
[Federal Register Volume 84, Number 58 (Tuesday, March 26, 2019)]
[Notices]
[Pages 11379-11381]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05706]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85373; File No. SR-NASDAQ-2019-015]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Equity 7, Section 118(a)(3)

March 20, 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 12, 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)(3) to adopt a $0.00005 per share executed 
credit provided to members for displayed quotes/orders (other than 
Supplemental Orders or Designated Retail Orders) in securities listed 
on exchanges other than Nasdaq and NYSE (``Tape B Securities'') that 
provide liquidity, as described further below.
    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)(3) to adopt a $0.00005 per 
share executed credit provided to members for displayed quotes/orders 
(other than Supplemental Orders or Designated Retail Orders) in Tape B 
Securities that provide liquidity. The proposed credit would be 
provided to a member in addition to any other credit it qualifies for 
under Section 118(a)(3), including the $0.0001 per share executed 
credit for displayed quotes/orders in Tape B securities provided in 
addition to other credits under Section 118(a)(3).\3\ To

[[Page 11380]]

qualify for the proposed credit, a member must have shares of liquidity 
provided in all securities through one or more of its Nasdaq Market 
Center MPIDs that represent at least 1.75% of Consolidated Volume \4\ 
during the month, including shares of liquidity provided with respect 
to Tape B securities that represent at least 0.60% of Consolidated 
Volume.
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    \3\ The Exchange provides the credit to members with shares of 
liquidity provided in Tape B securities during the month 
representing at least 0.10% of Consolidated Volume during the month 
through one or more of its Nasdaq Market Center MPIDs. Thus, a 
member that qualifies for the proposed credit would also qualify for 
the existing $0.0001 per share executed credit, resulting in a 
combined credit of $0.00015 per share executed provided in addition 
to other credits under Section 118(a)(3).
    \4\ 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 Equity 7, Section 118(a).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\5\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\6\ 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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    \5\ 15 U.S.C. 78f(b).
    \6\ 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.'' \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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    Likewise, in NetCoalition v. Securities and Exchange Commission \8\ 
(``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.\9\ 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.'' \10\
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    \8\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \9\ See NetCoalition, at 534-535.
    \10\ 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'. . . .'' \11\
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    \11\ 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 the proposed credit is reasonable 
because it is similar to an existing credit provided by the Exchange. 
As described above, the Exchange currently provides a $0.0001 per share 
executed credit for displayed quotes/orders in Tape B securities, which 
is provided in addition to other credits under Section 118(a)(3). The 
proposed credit will likewise be provided in addition to any other 
credits that a member may qualify for including the $0.0001 per share 
executed credit. The Exchange has set the level of Consolidated Volume 
in Tape B securities required to qualify for the credit higher than the 
current $0.0001 per share executed credit's criteria and added an 
additional 1.75% or greater Consolidated Volume requirement to reflect 
the significant credits a member would receive if it qualified for the 
proposed credit. In this regard, a member that qualifies for the 
proposed $0.00005 per share executed credit would also qualify for the 
existing $0.0001 per share executed credit for displayed quotes/orders 
in Tape B securities. Consequently, a member would receive a combined 
credit of $0.00015 per share executed provided in addition to other 
credits under Section 118(a)(3) if it qualified for the proposed new 
credit. Consequently, the Exchange believes that the proposed 
qualification criteria are commensurate with level of credit received.
    The Exchange believes that the proposed credit is an equitable 
allocation and is not unfairly discriminatory because the Exchange will 
apply the same credit to all similarly situated members. The proposed 
qualification criteria of the proposed credit is [sic] set at a 
sufficiently high level to reflect the significant credits a member 
would receive if it qualified. Any member may elect to provide the 
levels of market activity required by the proposed credit's 
qualification criteria in order to receive the credit. If the member 
determines that the level of Consolidated Volume is too high, it has 
other opportunities to receive credits that require less Consolidated 
Volume, including the $0.0001 per share executed credit currently 
provided under Section 118(a)(3). The Exchange also believes that it is 
an equitable allocation and is not unfairly discriminatory to limit the 
credit to only quotes/orders in Tape B securities because the Exchange 
has observed lower overall volume on the Exchange in Tape B securities 
in comparison to Tapes A and C securities, and is thus providing 
incentive to members to provide displayed liquidity in Tape B 
securities. The Exchange has limited funds with which to apply in the 
form of incentives, and thus must deploy those limited funds to 
incentives that it believes will be the most effective and improve 
market quality in areas that the Exchange determines are in need of 
improvement. For these reasons, the Exchange believes that the proposed 
credit is 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 proposed changes to the credits available to 
member firms

[[Page 11381]]

for execution of securities in Tape B securities 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. The proposed change 
provides another opportunity for members to receive a credit based on 
their market-improving behavior. As noted above, the proposed credit 
would be provided in addition to other credits under the rule for which 
the member qualifies. Thus, any member may elect to provide the levels 
of market activity required by the credit's qualification criteria in 
order to receive the credit. Moreover, other market venues are free to 
adopt the same or similar credits and incentives as a competitive 
response to this proposed change. As a consequence, the Exchange does 
not believe that the proposed credit burdens competition among market 
participants or market venues. 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 and, conversely, if the proposal is 
successful at attracting greater volume to the Exchange other market 
venues are free to make similar changes as a competitive response. 
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.\12\
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    \12\ 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 rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2019-015 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-2019-015. 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-2019-015 and should be submitted 
on or before April 16, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-05706 Filed 3-25-19; 8:45 am]
 BILLING CODE 8011-01-P


