[Federal Register Volume 85, Number 178 (Monday, September 14, 2020)]
[Notices]
[Pages 56663-56668]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-20126]



[[Page 56663]]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89781; File No. SR-NASDAQ-2020-059]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Equity 7, Section 114(e) and Equity 7, Section 118 of the Fee 
Schedule

September 8, 2020.
    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 31, 2020, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to (i) amend the Exchange's transaction fees 
to adjust the qualification requirements for certain Qualified Market 
Maker (``QMM'') fees and rebates at Equity 7, Section 114(e); and (ii) 
establish new credits and fee tiers and amend the qualification 
requirements for existing credit tiers at Equity 7, Section 118, 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 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
    Over the course of the last few months, the Exchange has 
experimented with various modifications of its pricing schedule with 
the aim of increasing activity on the Exchange, improving market 
quality, and increasing market share.\3\ Although these changes have 
met with success, the Exchange continues to examine and amend its 
pricing schedule to achieve the results it desires. Accordingly, the 
Exchange proposes to make modifications to its pricing schedule in a 
further attempt to improve the attractiveness of the market to new and 
existing market participants.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release Nos. 89343 (July 20, 
2020), 85 FR 44941 (July 24, 2020) (SR-Nasdaq-2020-041); 89115 (June 
22, 2020), 85 FR 38414 (June 26, 2020) (SR-Nasdaq-2020-030); 87882 
(January 2, 2020); 85 FR 939 (January 8, 2020) (SR-Nasdaq-2019-101); 
87708 (December 10, 2019), 84 FR 68496 (December 16, 2019) (Nasdaq-
2019-094); 85861 (May 15, 2019) 84 FR 23105 (May 21, 2019) (Nasdaq-
2019-036).
---------------------------------------------------------------------------

Changes to Section 114
    The Exchange proposes to amend the QMM fees and credits pursuant to 
Equity 7, Section 114, in two respects.
    First, a QMM currently qualifies for the Tier 3 credit if the QMM 
(i) executes shares of liquidity provided in all securities through one 
or more of its Nasdaq Market Center MPIDs that represent above 1.25% of 
Consolidated Volume \4\ during the month; (ii) quotes at the NBBO at 
least 25% of the time during the month during regular market hours in 
an average of at least 2,700 symbols per day; (iii) quotes at the NBBO 
at least 25% of the time during the month during regular market hours 
in an average of at least 1,200 symbols in securities in Tape A per 
day; and (iv) executes shares of liquidity provided in securities in 
Tape A through one or more of its Nasdaq Market Center MPIDs that 
represent an increase of at least 0.50% of Consolidated Volume relative 
to May 2020. The Exchange proposes to offer the rebate per MPID by 
amending the requirements to provide a credit when a QMM's MPID meets 
the qualifying criteria. The proposed amendment would remove the 
current Tier 3 rebate \5\ and instead provide an additional $0.00005 
per share executed credit for a QMM's MPID if the MPID (i) executes 
shares of liquidity provided that represents above 1.25% of 
Consolidated Volume during the month; (ii) quotes at the NBBO at least 
50% of the time during the month during regular market hours in an 
average of at least 2,700 symbols per day; (iii) quotes at the NBBO at 
least 50% of the time during the month during regular market hours in 
an average of at least 1,200 symbols in securities in Tape A per day; 
and (iv) executes shares of liquidity provided that represents an 
increase of at least 0.50% of Consolidated Volume relative to May 2020. 
Additionally, the Exchange is proposing clarifying language to explain 
that, for purposes of this rebate, an MPID is considered to be quoting 
at the NBBO if the MPID has a displayed order (other than a Designated 
Retail Order) at either the national best bid or the national best 
offer or both the national best bid and offer. On a daily basis, the 
Exchange will determine the number of securities that satisfy the 50% 
NBBO requirements for the MPID. The QMM would be eligible for the 
proposed credit in addition to qualifying for the Tier 2 credit. By 
amending the credit to allow a QMM to qualify at the MPID level, the 
Exchange intends to provide a further incentive for members to increase 
their activity on the Exchange that is attributable to adding liquidity 
and quoting at the NBBO.
---------------------------------------------------------------------------

