Federal Register / Vol. 86, No. 113 / Tuesday, June 15, 2021 / Notices 31759 

21 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3Equity 7, Section 114(f)(2) defines a ‘‘Designated 

Liquidity Provider’’ or ‘‘DLP’’ as a registered 

Nasdaq market maker for a Qualified Security 

(defined below) that has committed to maintain 

minimum performance standards. A DLP will be 

selected by Nasdaq based on factors including, but 

not limited to, experience with making markets in 

exchange-traded products, adequacy of capital, 

willingness to promote Nasdaq as a marketplace, 

issuer preference, operational capacity, support 

personnel, and history of adherence to Nasdaq rules 

and securities laws. Nasdaq may limit the number 

of DLPs in a security, or modify a previously 

established limit, upon prior written notice to 

members. 

4The Exchange is also making a technical change 

in the second sentence of Equity 7, Section 

114(f)(5)(B) to change ‘‘Rebate’’ to ‘‘rebate’’. 

5Equity 7, Section 114(f)(1) says a security may 

be designated as a ‘‘Qualified Security’’ if: (a) It is 

an exchange-traded product listed on Nasdaq 

pursuant to Nasdaq Rules 5705, 5710, 5720, 5735, 

or 5745; and (b) it has at least one DLP. 

6The inclusion of Nasdaq Rule 5704 to the list 

of securities that may be designated as a Qualified 

Security is not a substantive change, but being 

added as a clarification because the securities listed 

under Nasdaq Rule 5704 are already covered by 

Nasdaq Rules 5705 and 5735. 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549 on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–NYSEArca–2021–51, and 

should be submitted on or before July 6, 

2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.21

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–12473 Filed 6–14–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–92134; File No. SR– 

NASDAQ–2021–046] 

Self-Regulatory Organizations; The 

Nasdaq Stock Market LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change To Amend the 

Exchange’s Pricing Schedule at Equity 

7, Section 114(f) 

June 9, 2021. 

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 May 27, 

2021, The Nasdaq Stock Market LLC 

(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(‘‘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. 

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 114(f) (‘‘Pricing Schedule’’). 

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 

Pricing Schedule at Equity 7, Section 

114(f) applicable to the Designated 

Liquidity Provider (‘‘DLP’’) 3 Program. 

The Exchange proposes to amend the 

rebates applicable for DLPs in Nasdaqlisted securities with monthly 

incentives that are directly tied to 

meeting market quality metrics 

(‘‘MQMs’’). Specifically, the Exchange 

proposes to (1) add Exchange Traded 

Fund Shares listed on Nasdaq pursuant 

to Nasdaq Rule 5704, Proxy Portfolio 

Shares listed on Nasdaq pursuant to 

Nasdaq Rule 5750, and Managed 

Portfolio Shares listed on Nasdaq 

pursuant to Nasdaq Rule 5760 to the list 

of securities that may be designated as 

a Qualified Security, as long as it has at 

least one DLP; (2) amend Equity 7, 

Section 114(f)(4) to revise the monthly 

performance criteria related to the 

specific rebates provided under Equity 

7, Section 114(f)(5), as well as to address 

secondary DLPs (‘‘Secondary DLPs’’); (3) 

change the current schedule under 

Equity 7, Section 114(f)(5) from three 

tiers to five tiers, establish both standard 

rebates (‘‘Standard Rebate’’) and 

enhanced rebates (‘‘Enhanced Rebate’’), 

as well as address Secondary DLPs; and 

(4) change the existing Additional Tape 

C ETP Incentives in Equity 7, Section 

114(f)(5)(B), as well as add a new tier to 

the schedule. 

Description of the Changes 

The proposal amends the rebates 

applicable for DLPs in Nasdaq-listed 

securities with monthly incentives that 

are directly tied to meeting MQMs.4 The 

Exchange believes that these changes 

will encourage DLPs to maintain better 

market quality in Nasdaq-listed 

securities, and, in particular, in lower 

volume securities where transactionbased compensation (i.e., rebates) may 

not be sufficient. The Exchange 

currently offers a DLP Program, which 

applies to transactions in a Qualified 

Security 5 by one of its DLPs associated 

with its DLP Program market participant 

identifier (‘‘MPID’’). 

