, efficient, and fair.
Today, our public markets have evolved and advanced in ways unthinkable just a few
years ago; yet the rules and regulations that govern markets have failed to keep pace. This
failure impacts nearly every market participant: retail investors, institutional investor, andpublicly-traded companies.
We can do better – and for the sake of our markets and our economy, we must.
Nasdaq recognizes some of the proposals we offer will spark robust debate. We
welcome this. Free markets flourish when buyers and sellers with various perspectives
and investment strategies come together on equal footing in the process we call pricediscovery. Price discovery does not anoint outright winners and losers; rather, it ensures aconsensus view of value somewhere in the middle. We believe the much-needed reforms
in market regulation would benefit from something akin to the price discovery process inwhich many ideas come together to find common ground. We encourage all participants tojoin us in an exchange of views we believe will ultimately lead to new market structuresthat better serve all parties.
We also consider this to be an ongoing project. With this report as our foundation, we will
expand on our thinking with a series of detailed proposals we will share with regulators,
elected officials, investors, issuing companies, and market participants. As market
conditions evolve, we will provide new perspectives. As we did with Revitalize in 2017,
Nasdaq seeks to transform our proposals into action. Over the coming months, we willcall for technology-powered improvements for public investors, especially Main Street
investors and retail-facing institutions, and for issuers of all size and type. Some will callon Congress, others the Commission, and still others will be intended to launch a dialogue
with investors.
Together, we will shape the equity markets of the future.

24 This exceeds the recommendation of the Trading Venues Regulation Subcommittee of the Commission’s Equity Market Structure
Advisory Committee, which did not recommend even a single vote for non-SROs. Recommendation available at: https://www.sec.
gov/spotlight/emsac/recommendations-enhanced-industry-participation-sro-reg-matters.pdf.

April 2019 | 23