Document ID: SEC-2018-1006-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq Stock Market, LLC
Posted Date: 2018-07-02T04:00Z

[Federal Register Volume 83, Number 127 (Monday, July 2, 2018)]
[Notices]
[Pages 30998-31001]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-14109]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83522; File No. SR-NASDAQ-2018-047]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Adopt a New Transaction Fee for Execution of Midpoint Extended Life 
Orders

June 26, 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 June 12, 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 
Rule 7018 to adopt a new transaction fee for execution of Midpoint 
Extended Life Orders.
    While these amendments are effective upon filing, as discussed 
below, the Exchange will begin assessing the proposed fees on July 2, 
2018.\3\
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    \3\ The Exchange initially filed the proposed pricing changes on 
June 1, 2018 (SR-NASDAQ-2018-043). On July [sic] 12, 2018, the 
Exchange withdrew that filing and submitted this filing. This filing 
makes technical corrections, provides further discussion of the 
proposed change, and clarifies the statutory basis and burden on 
competition discussions.
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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 
transaction fees at Rule 7018(a)(1)-(3) to charge no fee for execution 
of Midpoint Extended Life Orders in the month of July 2018 if the 
member executes at least 250,000 shares in Midpoint Extended Life 
Orders in June 2018, and adopt a fee of $0.0006 per share executed for 
execution of all other Midpoint Extended Life Orders in securities with 
a price of $1 or more. Transactions in Midpoint Extended Life Orders in 
securities with a price less than $1 will remain at no cost.
    On March 7, 2018, the Commission approved the Exchange's proposal 
to adopt a new Order Type, the Midpoint Extended Life Order.\4\ 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. 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. The Exchange has not 
assessed a charge for Midpoint Extended Life Orders executions since 
the Exchange began to offer them on March 12, 2018.\5\
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    \4\ See Securities Exchange Act Release No. 82825 (March 7, 
2018), 83 FR 10937 (March 13, 2018) (SR-NASDAQ-2017-074).
    \5\ See Securities Exchange Act Release No. 82905 (March 20, 
2018), 83 FR 12988 (March 26, 2018) (SR-NASDAQ-2018-021).
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    Under Rule 7018, the Exchange is proposing to assess fees for 
certain Midpoint Extended Life Orders beginning July 2, 2018, while 
continuing to provide a no fee tier for the month of July 2018 if a 
member meets qualification criteria based on its activity in Midpoint 
Extended Life Orders in June 2018. Specifically, the Exchange is 
proposing to assess no charge for execution of Midpoint Extended Life 
Orders in the month of July 2018 if the member executes at least at 
least [sic] 250,000 shares in Midpoint Extended Life Orders in the 
immediately preceding month. Thus, the new fee will be applied 
beginning July 2, 2018 based on the number of Midpoint Extended Life 
Orders executed by the member in the month of June 2018. The Exchange 
is also adopting a new fee of $0.0006 per share executed assessed for 
execution of Midpoint Extended Life Orders in securities priced at $1 
or more applicable to members that do not qualify under the no cost 
tier described immediately above. After July 2018, the Exchange will 
assess a charge of $0.0006 per share executed assessed [sic] for 
execution of any Midpoint Extended Life Order in a security priced $1 
or greater. The proposed fees cover 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 
$0.0006 per share executed fee; however, the Exchange also believes 
that promoting liquidity in Midpoint Extended Life Orders continues to 
be warranted. Thus, the Exchange is proposing to not assess a fee for 
executions of Midpoint Extended Life Orders in the month of July 2018 
if members have at least 250,000 shares executed in Midpoint Extended 
Life Orders in June 2018. Allowing transactions to occur at no cost if 
a member provides a certain level of Midpoint Extended Life Order 
liquidity will promote use of the Midpoint Extended Life Order, which 
will in turn help bring continued overall liquidity in Midpoint 
Extended Life Orders in securities priced $1 or more to the Exchange in 
June 2018, since members may increase their activity in Midpoint 
Extended Life Orders, and members that have not yet used Midpoint 
Extended Life Orders may begin trading in them to benefit from the zero 
fee tier. To the extent that members are provided