Add Exchange Traded Fund Shares, 

Proxy Portfolio Shares and Managed 

Portfolio Shares To List That May Be 

Designated as a Qualified Security 

The Exchange proposes to amend 

Equity 7, Section 114(f)(1)(A) to add 

Exchange Traded Fund Shares listed on 

Nasdaq pursuant to Nasdaq Rule 5704,6

Proxy Portfolio Shares listed on Nasdaq 

pursuant to Nasdaq Rule 5750 and 

Managed Portfolio Shares listed on 

Nasdaq pursuant to Nasdaq Rule 5760 to 

the list of securities that may be 

designated as a Qualified Security, as 

long as it has at least one DLP. Nasdaq 

Rule 5704 (Exchange Traded Fund 

Shares), Nasdaq Rule 5750 (Proxy 

Portfolio Shares) and Nasdaq Rule 5760 

(Managed Portfolio Shares) were all 

fairly recently adopted and should be 

added to the existing list that already 

includes: Nasdaq Rule 5705—Exchange 

Traded Funds: Portfolio Depository 

Receipts and Index Fund Shares; 

Nasdaq Rule 5710—Securities Linked to 

the Performance of Indexes and 

Commodities (Including Currencies); 

Nasdaq Rule 5720—Trust Issued 

Receipts; Nasdaq Rule 5735—Managed 

Fund Shares; and Nasdaq Rule 5745— 


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31760 Federal Register / Vol. 86, No. 113 / Tuesday, June 15, 2021 / Notices 

7Equity 7, Section 114(h)(9) says ‘‘The term 

‘‘regular market hours’’ means 9:30 a.m. through 

4:00 p.m., or such shorter period as may be 

designated by Nasdaq on a day when the securities 

markets close early.’’ 

8The current three tiers are: (1) $0.0070 per 

executed share for ETPs with monthly ADV less 

than 500,000 in the prior month; (2) $0.0042 per 

executed share for ETPs with monthly ADV 

between 500,000 and 5 million in the prior month; 

and (3) $0.0036 per executed share for ETPs with 

monthly ADV greater than 5 million in the prior 

month. Enhanced Rebates are not addressed in the 

current schedule. 

Exchange-Traded Managed Fund Shares 

(‘‘NextShares’’). Both Proxy Portfolio 

Shares and Managed Portfolio Shares 

are semi-transparent exchange-traded 

funds (‘‘ETFs’’) that also need support 

from a market quality perspective just 

like traditional ETFs. Since these 

products are new and incubating, the 

Exchange believes the DLP changes will 

be beneficial to these ETFs as well. 

Amend Monthly Performance Criteria 

for Rebates and Address Secondary 

DLPs 

The Exchange also proposes to amend 

Equity 7, Section 114(f)(4) to revise the 

monthly performance criteria related to 

the specific rebates provided under 

Equity 7, Section 114(f)(5). Currently, to 

qualify for the basic rebate, which is 

being renamed the ‘‘Primary DLP 

Rebate,’’ under Equity 7, Section 

114(f)(4), a DLP must be at the national 

best bid (best offer) (‘‘NBBO’’) at least 

20% of the time on average in the 

assigned exchange-traded product 

(‘‘ETP’’). As amended, a Primary DLP 

will need to meet all four of the 

Standard MQMs in the assigned ETP as 

measured by Nasdaq to qualify for the 

Standard Rebate and all four of the 

Enhanced MQMs in the assigned ETP as 

measured by Nasdaq to qualify for the 

Enhanced Rebate. These MQMs are 

measured on average in the assigned 

ETP during regular market hours: 7 (1) 

Time at the NBBO will be 20% for the 

Standard Rebate and 50% for the 

Enhanced Rebate; (2) time within 5 

basis points of NBBO will be 50% for 

the Standard Rebate and 75% for the 

Enhanced Rebate; (3) notional depth 

will be $100,000 (within 150 basis 

points of NBBO) for the Standard Rebate 

and $100,000 (within 50 basis points of 

NBBO) for the Enhanced Rebate; and (4) 

average spread will be less than 125 

basis points for the Standard Rebate and 

less than 25 basis points for the 

Enhanced Rebate. 

Nasdaq is proposing these changes to 

the DLP Program to modernize it so that 

it becomes a program that is more 

market quality focused rather than 

transaction-based. The new MQMs are 

intended to encourage DLPs to uphold 

better quality markets in Nasdaq-listed 

ETPs and also ensure a scalable 

business model to support new and 

incubating ETPs that often trade less on 

a daily basis (i.e., certain rebates will be 

on a fixed amount rather than on a per 

executed share basis). 

Additionally, the Exchange proposes 

to amend Equity 7, Section 114(f)(4) to 

address Secondary DLPs. If there are 

two DLP assignments for a Nasdaqlisted ETP, the Secondary DLP will be 

determined by using the factors in 

Section 114(f)(2). The Secondary DLP 

will qualify for rebates in ETPs if it 

meets two of the four Enhanced MQMs 

noted above. The Exchange believes that 

allowing two DLPs will work to further 

support the market quality in lower 

average daily volume (‘‘ADV’’) ETPs and 

increase resiliency in market quality 

performance. By incentivizing more 

than one market maker to meet the 

increased MQMs, lower ADV ETPs now 

have more market makers who are 

incentivized to provide quote quality 

and layering of notional depth, which 

can be a benefit if the Primary DLP has 

an unforeseen quoting or technology 

issue. Also, by adding the MQMs, the 

Primary and Secondary DLP are 

incentivized to not only provide quotes 

at the NBBO but also other important 

quote quality metrics around the NBBO. 

