Document ID: SEC-2019-0096-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market LLC
Posted Date: 2019-02-07T05:00Z

[Federal Register Volume 84, Number 26 (Thursday, February 7, 2019)]
[Notices]
[Pages 2606-2608]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-01393]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85039; File No. SR-NASDAQ-2018-111]

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

February 1, 2019.
    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 December 26, 2018, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Exchange's transaction fees at 
Equity 7, Section 118(a) to: (i) Assess fees for the Midpoint Extended 
Life Order; and (ii) offer new supplemental credits in all three tapes 
for non-displayed orders that add liquidity, as described further 
below.
    While these amendments are effective upon filing, the Exchange has 
designated the proposed amendments to be operative on January 2, 2019.
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaq.cchwallstreet.com/, 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 
transaction fees at Equity 7, Section 118(a) to: (i) Assess fees for 
the Midpoint Extended Life Order; and (ii) establish two new 
supplemental credits in all three tapes for non-displayed midpoint 
orders that provide liquidity, as described further below.\3\
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    \3\ The Exchange initially filed the proposed pricing changes on 
December 21, 2018 (SR-NASDAQ-2018-110). On December 26, 2018, the 
Exchange withdrew that filing and submitted this filing.
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First Change
    The Exchange is proposing to assess a $0.0004 per share executed 
fee for executions of Midpoint Extended Life Orders in securities 
priced at $1 or more. Currently, the Exchange does not assess a fee for 
executions of Midpoint Extended Life Orders. The proposed fee covers 
Orders in securities of any of the three tapes. The Exchange believes 
that the market in Midpoint Extended Life Orders has matured to the 
point that it can support the proposed $0.0004 per share executed fee.
Second Change
    The Exchange is proposing to offer two new supplemental credits in 
all three tapes for non-displayed midpoint orders that provide 
liquidity if a member executes a requisite average daily volume of 
shares through Midpoint Extended Life Orders. These are supplemental 
credits because they will apply in addition to the credits otherwise 
available to members that add non-displayed liquidity to the Exchange. 
Specifically, the Exchange proposes to offer a member a $0.0001 
supplemental credit per share executed for midpoint orders if the 
member executes an average daily volume of at least 2.5 million up to, 
but not including, 4 million shares through Midpoint Extended Life 
Orders. Alternatively, the Exchange proposes to offer a member a 
$0.0002 supplemental credit per share executed for midpoint orders if 
the member executes an average daily volume of 4 million or more shares 
through Midpoint Extended Life Orders. The purposes of the new credits 
are to provide members with a greater incentive to utilize Midpoint 
Extended Life Orders as well as to increase their provision of non-
displayed midpoint liquidity on the Exchange.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\4\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\5\ in particular, in that it provides 
for the equitable allocation of reasonable dues, fees and other charges 
among members and issuers and other persons using any facility, and is 
not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(4) and (5).
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    The 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

[[Page 2607]]

