Document ID: SEC-2019-0452-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market LLC
Posted Date: 2019-04-12T04:00Z

[Federal Register Volume 84, Number 71 (Friday, April 12, 2019)]
[Notices]
[Pages 15013-15015]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-07242]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85546; File No. SR-NASDAQ-2019-023]

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

April 8, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 28, 2019, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III, below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Exchange's transaction fees at 
Equity 7, Section 118(a), as described further below.
    While these amendments are effective upon filing, the Exchange has 
designated the proposed amendments to be operative on April 1, 2019.
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaq.cchwallstreet.com/, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    The purpose of the proposed rule change is to amend the Exchange's 
transaction fees at Equity 7, Section 118(a)(1), (2), and (3) to adjust 
the qualifying terms for an existing credit it offers to members with 
orders that provide liquidity to the Exchange in all three Tapes.
    The Exchange operates on the ``maker-taker'' model, whereby it pays 
credits to members that provide liquidity and charges fees to members 
that access liquidity. Currently, the Exchange offers several different 
credits for orders that display quotes/orders in securities (other than 
Supplemental Orders or Designated Retail Orders) in Tapes A, B, and C 
that provide liquidity to the Exchange. Among these credits, the 
Exchange offers a $0.0027 per share executed credit to a member (i) 
with shares of liquidity provided in all securities during the month 
representing more than 0.10% of Consolidated Volume \3\ during the 
month, through one or more of its Nasdaq Market Center MPIDs, and (ii) 
adds Customer,\4\ Professional,\5\ Firm,\6\ Non-NOM Market Maker \7\ 
and/or Broker-Dealer \8\ liquidity in Non-Penny

[[Page 15014]]

Pilot Options of 0.40% or more of total industry average daily volume 
(``ADV'') in the customer clearing range for Equity and ETF option 
contracts per day in a month on The Nasdaq Options Market (``NOM''). 
The Exchange proposes to recalibrate the credit by eliminating the 
requirement that a member must add liquidity ``in Non-Penny Pilot 
Options'' on NOM to qualify for it.
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    \3\ Pursuant to Equity 7, Section 118(a), the term 
``Consolidated Volume'' means 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 is excluded from both total 
Consolidated Volume and the member's trading activity.
    \4\ The term ``Customer'' applies to any transaction that is 
identified by a participant for clearing in the Customer range at 
The Options Clearing Corporation (``OCC'') which is not for the 
account of broker or dealer or for the account of a 
``Professional,'' as defined in Chapter I, Section 1 of the NOM 
rules.
    \5\ A ``Professional'' is defined in Chapter I, Section 1 of the 
NOM rules as ``any person or entity that (i) is not a broker or 
dealer in securities, and (ii) places more than 390 orders in listed 
options per day on average during a calendar month for its own 
beneficial account(s).''
    \6\ The term ``Firm'' or (``F'') applies to any transaction that 
is identified by a Participant for clearing in the Firm range at 
OCC.
    \7\ The term ``Non-NOM Market Maker'' or (``O'') is a registered 
market maker on another options exchange that is not a NOM Market 
Maker. A Non-NOM Market Maker must append the proper Non-NOM Market 
Maker designation to orders routed to NOM.
    \8\ The term ``Broker-Dealer'' or (``B'') applies to any 
transaction which is not subject to any of the other transaction 
fees applicable within a particular category.
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    When the Exchange first added this particular credit program in 
2016,\9\ it limited the availability of the credit to members that add 
liquidity on NOM in Non-Penny Pilot Options because the Exchange wanted 
to specifically encourage liquidity-adding behavior on NOM in less 
liquid option classes in order to help improve the markets for those 
options classes. The Exchange still wishes to encourage such market-
improving behavior for Non-Penny Pilot Options, but it seeks to revise 
the credit so that it also encourages members to add liquidity in other 
options classes on NOM, including Penny Pilot Options.
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    \9\ See Securities Exchange Act Release No. 34-78354 (July 19, 
2016), 81 FR 48487 (July 25, 2016) (SR-NASDAQ-2016-102).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\10\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\11\ 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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    \10\ 15 U.S.C. 78f(b).
    \11\ 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.'' \12\
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    \12\ 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 
\13\ (``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.\14\ 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.'' \15\
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    \13\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \14\ See NetCoalition, at 534-535.
    \15\ 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'. . . .'' \16\ Although the court and 
the SEC were discussing the cash equities markets, the Exchange 
believes that these views apply with equal force to the options 
markets.
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    \16\ 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 Exchange believes that its proposal is reasonable to eliminate 
the credit-qualifying requirement that a member must add liquidity on 
NOM specifically in Non-Penny Pilot Options [sic]. Under Rule 7018(a), 
the various credits the Exchange provides for members that add 
liquidity require members to contribute significantly to market quality 
by providing certain levels of Consolidated Volume through one or more 
of its [sic] Nasdaq Market Center MPIDs, and by also contributing 
volume on NOM. Although the Exchange originally designed this 
particular credit to encourage members to add liquidity on NOM only in 
Non-Penny Pilot Options, the Exchange believes that it is reasonable to 
revise the credit so that it more broadly encourages members to add 
liquidity on NOM in all options classes. Indeed, the proposed change 
will help to improve the market on NOM for all, rather than a subset 
of, options classes.
    The Exchange believes that the proposed change [sic] is equitably 
allocated among members, and is not designed to permit unfair 
discrimination. By eliminating the requirement that a member must add 
liquidity only in Non-Penny Pilot Options, the Exchange will 
potentially expand the availability of the credit to additional 
members, including those that provide liquidity on NOM primarily or 
exclusively in Penny Pilot Options. Moreover, all similarly situated 
members are equally capable of qualifying for the credit if they choose 
to meet the revised requirements. The Exchange notes that the proposed 
change applies to securities of all Tapes.
    The Exchange believes that the proposed revised requirements for 
qualifying for the credit are proportionate to the amount of the credit 
and that the revised requirements equitably reflect the purpose of the 
credit, which is to incentivize members to transact greater volume on 
Nasdaq and NOM.
    Finally, the Exchange notes that the proposed volume threshold is 
consistent with other volume-based credits that the Exchange offers in 
Equity 7, Section 118(a)(1), (2), and (3) to members for displayed 
quotes/orders (other than Supplemental Orders or Designated Retail 
Orders) that provide liquidity. Nasdaq currently offers a variety of 
credits for displayed quotes/orders (other than Supplemental Orders or 
Designated Retail Orders) that add liquidity, some of which are linked 
to activity on NOM and some of which relate to activity on Nasdaq only, 
which range from $0.0025 per share executed to $0.00305 per share 
executed, and which apply progressively more stringent requirements in 
return for higher per share executed credits.

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

[[Page 15015]]

burden on competition is extremely limited.
    In this instance, the proposed changes do 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. The proposal to eliminate from 
the credit the requirement that members provide liquidity on NOM in 
Non-Penny Pilot Options is designed to promote competition by improving 
overall market quality on NOM. The Exchange also notes that its 
proposed change reflects the Exchange's need to balance the incentives 
that it provides in return for the market improving behavior it seeks 
to incentivize. The Exchange has limited funds to apply toward 
incentives, and therefore must adjust its credit tier qualification 
criteria to ensure that it applies its limited funds in the most 
efficient manner.
    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.

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.\17\
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    \17\ 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-2019-023 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-2019-023. 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-2019-023 and should be submitted 
on or before May 3, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-07242 Filed 4-11-19; 8:45 am]
BILLING CODE 8011-01-P