Document ID: SEC-2018-1289-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market LLC
Posted Date: 2018-08-16T04:00Z

[Federal Register Volume 83, Number 159 (Thursday, August 16, 2018)]
[Notices]
[Pages 40805-40808]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-17634]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83823; File No. SR-NASDAQ-2018-064]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Fees Under Rules 7014(e) and 7018(a)

August 10, 2018
    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 August 1, 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 fees at Rule 7014(e) 
to apply additional criteria required to qualify for a fee of $0.0029 
per share executed, and to amend Rule 7018(a) to assess no fees for 
Midpoint Extended Life Orders \3\ in securities of all three Tapes.\4\
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    \3\ See Rule 4702(b)(14).
    \4\ Tape C securities are those that are listed on the Exchange, 
Tape A securities are those that are listed on NYSE, and Tape B 
securities are those that are listed on exchanges other than Nasdaq 
or NYSE.
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    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 
fees at Rule 7014(e), concerning Qualified Market Makers (``QMMs''),\5\ 
to apply additional criteria required to qualify for a fee of $0.0029 
per share executed, and to amend Rule 7018(a), concerning the fees and 
credits provided for the use of the order execution and routing 
services of the Nasdaq Market Center by members for all securities 
priced at $1 or more that it trades, to assess no fees for Midpoint 
Extended Life Orders in securities of all three Tapes. Rule 7014(e) 
provides the fees and rebates applicable to QMMs. Rule 7018(a)(1) sets 
forth the fees and credits for the execution and routing of orders in 
Nasdaq-listed securities (Tape C); Rule 7018(a)(2) sets forth the fees 
and credits for the execution and routing of securities listed on the 
New York Stock Exchange LLC (Tape A); and Rule 7018(a)(3) sets forth 
the fees and credits for the execution and routing of securities listed 
on exchanges other than Nasdaq and NYSE (Tape B). The Exchange is 
proposing to assess no fee for all Midpoint Extended Life Orders.
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    \5\ To be designated a QMM, a member must meet the following 
criteria: (1) The member is not assessed any ``Excess Order Fee'' 
under Rule 7018 during the month; (2) the member quotes at the NBBO 
at least 25% of the time during regular market hours in an average 
of at least 1,000 securities per day during the month; and (3) the 
member is a registered Nasdaq market maker. See Rule 7014(d).
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First Change
    Under Rule 7014(e), the Exchange charges a QMM $0.0030 per share 
executed for removing liquidity in Nasdaq-listed securities priced at 
$1 or more, and $0.00295 per share executed for removing liquidity in 
securities priced at $1 or more per share listed on

[[Page 40806]]

