Document ID: SEC-2021-1608-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market, LLC
Posted Date: 2021-11-18T05:00Z

[Federal Register Volume 86, Number 220 (Thursday, November 18, 2021)]
[Notices]
[Pages 64536-64539]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-25130]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93558; File No. SR-NASDAQ-2021-088]

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

November 12, 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 November 1, 2021, 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 pricing schedule at 
Equity 7, Section 118(a), as described further below.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, at 
the principal office of the Exchange, and at the Commission's Public 
Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed

[[Page 64537]]

any comments it received on the proposed rule change. The text of these 
statements may be examined at the places specified in Item IV below. 
The Exchange has prepared summaries, set forth in sections A, B, and C 
below, of the most significant aspects of such statements.

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

1. Purpose
    The purpose of the proposed rule change is to amend the Exchange's 
schedule of credits, at Equity 7, Section 118(a). Specifically, the 
Exchange proposes to amend the criteria for two existing credits of 
$0.0029 per share executed with respect to its schedule of credits for 
displayed quotes/orders (other than Supplemental Orders or Designated 
Retail Orders) that provide liquidity in Tapes A, B and C.
    The Exchange proposes to amend two existing credits in Tapes A, B 
and C of $0.0029 per share executed. One of the existing credits 
applies to members (i) with shares of liquidity provided in all 
securities through one or more of its Nasdaq Market Center MPIDs that 
represent more than 0.675% of Consolidated Volume during the month. The 
other credit applies to members (i) with shares of liquidity accessed 
in all securities through one or more of its Nasdaq Market Center MPIDs 
that represent more than 0.80% of Consolidated Volume during the month, 
and (ii) with shares of liquidity provided in all securities through 
one or more of its Nasdaq Market Center MPIDs that represent more than 
0.60% of Consolidated Volume.
    The Exchange proposes to amend the credits in all three Tapes by 
also requiring a member to execute an average daily volume (``ADV'') of 
at least 350,000 shares of Midpoint Extended Life Orders (``M-ELOs'') 
\3\ during the month. The proposed amendments will increase the extent 
to which members engage in M-ELO activity on the Exchange and grow the 
extent of such activity over time. From time to time, the Exchange 
believes it is reasonable to recalibrate the criteria for credits such 
as these to ensure that the credits remain appropriately challenging 
for participants to attain in light of changes to their levels of 
activity on the Exchange.
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    \3\ Pursuant to Equity 4, Rule 4702(b)(14), a ``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 a minimum period of 10 
milliseconds has passed after acceptance of the Order by the System.
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2. Statutory Basis
    The Exchange believes that its proposals are consistent with 
Section 6(b) of the Act,\4\ in general, and further the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\5\ 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 any facility, 
and are not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers. The proposals are also consistent with 
Section 11A of the Act relating to the establishment of the national 
market system for securities.
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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 Proposals Are Reasonable
    The Exchange's proposals are reasonable in several respects. As a 
threshold matter, the Exchange is subject to significant competitive 
forces in the market for equity securities transaction services that 
constrain its pricing determinations in that market. The fact that this 
market is competitive has long been recognized by the courts. In 
NetCoalition v. Securities and Exchange Commission, the D.C. Circuit 
stated as follows: ``[n]o one disputes that competition for order flow 
is `fierce.' . . . As the SEC explained, `[i]n the U.S. national market 
system, buyers and sellers of securities, and the broker-dealers that 
act as their order-routing agents, have a wide range of choices of 
where to route orders for execution'; [and] `no exchange can afford to 
take its market share percentages for granted' because `no exchange 
possesses a monopoly, regulatory or otherwise, in the execution of 
order flow from broker dealers'. . . .'' \6\
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    \6\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(quoting Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. In Regulation 
NMS, while adopting a series of steps to improve the current market 
model, the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \7\
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    \7\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    Numerous indicia demonstrate the competitive nature of this market. 
For example, clear substitutes to the Exchange exist in the market for 
equity security transaction services. The Exchange is only one of 
several equity venues to which market participants may direct their 
order flow. Competing equity exchanges offer similar tiered pricing 
structures to that of the Exchange, including schedules of rebates and 
fees that apply based upon members achieving certain volume thresholds.
    Within this environment, market participants can freely and often 
do shift their order flow among the Exchange and competing venues in 
response to changes in their respective pricing schedules. Within the 
foregoing context, the proposals represent reasonable attempts by the 
Exchange to increase its liquidity and market share relative to its 
competitors.
    The Exchange believes that it is reasonable to amend the credit of 
$0.0029 per share executed, which applies to members (i) with shares of 
liquidity provided in all securities through one or more of its Nasdaq 
Market Center MPIDs that represent more than 0.675% of Consolidated 
Volume during the month, and the credit of $0.0029 per share executed, 
which applies to members (i) with shares of liquidity accessed in all 
securities through one or more of its Nasdaq Market Center MPIDs that 
represent more than 0.80% of Consolidated Volume during the month, and 
(ii) with shares of liquidity provided in all securities through one or 
more of its Nasdaq Market Center MPIDs that represent more than 0.60% 
of Consolidated Volume. The proposed additional requirement of 
executing an ADV of at least 350,000 shares of M-ELOs during the month 
will encourage members that currently qualify for the credit to 
increase the extent to which members engage in M-ELO activity.
    From time to time, the Exchange believes it is reasonable to 
recalibrate the criteria for credits such as this one to ensure that 
the credits remain appropriately challenging for participants to attain 
in light of changes to their levels of activity on the Exchange. The 
Exchange has limited resources at its disposal to devote to incentives 
and it periodically reassesses the allocation of those resources when 
they prove to be ineffective.