[[Page 30999]]

incentive to trade in Midpoint Extended Life Orders to meet the zero 
fee tier qualification requirement, the benefit to liquidity should 
continue to through July 2018 as members that qualified for the zero 
fee tier take advantage of the zero fee trading for the month. Fees for 
all Midpoint Extended Life Orders in June 2018 will remain at no cost. 
In addition, the Exchange is not proposing to adopt a new fee for 
execution of Midpoint Extended Life Orders in securities below $1 (Rule 
7018(b)) whatsoever, which will continue to be allowed at no cost.
    Accordingly, the Exchange is proposing to amend Rule 7018(a)(1)-(3) 
to note: (1) That members executing a Midpoint Extended Life Order will 
be assessed a charge of $0.0000 per share executed in the month of July 
2018 if the member executes at least 250,000 shares in Midpoint 
Extended Life Orders in June 2018; and (2) that all other members will 
be assessed a fee of $0.0006 per share executed, for executions of 
Midpoint Extended Life Orders in securities priced $1 or more.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\6\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\7\ 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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    \6\ 15 U.S.C. 78f(b).
    \7\ 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 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.'' \8\
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    \8\ 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 \9\ 
(``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.\10\ 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.'' \11\
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    \9\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \10\ See NetCoalition, at 534-535.
    \11\ 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' . . . .'' \12\
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    \12\ 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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    The proposed $0.0006 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 
$0.0006 per share executed is appropriate. The Exchange currently 
assess [sic] a fee of $0.0007 per share executed for certain TFTY 
Orders.\13\ 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.\14\ Thus, the lower fee is 
similar to existing fees for Orders executed on 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.\15\
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    \13\ See Rule 7018(a)(1)-(3).
    \14\ Id.
    \15\ See Investors Exchange Fee Schedule, available at: https://iextrading.com/trading/fees/.
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    As discussed extensively in its proposal,\16\ 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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    \16\ 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 also believes that allowing transactions of Midpoint 
Extended Life Orders at no cost in July 2018 is reasonable because it 
currently offers them at no cost. In addition, the Exchange does not 
charge a fee for transactions in Orders with a RTFY routing Order 
Attribute.\17\ 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.\18\ 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 
transactions in Midpoint Extended Life Orders at no cost in July 2018 
to promote use of such Orders and consequently the quality of the 
market in Midpoint Extended Life Orders.
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    \17\ 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.
    \18\ See Rule 7018.
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    The Exchange believes that the proposed fees are an equitable 
allocation and are not unfairly discriminatory because the Exchange

[[Page 31000]]

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 meet the 
volume requirement 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.\19\ The Exchange is assessing fees for transactions in 
Midpoint Extended Life Orders beginning July 2, 2018 and providing a 
limited time during which transactions in Midpoint Extended Life Orders 
may [sic] done at no cost. The proposed $0.0006 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. Similarly, 
members will receive no charge in the month of July 2018 if it meets 
the 250,000 share execution requirement of the tier. The Exchange 
believes that 250,000 shares executed is a modest level that is 
attainable by any member that chooses to enter Midpoint Extended Life 
Orders.
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    \19\ Based on whether the member is removing or adding 
liquidity. See Rule 7018(a).
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    The Exchange believes that the zero fee tier for July 2018, which 
is based on the number of shares in Midpoint Extended Life Order 
executed in June 2018, is an equitable allocation and is not unfairly 
discriminatory because the Exchange has provided adequate notice of the 
changes to all members so that they may adjust their trading behavior, 
and any member may transact in Midpoint Extended Life Orders. Thus, all 
members may execute 250,000 shares or more in Midpoint Extended Life 
Orders in June 2018 to qualify for the zero cost tier in July 2018. The 
Exchange also applies qualification criteria for rebates under Rule 
7014 that are based on the prior month's activity. Specifically, the 
DLP program under Rule 7014(f) provides three rebates that have 
qualification criteria based on the level of ADV it had in the prior 
month.\20\
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    \20\ See Rule 7014(f)(5)(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.

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 no fee for certain 
executions of Midpoint Extended Life Orders and a modest fee of $0.0006 
per share executed will not place any burden on 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. The proposal also reduces burdens on members associated with the 
Exchange applying fees to an Order Type for which fees have not been 
assessed. The new fee tiers will help members transition to fee liable 
transactions by providing an opportunity to avoid paying a fee for a 
transaction in Midpoint Extended Life Orders in July 2018 if they 
choose to provide 250,000 or more shares executed in Midpoint Extended 
Life Orders for the month of June 2018. 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. In sum, if the proposal 
to assess the new fee tiers for executions of Midpoint Extended Life 
Orders is 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.\21\
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    \21\ 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-2018-047 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-2018-047. This 
file number should be included on the subject line if email is used. To 
help the

[[Page 31001]]

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-2018-047, and should be submitted 
on or before July 23, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-14109 Filed 6-29-18; 8:45 am]
 BILLING CODE 8011-01-P