Amend Rebate Tiers To Include 

Standard and New Enhanced Rebates 

and Update Schedule From Three to 

Five Tiers, and Address Secondary 

DLPs 

Currently, the Exchange provides 

rebates in Equity 7, Section 114(f)(5)(A) 

that are in lieu of or in addition to, as 

specified [sic], other rebates or fees 

provided under Equity 7, Sections 114 

and 118. The Exchange proposes to 

change the current schedule of three 

tiers 8 to an updated schedule with five 

tiers and will clarify that the rebates 

will only apply to MPIDs where a 

member is a Primary DLP. 

The proposed amended schedule 

contains five tiers based on monthly 

ADV and includes both a Standard 

Rebate and an Enhanced Rebate for 

Primary DLPs. Tier 1 will apply to ETPs 

with monthly ADV greater than 1 

million in the prior month with a 

Standard Rebate of $0.0034 per 

executed share and with an Enhanced 

Rebate of $0.0036 per executed share. 

Tier 2 will apply to ETPs with monthly 

ADV between 250,001 and 1 million in 

the prior month with a Standard Rebate 

of $0.0040 per executed share and with 

an Enhanced Rebate of $0.0042 per 

executed share. Tier 3 will apply to 

ETPs with monthly ADV between 

150,001 and 250,000 in the prior month 

with a Standard Rebate of $200 per 

month and with an Enhanced Rebate of 

$350 per month. Tier 4 will apply to 

ETPs with monthly ADV between 

50,001 and 150,000 in the prior month 

with a Standard Rebate of $225 per 

month and with an Enhanced Rebate of 

$450 per month. Tier 5 will apply to 

ETPs with monthly ADV less than 

50,001 in the prior month with a 

Standard Rebate of $300 per month and 

with an Enhanced Rebate of $500 per 

month. The Tier 3–5 rebates will be in 

addition to any other rebates the 

Primary DLP qualifies for under Equity 

7, Sections 114 and 118. 

Currently, the Exchange’s DLP 

Program incentivizes DLPs with a 

transaction-style rebate with one market 

quality requirement (time at inside at 

least 20%). While this does benefit some 

ETPs, it may not be satisfactory for 

lower volume ETPs, which are often 

new and incubating products that need 

a different support model from the 

Nasdaq. The Exchange believes the 

changes will better position these ETPs 

for success and benefit the issuers and 

market makers by offering a fixed rebate 

for meeting more market quality 

requirements in lower volume ETPs. 

Nasdaq believes that by allowing a 

hybrid-style rebate program (transaction 

and fixed rebate), the Exchange can 

better support the market makers’ 

business model. The Exchange believes 

that the amended DLP Program and 

market quality requirements will serve 

to better align the Exchange incentives 

with a more scalable and reliable model 

for DLPs, as well as increase market 

quality performance in Nasdaq-listed 

ETPs. The Exchange decided to retain a 

per executed share rebate model for 

ETPs with an ADV greater than 250,001. 

Based on issuer and market maker 

feedback, it was evident that for more 

actively traded ETPs this model may 

provide greater incentives for DLPs 

while still holding DLPs to more 

stringent MQMs. 

The Exchange also proposes that if 

there is more than one DLP to an 

assigned ETP, then the Secondary DLP 

receives $150 per month or an 

additional $0.0003 per executed share, 

depending upon the tier, which will be 

in addition to any other rebate the 

Secondary DLP is eligible for under 

Equity 7, Sections 114 and 118. The 

Exchange believes that by allowing two 

DLPs (the Secondary DLP will be 

determined by using the factors in 

Equity 7, Section 114(f)(2)) will work to 

further support the market quality in 

lower ADV ETPs and increase resiliency 

in market quality performance. 


khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 86, No. 113 / Tuesday, June 15, 2021 / Notices 31761 

9The rule language currently says ‘‘If a current 

DLP has less than 10 DLP assignments, but 

increases the number of ETPs for which it is a DLP 

by 100%, the DLP will receive an incremental 

additional Tape C ETP rebate of $0.0001. A DLP 

receiving its first assignment will count as a 100% 

increase. This incremental rebate is only available 

for the first 100% increase and thus is not available 

for subsequent increases of 100%.’’ 

10 15 U.S.C. 78f(b). 11 15 U.S.C. 78f(b)(5). 

12The Exchange will select DLPs based on the 

factors in Equity 7, Section 114(f)(2). 

Change Existing Additional Tape C ETP 

Incentives and Add New Tier 

In addition, the Exchange proposes to 

change the existing Additional Tape C 

ETP Incentives in Equity 7, Section 

114(f)(5)(B), as well as add a new tier. 