exchanges other than Nasdaq, if the QMM's volume of liquidity added 
through one or more of its Nasdaq Market Center MPIDs during the month 
(as a percentage of Consolidated Volume \6\) is not less than 0.85%. 
The Exchange assesses a charge of $0.0029 per share executed for 
removing liquidity in securities priced at $1 or more per share listed 
on exchanges other than Nasdaq if the QMM has a combined Consolidated 
Volume (adding and removing liquidity) of at least 3.7%, and the QMM 
also meets the QMM Tier 2 qualification criteria. The QMM Tier 2 
qualification criteria requires a QMM to execute shares of liquidity 
provided in all securities through one or more of its Nasdaq Market 
Center MPIDs that represent above 0.90% of Consolidated Volume during 
the month.
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    \6\ Consolidated Volume is the total consolidated volume 
reported to all consolidated transaction reporting plans by all 
exchanges and trade reporting facilities during a month in equity 
securities, excluding executed orders with a size of less than one 
round lot. For purposes of calculating Consolidated Volume and the 
extent of a member's trading activity the date of the annual 
reconstitution of the Russell Investments Indexes shall be excluded 
from both total Consolidated Volume and the member's trading 
activity. See Rule 7018(a).
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    The Exchange is proposing to require a QMM to have MOC/LOC volume 
greater than 0.25% of Consolidated Volume in addition to having 
combined Consolidated Volume (adding and removing liquidity) 
requirement to at least 3.7%, to qualify for the $0.0029 per share 
executed fee. Market on Close (MOC) \7\ and Limit on Close (LOC) \8\ 
Orders are designated to participate in the Nasdaq Closing Cross. This 
additional criteria is reflective of the Exchange's desire to provide 
incentives to attract order flow to the Exchange in securities listed 
on exchanges other than Nasdaq in return for significant market-
improving behavior. In this case, the Exchange is promoting 
participation in the Nasdaq Closing Cross by QMMs by requiring MOC/LOC 
volume above 0.25% of Consolidated Volume. The addition of a modest 
level of Nasdaq Closing Cross participation to the qualification 
criteria will help ensure that QMMs are providing significant market-
improving behavior in return for the fee.
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    \7\ A ``Market On Close Order'' or ``MOC Order'' is an Order 
Type entered without a price that may be executed only during the 
Nasdaq Closing Cross. See Rule 4702(b)(11).
    \8\ A ``Limit On Close Order'' or ``LOC Order'' is an Order Type 
entered with a price that may be executed only in the Nasdaq Closing 
Cross, and only if the price determined by the Nasdaq Closing Cross 
is equal to or better than the price at which the LOC Order was 
entered. See Rule 4702(b)(12).
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Second Change
    The purpose of the second proposed rule change is to amend the 
Exchange's transaction fees at Rule 7018(a)(1)-(3) to charge no fee for 
execution of Midpoint Extended Life Orders in securities priced $1 or 
more. The Midpoint Extended Life Order is an Order Type with a Non-
Display Order Attribute that is priced at the midpoint between the NBBO 
and that will not be eligible to execute until the Holding Period of 
one half of a second has passed after acceptance of the Order by the 
System.\9\ Once a Midpoint Extended Life Order becomes eligible to 
execute by existing unchanged for the Holding Period, the Order may 
only execute against other eligible Midpoint Extended Life Orders.
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    \9\ See Rule 4702(b)(14).
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    Under Rules 7018(a)(1)-(3) the Exchange provides credits to, and 
