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[Federal Register Volume 89, Number 225 (Thursday, November 21, 2024)]
[Notices]
[Pages 92266-92269]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-27218]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101638; File No. SR-NASDAQ-2024-066]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Its Schedule of Credits at Equity 7, Section 118(a)

November 15, 2024.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 1, 2024, The Nasdaq Stock Market LLC

[[Page 92267]]

(``Nasdaq'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') the proposed rule change as 
described in Items I, II and III, below, which Items have been prepared 
by the Exchange. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Exchange's schedule of credits 
at Equity 7, Section 118(a), as described further below.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, at 
the principal office of the Exchange, and at the Commission's Public 
Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend the Exchange's 
schedule of credits, at Equity 7, Section 118(a). Specifically, the 
Exchange proposes to introduce a new credit applicable to Tapes A, B, 
and C for displayed quotes (other than Supplemental Orders) that 
provide liquidity. Under the proposed rule change, members will be 
eligible for the new credit of $0.0029 if they meet the following 
criteria: (1) the member adds at least 0.50% of the Consolidated 
Volume, with at least 0.10% of such volume being Tape B securities; and 
(2) the member adds at least 0.15% of Consolidated Volume of non-
displayed liquidity, which includes midpoint orders and Midpoint 
Extended Life Orders (``M-ELO'').
    This proposed change will apply to Tapes A, B, and C. The purpose 
of the new credit structure is to incentivize members to increase their 
liquidity adding activity on the Exchange. By providing an additional 
incentive for members to contribute displayed liquidity, the Exchange 
aims to enhance market quality and improve liquidity.
    The new proposed credit of $0.0029 is in addition to other credits 
the Exchange already offers to member for providing displayed 
liquidity. The Exchange believes that if this incentive successfully 
drives additional liquidity, the resulting increase will enhance 
overall market quality, benefiting 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 Proposal Is Reasonable
    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 
credit of $0.0029 for members that add displayed liquidity when the 
member adds at least 0.50% of Consolidated Volume, of which at least 
0.10% are Tape B securities, and the member adds at least 0.15% of 
Consolidated Volume of non-displayed liquidity (including midpoint 
orders) and Midpoint Extended Life Orders. This proposal is reasonable 
because it will incentivize liquidity adding activity and provide an 
incentive to members that provide additional displayed liquidity to the 
Exchange. The Exchange believes that if such incentive is effective, 
then any ensuring increase in liquidity to the Exchange will improve 
market quality, to the benefit of all participants.
    The Exchange believes that establishing a new credit for members 
that add displayed liquidity is equitable. To the extent that the 
Exchange succeeds in increasing the levels of liquidity and activity on 
the Exchange, the Exchange will experience improvements in its market 
quality, which stands to benefit all market participants. The Exchange 
further believes that the proposed new credit of

[[Page 92268]]

$0.0029 for members providing additional liquidity is equitable because 
it will be applied uniformly to all members that meet the specified 
criteria.
    Any participant that is dissatisfied with the proposal is free to 
shift their order flow to competing venues that provide more generous 
pricing or less stringent qualifying criteria.
The Proposal Is Not Unfairly Discriminatory
    The Exchange believes that the proposed $0.0029 new credit for 
members adding additional liquidity is not unfairly discriminatory. As 
an initial matter, the Exchange believes that nothing about its volume-
based tiered pricing model is inherently unfair; instead, it is a 
rational pricing model that is well-established and ubiquitous in 
today's economy among firms in various industries--from co-branded 
credit cards to grocery stores to cellular telephone data plans--that 
use it to reward the loyalty of their best customers that provide high 
levels of business activity and incent other customers to increase the 
extent of their business activity. It is also a pricing model that the 
Exchange and its competitors have long employed with the assent of the 
Commission. It is fair because it enhances price discovery and improves 
the overall quality of the equity markets.
    The Exchange believes that the proposal to add a new credit for 
members providing additional displayed liquidity (other than 
Supplemental Orders) as described above, is not unfairly 
discriminatory. The new credit is not intended to advantage any 
particular member and will be applied uniformly to all members that 
meet the qualifying criteria. Moreover, the proposal stands to improve 
the overall market quality of the Exchange, to the benefit of all 
market participants, by incentivizing members to increase the extent of 
their liquidity adding activity.
    Any participant that is dissatisfied with the proposal is free to 
shift their order flow to competing venues that provide more generous 
pricing or less stringent qualifying criteria.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
Intramarket Competition
    The Exchange does not believe that its proposal will place any 
category of Exchange participant at a competitive disadvantage.
    As noted above, the Exchange's proposal to add a new credit for 
members that add displayed liquidity is intended to have market-
improving effects, to the benefit of all members. Any member can 
satisfy the criteria to qualify for the new credit.
    The Exchange notes that its members are free to trade on other 
venues to the extent they believe that the Exchange's fee schedule is 
not attractive. As one can observe by looking at any market share 
chart, price competition between exchanges is fierce, with liquidity 
and market share moving freely between exchanges in reaction to fee and 
credit changes.
Intermarket Competition
    In terms of inter-market competition, the Exchange notes that it 
operates in a highly competitive market in which market participants 
can readily favor competing venues if they deem fee levels at a 
particular venue to be excessive, or rebate opportunities available at 
other venues to be more favorable. In such an environment, the Exchange 
must continually adjust its credits and fees to remain competitive with 
other exchanges and with alternative trading systems that have been 
exempted from compliance with the statutory standards applicable to 
exchanges. Because competitors are free to modify their credit and own 
fees in response, and because market participants may readily adjust 
their order routing practices, the Exchange believes that the degree to 
which credit or fee changes in this market may impose any burden on 
competition is extremely limited.
    The proposed new credit is reflective of this competition because, 
as a threshold issue, 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, price competition between 
exchanges is fierce, with liquidity and market share moving freely 
between exchanges in reaction to credit and fee changes. This is an 
addition to free flow of order flow to and among off-exchange venues 
which comprises more than 40% of industry volume in recent months.
    The Exchange's proposal to add a new credit is pro-competitive in 
that the Exchange intends for the credit to increase liquidity addition 
activity on the Exchange, thereby rendering the Exchange more 
attractive and vibrant to participants.
    In sum, if the changes proposed herein are unattractive to market 
participants, it is likely that the Exchange will lose market share as 
a result. Accordingly, the Exchange does not believe that the proposed 
change will impair the ability of members or competing order execution 
venues to maintain their competitive standing in the financial markets.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\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

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-NASDAQ-2024-066 on the subject line.

Paper Comments

     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-2024-066. This 
file number should be included on the

[[Page 92269]]

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 
(https://www.sec.gov/rules/sro.shtml). 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 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-2024-066 and should be submitted on or before December 12, 
2024.

    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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Stephanie J. Fouse,
Assistant Secretary.
[FR Doc. 2024-27218 Filed 11-20-24; 8:45 am]
BILLING CODE 8011-01-P
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