The rebates are provided to an eligible 

member for each displayed share that 

adds liquidity in a Tape C ETP that 

meets the criteria of Equity 7, Section 

114(f)(1)(A) and will only apply to the 

MPID where a member is a DLP. 

The Exchange proposes to amend the 

Incremental Tape C ETP Rebate for Tier 

1 (applicable to members with a 

minimum monthly average of 10 

assigned ETPs as a DLP) to decrease 

from $0.0003 per executed share to 

$0.0002 per executed share. The 

Exchange proposes to amend the 

Incremental Tape C ETP Rebate for Tier 

2 (applicable to members with a 

minimum monthly average of 25 

assigned ETPs as a DLP) to decrease 

from $0.0004 per executed share to 

$0.0003 per executed share. The 

Exchange proposes to amend the 

Incremental Tape C ETP Rebate for Tier 

3 (applicable to members with a 

minimum monthly average of 50 

assigned ETPs as a DLP) to decrease 

from $0.0005 per executed share to 

$0.0004 per executed share. Finally, the 

Exchange proposes to add a Tier 4 that 

will have an Incremental Tape C ETP 

Rebate of $0.0005 per executed share 

applicable to members with a minimum 

monthly average of 100 assigned ETPs 

as a DLP. In addition, the Exchange will 

eliminate the existing language at the 

end of the rule.9 The Exchange is 

updating the Tape C ETP rebate to better 

reflect the growing number of ETP 

listings on Nasdaq. The Exchange is 

proposing to eliminate the existing 

language at the end of Equity 7, Section 

114(f)(5)(B) that follows the Additional 

Tape C ETP Incentives schedule because 

the Exchange believes it was not an 

effective part of the DLP Program, and 

that the amended rebates will be more 

impactful to ETF issuers and market 

makers. 

2. Statutory Basis 

The Exchange believes that its 

proposals are consistent with Section 

6(b) of the Act,10 in general, and further 

the objectives of Sections 6(b)(4) and 

6(b)(5) of the Act,11 in particular, in that 

they provide for the equitable allocation 

of reasonable dues, fees, and other 

charges among members and issuers and 

other persons using its facilities and do 

not unfairly discriminate between 

customers, issuers, brokers or dealers. 

The Exchange also notes that its ETP 

listing business operates in a highlycompetitive market in which market 

participants, which include both DLPs 

and ETP issuers, can readily transfer 

their listings or opt not to participate, 

respectively, if they deem fee levels, 

liquidity incentive programs, or any 

other factor at a particular venue to be 

insufficient or excessive. The proposed 

rule change reflects a competitive 

pricing structure designed to incentivize 

issuers to list new products and transfer 

existing products to the Exchange and 

market participants to enroll and 

participate as DLPs on the Exchange, 

which the Exchange believes will 

enhance market quality in qualified 

ETPs listed on the Exchange. 

Add Exchange Traded Fund Shares, 

Proxy Portfolio Shares and Managed 

Portfolio Shares To List That May Be 

Designated as a Qualified Security 

The Exchange believes that the 

change to expand the list of securities 

that may be designated as a ‘‘Qualified 

Security’’ to include Exchange Traded 

Fund Shares under Nasdaq Rule 5704, 

Proxy Portfolio Shares under Nasdaq 

Rule 5750 and Managed Portfolio Shares 

under Nasdaq Rule 5760, as long as they 

have at least one DLP, is reasonable and 

would be consistent with the public 

interest and the protection of investors 

because investors will not be harmed 

and in fact would benefit from increased 

clarity and transparency of the Pricing 

Schedule. The inclusion of Exchange 

Traded Fund Shares is not a substantive 

change, but being added as a 

clarification because the securities listed 

under Nasdaq Rule 5704 are already 

covered by Nasdaq Rules 5705 and 5735 

and this simply clarifies that such a 

security may be designated as a 

‘‘Qualified Security.’’ The addition of 

Proxy Portfolio Shares and Managed 

Portfolio Shares to the list of securities 

that may be designated as a ‘‘Qualified 

Security’’ is reasonable because low 

ADV semi-transparent ETPs also need 

support from a market quality 

perspective just like traditional ETPs. 

Since these products are new and 

incubating, the Exchange believes the 

DLP changes will be beneficial to these 

ETFs as well. 

