Document ID: SEC-2021-0838-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market, LLC
Posted Date: 2021-06-15T04:00Z

[Federal Register Volume 86, Number 113 (Tuesday, June 15, 2021)]
[Notices]
[Pages 31759-31764]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-12475]

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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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Exchange's Pricing Schedule at 
Equity 7, Section 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 Nasdaq-listed 
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.
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    \3\ Equity 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.
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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 
transaction-based 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'').
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    \4\ The Exchange is also making a technical change in the second 
sentence of Equity 7, Section 114(f)(5)(B) to change ``Rebate'' to 
``rebate''.
    \5\ Equity 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.
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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--

[[Page 31760]]

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.
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    \6\ The 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.
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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.
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    \7\ Equity 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.''
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    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 Nasdaq-listed 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.
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    \8\ The 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.
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    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.

[[Page 31761]]

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.
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    \9\ The 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%.''
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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 highly-competitive 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.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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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

[[Page 31762]]

the market maker's role in providing liquidity in specific securities, 
to the benefit of all market participants.
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    \12\ The Exchange will select DLPs based on the factors in 
Equity 7, Section 114(f)(2).
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    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 Nasdaq-listed 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 Nasdaq-listed 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.
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    \13\ See supra note 8.
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    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 co-branded 
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

[[Page 31763]]

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 market-
improving 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\
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    \14\ 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.

[[Page 31764]]

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.
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    \15\ 17 CFR 200.30-3(a)(12).

    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