[[Page 64538]]

Additionally, these proposals are reasonable because they will provide 
extra incentives to members to engage in substantial amounts of MELO-
related activity on the Exchange during a month. The Exchange believes 
that if such incentives are effective, then any ensuing increase in M-
ELOs and executions on the Exchange will improve the quality of the M-
ELO market, and the market overall, to the benefit of M-ELO and all 
market participants.
    The Exchange notes that those market participants that are 
dissatisfied with the proposals are free to shift their order flow to 
competing venues that offer more generous pricing or less stringent 
qualifying criteria.
The Proposals Are Equitable Allocations of Credits
    The Exchange believes that it is an equitable allocation to modify 
the eligibility requirements for its transaction credits because the 
proposals will encourage members to increase the extent to which they 
add liquidity to the Exchange. To the extent that the Exchange succeeds 
in increasing the levels of liquidity and activity on the Exchange, 
including in segments for which there is an observed need or demand, 
such as non-displayed, MELO, and Tape B securities, then the Exchange 
will experience improvements in its market quality, which stands to 
benefit all market participants. The Exchange also believes it is 
equitable to recalibrate or revise existing criteria for its credits to 
ensure that the credits remain appropriately challenging for 
participants to attain in light of changes to their levels of activity 
on the Exchange.
    Any participant that is dissatisfied with the proposals is free to 
shift their order flow to competing venues that provide more generous 
pricing or less stringent qualifying criteria.
The Proposals Are Not Unfairly Discriminatory
    The Exchange believes that its proposals are not unfairly 
discriminatory. As an initial matter, the Exchange believes that 
nothing about its volume-based tiered pricing model is inherently 
unfair; instead, it is a rational pricing model that is well-
established and ubiquitous in today's economy among firms in various 
industries--from co-branded credit cards to grocery stores to cellular 
telephone data plans--that use it to reward the loyalty of their best 
customers that provide high levels of business activity and incent 
other customers to increase the extent of their business activity. It 
is also a pricing model that the Exchange and its competitors have long 
employed with the assent of the Commission. It is fair because it 
incentivizes customer activity that increases liquidity, enhances price 
discovery, and improves the overall quality of the equity markets.
    The Exchange believes that its proposals to amend the qualifying 
criteria for its transaction credits are not unfairly discriminatory 
because these credits are available to all members. Moreover, these 
proposals stand to improve the overall market quality of the Exchange, 
to the benefit of all market participants, by incentivizing members to 
increase the extent of their liquidity provision or activity on the 
Exchange, including in segments for which there is an observed need or 
demand, such as non-displayed, M-ELO, and Tape B securities. The 
Exchange also believes it is not unfairly discriminatory to recalibrate 
or revise existing criteria for its credits to ensure that the credits 
remain appropriately challenging for participants to attain in light of 
changes to their levels of activity on the Exchange.
    Any participant that is dissatisfied with the proposals is free to 
shift their order flow to competing venues that provide more generous 
pricing or less stringent qualifying criteria.

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

    The Exchange does not believe that the proposed rule changes will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
Intramarket Competition
    The Exchange does not believe that its proposals will place any 
category of Exchange participant at a competitive disadvantage.
    As noted above, Nasdaq's proposals to amend transaction credits are 
intended to have market-improving effects, to the benefit of all 
members. Any member may elect to achieve the levels of liquidity or 
activity required in order to qualify for the amended credits.
    The Exchange notes that its members are free to trade on other 
venues to the extent they believe that the proposed qualification 
criteria for or amounts of these credits are not attractive. As one can 
observe by looking at any market share chart, price competition between 
exchanges is fierce, with liquidity and market share moving freely 
between exchanges in reaction to credit changes. The Exchange notes 
that its pricing tier structure is consistent with broker-dealer fee 
practices as well as the other industries, as described above.
Intermarket Competition
    In terms of inter-market competition, the Exchange notes that it 
operates in a highly competitive market in which market participants 
can readily favor competing venues if they deem credit levels at a 
particular venue to be excessive, or rebate opportunities available at 
other venues to be more favorable. In such an environment, the Exchange 
must continually adjust its credits 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 credits in response, 
and because market participants may readily adjust their order routing 
practices, the Exchange believes that the degree to which credit 
changes in this market may impose any burden on competition is 
extremely limited.
    The proposed amended credits are reflective of this competition 
because, even as one of the largest U.S. equities exchanges by volume, 
the Exchange has less than 20% market share, which in most markets 
could hardly be categorized as having enough market power to burden 
competition. Moreover, as noted above, price competition between 
exchanges is fierce, with liquidity and market share moving freely 
between exchanges in reaction to credit changes. This is in addition to 
free flow of order flow to and among off-exchange venues which 
comprises upwards of 44% of industry volume.
    The Exchange's proposals to amend its transaction credits are pro-
competitive in that the Exchange intends for the changes to increase 
liquidity addition and activity on the Exchange, thereby rendering the 
Exchange a more attractive and vibrant venue to market participants.
    In sum, if the changes proposed herein are unattractive to market 
participants, it is likely that the Exchange will lose market share as 
a result. Accordingly, the Exchange does not believe that the proposed 
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.

[[Page 64539]]

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

    Pursuant to Section 19(b)(3)(A)(ii) of the Act,\8\ the Exchange has 
designated this proposal as establishing or changing a due, fee, or 
other charge imposed by the self-regulatory organization on any person, 
whether or not the person is a member of the self-regulatory 
organization, which renders the proposed rule change effective upon 
filing.
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    \8\ 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-2021-088 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-2021-088. 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-2021-088 and should be submitted 
on or before December 9, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-25130 Filed 11-17-21; 8:45 am]
BILLING CODE 8011-01-P