Amend Equity 7, Section 114(f)(4) To 

Revise the Monthly Performance 

Criteria Related to Specific Rebates 

Provided Under Equity 7, Section 

114(f)(5), and To Address Secondary 

DLPs 

The Exchange believes that amending 

Equity 7, Section 114(f)(4) to revise the 

monthly performance criteria related to 

the specific rebates provided under 

Equity 7, Section 114(f)(5) by better 

aligning the behavior required to qualify 

for rebates with the nature of the rebates 

provided is reasonable because the 

Exchange must from time to time assess 

the effectiveness of the incentives it 

provides to market participants in 

return for the beneficial behavior 

required to receive the incentive. In this 

case, the Exchange is amending the 

program so that a Primary DLP will 

need to meet all four of the Standard 

MQMs in the assigned ETP as measured 

by Nasdaq to qualify for the Standard 

Rebate and all four of the Enhanced 

MQMs in the assigned ETP as measured 

by Nasdaq to qualify for the Enhanced 

Rebate. These MQMs are measured on 

average in the assigned ETP during 

regular market hours: (1) Time at the 

NBBO will be 20% for the Standard 

Rebate and 50% for the Enhanced 

Rebate; (2) time within 5 basis points of 

NBBO will be 50% for the Standard 

Rebate and 75% for the Enhanced 

Rebate; (3) notional depth will be 

$100,000 (within 150 basis points of 

NBBO) for the Standard Rebate and 

$100,000 (within 50 basis points of 

NBBO) for the Enhanced Rebate; and (4) 

average spread will be less than 125 

basis points for the Standard Rebate and 

less than 25 basis points for the 

Enhanced Rebate. 

The Exchange believes that the 

proposed eligibility criteria are an 

equitable allocation and are not unfairly 

discriminatory because the Exchange 

will apply the same criteria to all DLPs. 

The Exchange also believes that the 

proposed eligibility criteria are an 

equitable allocation and are not unfairly 

discriminatory among Exchange 

members because any member may 

become a market maker and take the 

steps necessary to also become a DLP, 

including meeting the proposed 

minimum criteria under Equity 7, 

Section 114(f)(4).12 The DLP Program is 

limited to Exchange market makers 

because of their unique role in the 

markets, including their obligation to 

provide liquidity in the securities in 

which they are registered. Thus, the 

DLP Program is a further extension of 


khammond on DSKJM1Z7X2PROD with NOTICES
31762 Federal Register / Vol. 86, No. 113 / Tuesday, June 15, 2021 / Notices 

13See supra note 8. 

the market maker’s role in providing 

liquidity in specific securities, to the 

benefit of all market participants. 

The Exchange also believes these 

changes are an equitable allocation and 

are not unfairly discriminatory because 

the Exchange is proposing these changes 

to the DLP Program to modernize it so 

that it becomes a program that is more 

market quality focused rather than 

transaction-based (i.e., the Exchange 

will pay fixed amount rebates that fall 

within Tiers 3–5). The new MQMs are 

intended to encourage DLPs to uphold 

better quality markets in Nasdaq-listed 

ETPs and also ensure a scalable 

business model to support new and 

incubating ETPs that often trade less on 

a daily basis. 

The Exchange believes that its 

proposal to amend Equity 7, Section 

114(f)(4) to address Secondary DLPs is 

reasonable because it allows that if there 

are two DLP assignments for a Nasdaqlisted ETP (the Secondary DLP will be 

determined by using the factors in 

Section 114(f)(2)) and that the 

Secondary DLP will qualify for rebates 

in ETPs if it meets two of the four 

Enhanced MQMs as noted above. The 

Exchange believes that this proposal is 

an equitable allocation and is not 

unfairly discriminatory because 

allowing two DLPs will work to further 

support the market quality in lower 

ADV ETPs and increase resiliency in 

market quality performance. 

Additionally, the Exchange believes that 

by incentivizing more than one market 

maker to meet the increased MQMs, 

lower ADV ETPs now have more market 

makers who are incentivized to provide 

quote quality and layering of notional 

depth, which can be a benefit if the 

Primary DLP has an unforeseen quoting 

or technology issue. Also, by adding the 

MQMs, the Primary and Secondary DLP 

are incentivized to not only provide 

quotes at the NBBO but also other 

important quote quality metrics around 

the NBBO. 

The Exchange believes that its 

proposals to add additional MQMs and 

rebates are not unfairly discriminatory 

because these rebates are available to all 

qualifying members and reward 

meaningful quote quality and liquidity 

in ETPs. Moreover, these proposals 

stand to improve the overall market 

quality of the Exchange, to the benefit 

of all market participants, by allowing a 

hybrid-style rebate program (transaction 

and fixed rebate), the Exchange can 

better support the market makers’ 

business model. The Exchange believes 

that the amended DLP Program and 

market quality requirements will serve 

to better align the Exchange incentives 

with a more scalable and reliable model 

for DLPs, as well as increase market 

quality performance in Nasdaq-listed 

ETPs. 

Amend Rebate Tiers To Include 

Standard and New Enhanced Rebates 

and Update Schedule From Three to 

Five Tiers, and Address Secondary 

DLPs 

The Exchange believes that its 

proposal to amend the DLP Program’s 

rebate tiers to include Standard and new 

Enhanced Rebates and updating the 

Pricing Schedule from three to five tiers, 

and to clarify that the rebates will only 

apply to MPIDs where a member is a 

Primary DLP, and that Tier 3–5 rebates 

will be in addition to any other rebates 

the Primary DLP qualifies for under 

Equity 7, Sections 114 and 118, is 

reasonable because it will encourage 

DLPs to uphold better quality markets in 

Nasdaq-listed ETPs through being more 

market quality focused rather than 

transaction-based. Currently, the 

Exchange’s DLP Program incentivizes 

DLPs with a transaction-style rebate 

with one market quality requirement 

(time at inside at least 20%). Although 

this does benefit some ETPs, it may not 

be satisfactory for lower volume ETPs, 

which are often new and incubating 

products that need a different support 

model from the Exchange. 