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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    Likewise, in NetCoalition v. Securities and Exchange Commission \7\ 
(``NetCoalition'') the D.C. Circuit upheld the Commission's use of a 
market-based approach in evaluating the fairness of market data fees 
against a challenge claiming that Congress mandated a cost-based 
approach.\8\ As the court emphasized, the Commission ``intended in 
Regulation NMS that `market forces, rather than regulatory 
requirements' play a role in determining the market data . . . to be 
made available to investors and at what cost.'' \9\
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    \7\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \8\ See NetCoalition, at 534-535.
    \9\ Id. at 537.
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    Further, ``[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' . . . .'' \10\
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    \10\ Id. at 539 (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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First Change
    The proposed $0.0004 per share executed fee is reasonable because 
the Exchange has considered the nature of the market in Midpoint 
Extended Life Orders, the need to assess a fee to help cover the costs 
of supporting trading on Nasdaq, and the Exchange's desire to continue 
to promote use of Midpoint Extended Life Orders on the Exchange. Taking 
these factors into consideration, the Exchange has determined that 
$0.0004 per share executed is appropriate. The Exchange currently 
assess a fee of $0.0007 per share executed for certain TFTY Orders.\11\ 
The Exchange also assesses $0.0007 per share executed for QCST and QDRK 
orders, except for QCST orders that execute on Nasdaq BX for which 
there is no charge or credit.\12\ Thus, the lower fee is similar to 
existing fees for Orders that utilize the Exchange and may promote use 
of Midpoint Extended Life Orders and consequently the quality of the 
market in Midpoint Extended Life Orders. The Exchange also notes that a 
competitor exchange assesses a fee of $0.0009 per share executed for 
both adding and removing all non-displayed liquidity in securities 
priced $1 or more.\13\
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    \11\ See Rule 7018(a)(1)-(3) [sic].
    \12\ Id.
    \13\ See Investors Exchange Fee Schedule, available at: https://iextrading.com/trading/fees/.
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    As discussed extensively in its proposal,\14\ the Exchange believes 
that the Midpoint Extended Life Order is consistent with the Act 
because it is emblematic of a core function of a national securities 
exchange, namely matching buyers and sellers of securities on a 
transparent and well-regulated market, and helping these buyers and 
sellers come together to receive the best execution possible. The 
Exchange achieves this by permitting Midpoint Extended Life Orders to 
execute solely against other Midpoint Extended Life Orders at the 
midpoint of the NBBO in return for providing market-improving behavior 
in the form of a longer-lived midpoint order. Thus, the Exchange 
believes that it is important for participants using Midpoint Extended 
Life Orders to have a deep and liquid market. Applying a lower fee than 
the $0.0030 per share executed that the Exchange assesses for removing 
resting midpoint liquidity should provide incentive to market 
participants to use Midpoint Extended Life Orders while also allowing 
the Exchange to recoup some of the costs it incurs in offering the 
Order.
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    \14\ See Securities Exchange Act Release No. 81311 (August 3, 
2017), 82 FR 37248 (August 9, 2017) (SR-NASDAQ-2017-074).
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    The Exchange believes that the proposed fees are an equitable 
allocation and are not unfairly discriminatory because the Exchange 
will apply the same fee to all similarly situated members. Moreover, 
members not interested in using Midpoint Extended Life Orders will 
continue to have the ability to enter midpoint Orders in the Nasdaq 
System, which have both fees and credits associated with their 
execution.\15\ The proposed $0.0004 per share executed fee is lower 
than most other fees assessed for executions, which is reflective of 
the beneficial nature of the type of Order. Any member may take 
advantage of the lower fee by using the Order Type.
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    \15\ Based on whether the member is removing or adding 
liquidity. See Equity 7, Section 118(a).
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    Last, the Exchange is not assessing a charge for executions in 
Midpoint Extended Life Orders in securities priced below $1 because 
there are very few executions in such Orders relative to transactions 
in Midpoint Extended Life Orders in securities priced at $1 or greater. 
Allowing such transactions at no cost will help promote a deeper market 
in Midpoint Extended Life Orders in securities priced below $1. Thus, 
the Exchange believes that the no cost tier in Midpoint Extended Life 
Orders in securities priced below $1 remains an equitable allocation 
and is not unfairly discriminatory.
Second Change
    The Exchange believes that it is reasonable to offer new 
supplemental credits to a member for non-displayed midpoint orders that 
add liquidity to the Exchange if the member executes a requisite 
average daily volume of shares through Midpoint Extended Life Orders. 
If effective, the Exchange believes that the new supplemental credits 
will improve market quality on the Exchange, including for Midpoint 
Extended Life Orders. The Exchange believes that the new credit is an 
equitable allocation and is not unfairly discriminatory because the 
Exchange will apply the same fee to all similarly situated members.

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. In terms of inter-market 
competition, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive, or rebate opportunities available at other venues to be more 
favorable. In such an environment, the Exchange must continually adjust 
its fees to remain competitive with other exchanges and with 
alternative trading systems that have been exempted from compliance 
with the statutory standards applicable to exchanges. Because 
competitors are free to modify their own fees in response, and because 
market participants may readily adjust their order routing practices, 
the Exchange believes that the degree to which fee changes in this 
market may impose any burden on competition is extremely limited.
    In this instance, the proposal to assess a modest fee of $0.0004 
per share executed will not place any burden on

[[Page 2608]]

competition, but rather will help ensure continued growth in the use of 
Midpoint Extended Life Orders by making such Orders attractive to 
members that seek to execute at the midpoint with like-minded members, 
while also allowing the Exchange to recoup some of the costs associated 
with offering the Order Type. To the extent the proposal is not 
successful in promoting liquidity in Midpoint Extended Life Orders, it 
would have no meaningful impact on competition as few transactions in 
Midpoint Extended Life Orders would occur.
    Likewise, the Exchange believes that the new proposed supplemental 
credits will not place any burden on competition because the Exchange's 
execution services are completely voluntary and subject to extensive 
competition both from other exchanges and from off-exchange venues. 
Moreover, the addition of the proposed credits may encourage other 
market venues to provide similar credits to improve their market 
quality. In that sense, the Exchange believes that the new credits may 
promote competition.
    In sum, if the proposal to assess the new fee tiers for executions 
of Midpoint Extended Life Orders and to provide new supplemental 
credits for members that execute Midpoint Extended Life Orders are 
unattractive to market participants, it is likely that the Exchange 
will not gain any market share and may lose market share. Accordingly, 
the Exchange does not believe that the proposed changes will impair the 
ability of members or competing order execution venues to maintain 
their competitive standing in the financial markets.

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

    No written comments were either solicited or received.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\16\
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    \16\ 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2018-111 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-2018-111. 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-2018-111 and should be submitted 
on or before February 22, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
Eduardo A. Aleman,
Deputy Secretary.
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    \17\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2019-01393 Filed 2-6-19; 8:45 am]
 BILLING CODE 8011-01-P