assesses fees on, members for execution of displayed quotes/orders 
(other than Supplemental Orders or Designated Retail Orders) if they 
qualify by meeting the requirements of the various credit and fee tiers 
under those rules. The Exchange historically had not assessed a fee for 
the execution of any Midpoint Extended Life Order, but in July 2018 it 
began to assess a fee of $0.0006 per share executed for executions in 
Midpoint Extended Life Orders.\10\ The Exchange, however, continued to 
not assess a fee for the execution of Midpoint Extended Life Orders if 
the member executed at least at least 250,000 shares in Midpoint 
Extended Life Orders in June 2018. The Exchange is now proposing to 
assess no charge for any execution \11\ of a Midpoint Extended Life 
Order.
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    \10\ See Securities Exchange Act Release No. 83522 (June 26, 
2018), 83 FR 30998 (July 2, 2018) (SR-NASDAQ-2018-047).
    \11\ Transactions in Midpoint Extended Life Orders below $1 will 
remain at no cost.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\12\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\13\ 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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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4) and (5).
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First Change
    The Exchange believes that the $0.0029 per share executed charge 
for removing liquidity in securities priced at $1 or more per share 
listed on exchanges other than Nasdaq will continue to be reasonable 
because the fee will remain unchanged. When the Exchange adopted the 
fee,\14\ it believed that assessing the fee was reasonable because it 
was set at a level that is lower than the standard removal fee of 
$0.0030 per share executed, thereby providing an incentive to market 
participants, and it was also based on the Exchange's analysis of the 
cost to the Exchange of offering a lower fee, thereby decreasing the 
revenue derived from transactions by members that qualify for the fee, 
and the desired benefit to the market provided by the members that meet 
the fee's qualification criteria. The Exchange noted that the fee's 
qualification criteria provided an incentive to members to increase 
their participation in the market as measured by Consolidated Volume, 
which benefits all market participants. The Exchange also noted that 
members may qualify for a $0.00295 per share executed fee for removing 
liquidity in Tape A or B securities priced at $1 or more if the 
member's volume of liquidity added through one or more of its Nasdaq 
Market Center MPIDs during the month (as a percentage of Consolidated 
Volume) is not less than 0.80%, which was subsequently increased to 
0.85%. The Exchange explained that the proposed fee would continue to 
require a member to both qualify under the Tier 2 criteria that 
requires the member to execute shares of liquidity provided in all 
securities through one or more of its Nasdaq Market Center MPIDs that 
represent above 0.90% of Consolidated Volume during the month, and also 
provide an increased combined Consolidated Volume (adding and removing 
liquidity) requirement (which was at least 3.5%, but subsequently 
increased to at least 3.7%). Consequently, the Exchange noted that to 
qualify for a lower transaction fee for removing liquidity in Tape A or 
B securities under the QMM Program, the member must both provide 
greater Consolidated Volume through adding liquidity during the month 
(i.e., 0.90% versus 0.80%) and provide a certain level of combined 
Consolidated Volume, which accounts for both adding liquidity and 
removing liquidity. As noted above, the Exchange is not proposing to 
change the fee and the analysis described above remains valid.