The Exchange believes that amending 

the DLP Program as proposed is an 

equitable allocation of rebates and is not 

unfairly discriminatory because it will 

allocate its rebates fairly among its 

market participants (i.e., the Exchange 

will pay higher rebates to DLPs that 

meet higher MQMs and will pay DLPs 

higher fixed rebates for the ETPs with 

lower ADVs). It will better position 

these lower volume ETPs for success 

and will benefit issuers and market 

makers by offering a fixed rebate for 

meeting more market quality 

requirements in lower volume ETPs. 

Specifically, the Exchange proposes to 

change the current schedule under 

Equity 7, Section 114(f)(5) from three 

tiers to five tiers.13 The proposed five 

tiers are based on monthly ADV and 

includes both a Standard Rebate and an 

Enhanced Rebate. The Exchange 

believes this proposal is an equitable 

allocation of rebates and is not unfairly 

discriminatory because by allowing for 

a fixed payment in lower ADV products, 

it provides for a more reliable business 

model for DLPs while adding on quote 

and market quality requirements and 

reflects an equitable allocation of 

rebates. Additionally, by allowing a 

hybrid style rebate program 

(transaction-based and a fixed rebate), 

the Exchange can better support the 

market makers’ business model. The 

Exchange believes that the DLP 

Program, as amended, will better align 

incentives with a more scalable and 

reliable model for DLPs and increase 

market quality performance in Nasdaqlisted ETPs. Additionally, retaining a 

per executed share rebate model for 

ETPs with an ADV greater than 250,001 

may provide greater incentives for DLPs 

while still holding DLPs to more 

stringent MQMs. 

The Exchange also believes that its 

proposal that if there is more than one 

DLP to an assigned ETP, then the 

Secondary DLP receives $150 per month 

or an additional $0.0003 per executed 

share, depending upon the tier, will be 

in addition to any other rebate the 

Secondary DLP is eligible for under 

Equity 7, Sections 114 and 118 is an 

equitable allocation of rebates and is not 

unfairly discriminatory because 

allowing two DLPs (the Secondary DLP 

will be determined by using the factors 

in Section 114(f)(2)) will work to further 

support the market quality in lower 

ADV ETPs and increase resiliency in 

market quality performance. 

The Exchange believes that its 

proposals are not unfairly 

discriminatory. As an initial matter, the 

Exchange believes that nothing about its 

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 cobranded rebate cards [sic] 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 incentivizes customer activity 

that increases liquidity, enhances price 

discovery, and improves the overall 

quality of the equity markets. 

The Exchange also believes that its 

amended Pricing Schedule is not 

unfairly discriminatory because if 

successful, it stands to improve the 

quality of the Nasdaq market, to the 

benefit of all market participants. The 

Exchange has limited resources with 

which to apply to incentives, and it 

must allocate those limited resources in 

a manner that prioritizes areas of 

greatest need and potential effect. 

Change Existing Additional Tape C ETP 

Incentives and Add New Tier 

The Exchange believes that its 

proposal to amend the existing 


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Federal Register / Vol. 86, No. 113 / Tuesday, June 15, 2021 / Notices 31763 

14 15 U.S.C. 78s(b)(3)(A)(ii). 

Additional Tape C ETP Incentives in 

Equity 7, Section 114(f)(5)(B) and add a 

new tier is reasonable because it allows 

an eligible member for each displayed 

share that adds liquidity in a Tape C 

ETP that meets the criteria of Equity 7, 

Section 114(f)(1)(A) to receive a rebate 

and limits it those MPIDs where a 

member is a DLP. ETP listings is a 

highly competitive market in which ETP 

issuers and DLPs can opt to not 

participate or transfer listings. The 

additional tier reflects the growing 

number of ETPs listed on Nasdaq. 

In addition, the Exchange believes it 

is reasonable to eliminate the existing 

language at the end of the rule because 

the Exchange believes it was not an 

effective part of the DLP Program, and 

that the amended rebates will be more 

impactful to ETF issuers and market 

makers. The Exchange also believes that 

making a technical change in the second 

sentence of Equity 7, Section 

114(f)(5)(B) to change ‘‘Rebate’’ to 

‘‘rebate’’ is reasonable since it is merely 

a clarification that improves the 

sentence. 

The Exchange believes that amending 

the DLP Program as proposed is an 

equitable allocation of rebates and is not 

unfairly discriminatory because it will 

allocate its rebates fairly among its 

market participants (i.e., the Exchange 

will pay higher rebates for DLPs with 

more ETPs assigned). Additionally, it 

will better position these lower volume 

ETPs for success and will benefit issuers 

and market makers. 

The Exchange also believes that 

amending the DLP Program as proposed 

is an equitable allocation of rebates and 

is not unfairly discriminatory because it 

is intended to encourage DLPs to 

promote better market quality and 

liquidity in qualified Nasdaq-listed 

ETPs. By providing increased rebates 

based on better market quality and their 

DLP footprint, the Exchange believes 

that it will encourage DLPs to register, 

quote and trade in more ETPs on 

Nasdaq. Additionally, the Exchange 

believes the updated rebates will 

incentivize DLPs to register to support 

additional ETPs, especially lower ADV 

products. 

The Exchange also believes that its 

proposal to amend the existing 

Additional Tape C ETP Incentives in 

Equity 7, Section 114(f)(5)(B) and add a 

new tier is not unfairly discriminatory 

because if successful, it stands to 

improve the quality of the Nasdaq 

market, to the benefit of all market 

participants. The Exchange has limited 

resources with which to apply to 

incentives, and it must allocate those 

limited resources in a manner that 

prioritizes areas of greatest need and 

potential effect. 

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. The 

Exchange notes that it operates in a 

highly competitive market in which 

market participants can readily favor 

competing venues if they deem rebates 

or 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 

rebates 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 rebates and fees in 

response, and because market 

participants may readily adjust their 

order routing practices, the Exchange 

believes that the degree to which rebate 

and fee changes in this market may 

impose any burden on competition is 

extremely limited. 

In this instance, the Exchange is 

proposing to modify the incentives 

provided to market makers for 

participation in the DLP program in an 

effort to improve the program by 

providing more targeted incentives to 

improve and increase market quality in 

ETPs that are in need of such 

improvement the most. The Exchange 

uses incentives, such as the rebates of 

the DLP program, to incentivize market 

participants to improve the market. The 

Exchange must, from time to time, 

assess the effectiveness of incentives 

and adjust them when they are not as 

effective as the Exchange believes they 

could be. Moreover, the Exchange is 

ultimately limited in the amount of 

rebates it may offer. The proposed new 

criteria and incentives are reflective of 

such an analysis. 

The Exchange notes that participation 

in the DLP program is entirely voluntary 

and, to the extent that registered market 

makers determine that the rebates are 

not in line with the level of marketimproving behavior the Exchange 

requires, a DLP may elect to deregister 

as such with no penalty. The Exchange 

notes that it is amending the MQMs 

required for a DLP to receive an 

increased rebate under the program, and 

thus there is a risk that a DLP may not 

qualify for any of the increased 

incentives under the amended program 

if it provides the same level market 

participation, but will still qualify for 

their regular base rebate. 

The Exchange does not believe that 

the proposed changes place an 

unnecessary burden on competition 

and, in sum, if the changes proposed 

herein are unattractive to market 

makers, it is likely that the Exchange 

will lose participation in the DLP 

program as a result. As noted above, the 

Exchange is continuing to limit 

eligibility for the program to Exchange 

market makers. The Exchange believes 

that Exchange market makers are best 

positioned to provide market 

improvement in DLP Program ETPs in 

light of their unique function in the 

markets. Moreover, any Exchange 

member may elect to take the steps 

necessary to become an Exchange 

market maker and therefore become 

eligible for the program if they choose. 

The Exchange will continue to select 

DLPs based on the factors in Equity 7, 

Section 114(f)(2). Thus, the Exchange 

does not believe that the proposal 

represents a burden on competition 

among Exchange members, or that the 

proposal 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.14

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. 


khammond on DSKJM1Z7X2PROD with NOTICES
31764 Federal Register / Vol. 86, No. 113 / Tuesday, June 15, 2021 / Notices 

15 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Exchange Act Release No. 90302 (Nov. 2, 

2020), 85 FR 71120 (Nov. 6, 2020) (File No. SR– 

FINRA–2020–038) (‘‘Notice’’). 

4See letter from Joseph Savage, Vice President, 

Office of General Counsel Regulatory Policy, 

FINRA, to Daniel Fisher, Branch Chief, Division of 

Trading and Markets, Commission, dated December 

11, 2020. This letter is available at https://

www.finra.org/sites/default/files/2021-01/SRFINRA-2020-038-Extension1.pdf. 

5See letter from Joseph P. Savage, Vice President 

and Counsel, Office of General Counsel, FINRA, to 

Vanessa Countryman, Secretary, Commission, dated 

January 12, 2021 (‘‘FINRA January 12 Letter’’). The 

FINRA January 12 Letter is available at the 

Commission’s website at https://www.sec.gov/ 

comments/sr-finra-2020-038/srfinra2020038- 

8233135-227749.pdf. Amendment No. 1 is available 

at https://www.finra.org/sites/default/files/2021-01/ 

SR-FINRA-2020-038-Amendment1.pdf. 