[[Page 40807]]

Accordingly, the Exchange believes that the fee remains reasonable.
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    \14\ See Securities Exchange Act Release No. 78977 (September 
29, 2016), 81 FR 69140 (October 5, 2016) (SR-NASDAQ-2016-032).
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    The Exchange believes that the fee will continue to be an equitable 
allocation and not unfairly discriminatory with the new MOC and LOC 
criteria because it is reflective of the success that the lower charge 
tier has had in promoting beneficial market participation, as measured 
by combined Consolidated Volume (adding and removing liquidity). 
Consequently, the Exchange believes that requiring QMMs to provide 
additional beneficial market participation through the execution of MOC 
and LOC Orders in the Nasdaq Closing Cross is warranted. The Exchange 
does not believe that the new requirement will result in a significant 
reduction in the number of QMMs that will likely qualify for the lower 
transaction fee. Moreover, the Exchange is not limiting which QMMs may 
qualify for the reduced charge. As noted, the QMM Program is intended 
to encourage members to promote price discovery and market quality by 
quoting at the NBBO for a significant portion of each day in a large 
number of securities, thereby benefitting Nasdaq and other investors by 
committing capital to support the execution of orders. To receive the 
$0.0029 per share executed charge, a member must meet the Tier 2 
criteria, which requires the QMM to execute shares of liquidity 
provided in all securities through one or more of its Nasdaq Market 
Center MPIDs that represent above 0.90% of Consolidated Volume during 
the month. In addition, the QMM must provide a certain level of 
combined Consolidated Volume, which accounts for both adding liquidity 
and removing liquidity. The Exchange is proposing to add new criteria 
designed to promote participation in the Nasdaq Closing Cross to make 
the qualification criteria required to receive the incentive more 
meaningful in terms of the beneficial market activity required to 
receive the reduced charge. QMMs may continue to qualify for the 
reduced charge while also providing more beneficial market 
participation. In this regard, any QMM may choose to provide the level 
of MOC and/or LOC Orders required to be eligible for the fee. Thus, the 
Exchange does not believe that the new criteria discriminates unfairly 
and believes that it is equitably allocated.
Second Change
    The Exchange believes that allowing transactions of Midpoint 
Extended Life Orders at no cost is reasonable because it currently 
offers them at no cost, as described above. In addition, the Exchange 
does not charge a fee for transactions in Orders with a RTFY routing 
Order Attribute.\15\ Such an Order must meet the definition of 
Designated Retail Order, which requires, among other things, that the 
Order not originate from a trading algorithm or any other computerized 
methodology.\16\ Thus, allowing transactions of the RTFY Order 
Attribute at no cost is designed to promote the Exchange as a venue for 
retail investor Orders. Likewise, the Exchange is proposing to allow 
all transactions in Midpoint Extended Life Orders at no cost to promote 
use of such Orders and consequently the quality of the market in 
Midpoint Extended Life Orders.
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    \15\ RTFY is a routing option available for an order that 
qualifies as a Designated Retail Order under which orders check the 
System for available shares only if so instructed by the entering 
firm and are thereafter routed to destinations on the System routing 
table. If shares remain unexecuted after routing, they are posted to 
the book. Once on the book, should the order subsequently be locked 
or crossed by another market center, the System will not route the 
order to the locking or crossing market center. RTFY is designed to 
allow orders to participate in the opening, reopening and closing 
process of the primary listing market for a security. See Rule 
4758(a)(1)(A)(v)b.
    \16\ See Rule 7018.
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    The Exchange believes that not charging a fee for executions in 
Midpoint Extended Life Order is an equitable allocation and is not 
unfairly discriminatory because the Exchange will apply the same fee to 
all similarly situated members. The Midpoint Extended Life Order may be 
used by any market participant that is willing to satisfy the 
requirements of the Order Type and therefore qualify for the proposed 
zero fee tiers. 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.\17\ The Exchange will likely assess 
fees again for transactions in Midpoint Extended Life Orders in the 
near future, once it has had time to further assess the nature of the 
market in Midpoint Extended Life Orders to determine the appropriate 
fee. Accordingly, the proposed fee does not discriminate in any way.
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    \17\ Based on whether the member is removing or adding 
liquidity. See Rule 7018(a) and (b).
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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 proposed rule change does not impose a 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.
    With respect to the first proposed change, although the change to 
the QMM qualification criteria may limit the benefits of the program to 
the extent QMMs that currently qualify for the $0.0029 per share 
executed charge are unable to meet the more stringent qualification 
criteria, the incentive is reflective of the need for exchanges to 
offer significant financial incentives to attract order flow in return 
for meaningful market-improving behavior. The Exchange, however, does 
not believe that the proposed qualification criteria will negatively 
impact who will qualify for the $0.0029 per share executed charge but 
will rather have a positive impact on overall market quality as QMMs 
increase their participation in the Nasdaq Closing Cross to qualify for 
the lower charge. If, however, the Exchange is incorrect and the 
changes proposed herein are unattractive to QMMs, it is likely that 
Nasdaq will lose market share as a result.
    With respect to the second proposed change, assessing no fee for 
executions of Midpoint Extended Life Orders will not place any burden 
on competition, but rather will help continue to attract interest in 
the use of the Order Type by making it attractive to members that seek 
to execute at the midpoint with like-minded members. To the extent the 
proposal is successful in promoting liquidity in Midpoint Extended Life 
Orders, other markets may be incented to provide a competitive response 
by innovating like the Exchange has done in this instance. To the 
extent the proposal is not successful in promoting liquidity in 
Midpoint Extended Life

[[Page 40808]]

Orders, it would have no meaningful impact on competition as few 
transactions in Midpoint Extended Life Orders would occur. In sum, if 
the proposal to assess no fees for executions of Midpoint Extended Life 
Orders is unattractive to market participants, it is likely that the 
Exchange will not gain any market share as a result and therefore no 
competitive impact.
    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.\18\
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    \18\ 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 [email protected]. Please include 
File Number SR-NASDAQ-2018-064 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2018-064. 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 such 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-2018-064, and should be submitted 
on or before September 6, 2018.
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    \19\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2018-17634 Filed 8-15-18; 8:45 am]
BILLING CODE 8011-01-P