6See letter from Joseph P. Savage, Vice President 

and Counsel, Office of General Counsel, FINRA, to 

Vanessa Countryman, Secretary, Commission, dated 

January 29, 2021 (‘‘FINRA January 29 Letter’’). The 

FINRA January 29 Letter is available at the 

Commission’s website at https://www.sec.gov/ 

comments/sr-finra-2020-038/srfinra2020038- 

8311262-228459.pdf. 

7See Exchange Act Release No. 91066 (Feb. 4, 

2021), 86 FR 8970 (Feb. 10, 2021) (File No. SR– 

FINRA–2020–038) (‘‘OIP’’). 

8See letter from Joseph P. Savage, Vice President 

and Counsel, Office of General Counsel, FINRA, to 

Vanessa Countryman, Secretary, Commission, dated 

April 12, 2021 (‘‘FINRA April 12 Letter’’). The 

FINRA April 12 Letter is available at the 

Commission’s website at https://www.sec.gov/ 

comments/sr-finra-2020-038/srfinra2020038- 

8662482-235305.pdf. 

9See letter from Joseph Savage, Vice President, 

Office of General Counsel Regulatory Policy, 

FINRA, to Daniel Fisher, Branch Chief, Division of 

Trading and Markets, Commission, dated May 4, 

2021. This letter is available at https://

www.finra.org/sites/default/files/2021-05/SRFINRA-2020-038-Extension2.pdf. 

10See letter from Joseph Savage, Vice President, 

Office of General Counsel Regulatory Policy, 

FINRA, to Daniel Fisher, Branch Chief, Division of 

Trading and Markets, Commission, dated May 25, 

2021. This letter is available at https://

www.finra.org/sites/default/files/2021-05/SRFINRA-2020-038-Extension3.pdf. 

11A ‘‘control entity’’ means any entity that 

controls or is under common control with a 

member, or that is controlled by a member or its 

associated persons. See FINRA Rule 5122(a)(2)–(3); 

see also Notice at note 3. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

NASDAQ–2021–046 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–2021–046. 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 (http://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 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–NASDAQ–2021–046 and 

should be submitted on or before July 6, 

2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.15

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–12475 Filed 6–14–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–92133; File No. SR–FINRA– 

2020–038] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Order Approving 

Proposed Rule Change, as Modified by 

Amendment No. 1, to FINRA Rules 

5122 (Private Placements of Securities 

Issued by Members) and 5123 (Private 

Placements of Securities) That Would 

Require Members To File Retail 

Communications Concerning Private 

Placement Offerings That Are Subject 

to Those Rules’ Filing Requirements 

June 9, 2021. 

I. Introduction 

On October 28, 2020, the Financial 

Industry Regulatory Authority, Inc. 

(‘‘FINRA’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’), 

pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Exchange Act’’) 1 and Rule 19b–4 

thereunder,2 a proposed rule change to 

amend FINRA Rules 5122 (Private 

Placements of Securities Issued by 

Members) and 5123 (Private Placements 

of Securities) that would require 

members to file certain retail 

communications concerning private 

placements. 

The proposed rule change was 

published for comment in the Federal 

Register on November 6, 2020.3 On 

December 11, 2020, FINRA consented to 

an extension of the time period in 

which the Commission must approve 

the proposed rule change, disapprove 

the proposed rule change, or institute 

proceedings to determine whether to 

approve or disapprove the proposed 

rule change to February 4, 2021.4 On 

January 12, 2021, FINRA responded to 

five comment letters received in 

response to the Notice and filed an 

amendment to the proposed rule change 

(‘‘Amendment No. 1’’).5 On January 29, 

2021, FINRA responded to a sixth 

comment letter received in response to 

the Notice.6 On February 4, 2021, the 

Commission filed an Order Instituting 

Proceedings to determine whether to 

approve or disapprove the proposed 

rule change, as modified by Amendment 

No. 1.7 The Commission received no 

comments in response to the OIP. On 

April 12, 2021, FINRA responded to a 

seventh comment letter received in 

response to the Notice.8 On May 4, 

2021, FINRA consented to an extension 

of the time period in which the 

Commission must approve or 

disapprove the proposed rule change to 

May 26, 2021.9 On May 25, 2021, 

FINRA consented to an extension of the 

time period in which the Commission 

must approve or disapprove the 

proposed rule change to June 9, 2021.10

This order approves the proposed rule 

change, as modified by Amendment No. 

1. 

II. Description of the Proposed Rule 

Change 

For certain private placements of 

unregistered securities issued by a 

FINRA member or a control entity 11

(‘‘member private placements’’), FINRA 

Rule 5122 requires the member or 

control entity to provide prospective 


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