    \4\ 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.
    \5\ The Exchange is also proposing to remove the asterisk 
accompanying the current Tier 3 rebate.
---------------------------------------------------------------------------

    Second, the Exchange currently charges a QMM a fee of $0.00295 per 
share executed for orders in securities listed on exchanges other than 
Nasdaq priced at $1 or more per share that access liquidity on the 
Nasdaq Market Center; provided, however, that 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) is not less 
than 0.85%. The Exchange also charges a $0.0029 per share executed fee 
to QMMs that meet the criteria of Tier 2 or Tier 3 for orders in 
securities listed on exchanges other than Nasdaq priced at $1 or more 
per share that access liquidity on the Nasdaq Market Center if the QMM 
has a combined Consolidated Volume (adding and removing liquidity) of 
at least 3.7% and MOC/LOC volume greater than 0.25% of Consolidated 
Volume. The Exchange proposes to modify the requirements for charging a 
QMM a fee of $0.00295 per share

[[Page 56664]]

executed by increasing the volume of liquidity added from 0.85% to 
1.00% during the month (as a percentage of Consolidated Volume). 
Additionally, the Exchange proposes to modify the requirements for 
charging a fee of $0.0029 per share executed to a QMM that meets the 
criteria of Tier 2 by increasing the required MOC/LOC volume from 0.25% 
to 0.35% of Consolidated Volume, and introducing a new requirement of 
providing 0.15% or more of Consolidated Volume through midpoint orders. 
The Exchange also proposes to remove the reference to Tier 3 and make a 
technical modification by changing the 3.7% qualification requirement 
for the $0.0029 fee to 3.70%. By modifying the requirements for members 
to qualify for the lower fee, the Exchange will incentivize members to 
increase their liquidity, which will promote price discovery and 
transparency.
Changes to Section 118
    The Exchange is also proposing to amend the schedule of fees and 
credits provided to member organizations, pursuant to Equity 7, Section 
118(a), in several respects and amend the Tier A closing cross fees, 
pursuant to Section 118(d).
    First, the Exchange proposes to amend Section 118(a) to charge a 
fee of $0.0020 to a member entering RTFY orders that remove liquidity 
from Nasdaq Market Center or that execute in a venue other than the 
Nasdaq Market Center and has less than a 75% ratio of its RTFY 
liquidity adding activity to its RTFY total volume. The proposed fee 
would be applicable to Tape A, Tape B and Tape C and would only apply 
to orders submitted with the RTFY \6\ routing option. By proposing a 
new fee for participants that have less than a 75% ratio \7\ of its 
RTFY liquidity adding activity to its RTFY total volume, the Exchange 
hopes to incentivize participants to increase their RTFY liquidity 
adding activity rather than removing liquidity or submitting orders 
that route outside of the Exchange. The Exchange also proposes to make 
a non-substantive change to add the word ``other'' to the RTFY fees 
that remain at $0.0000 per share executed.
---------------------------------------------------------------------------

    \6\ 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 
4748(a)(1)(v)(b).
    \7\ The ratio is calculated by dividing the participant's RTFY 
liquidity adding activity on Nasdaq by the participant's total RTFY 
volume executed on all venues.
---------------------------------------------------------------------------

    Second, the Exchange proposes to lower the $0.0030 per share 
executed credit in Section 118(a) to $0.0029 per share executed for a 
member with shares of liquidity provided in all securities through one 
or more of its Nasdaq Market Center MPIDs that represent 0.625% or more 
of Consolidated Volume during the month, including shares of liquidity 
provided with respect to securities that are listed on exchanges other 
than Nasdaq or NYSE that represent 0.15% or more of Consolidated 
Volume. The proposed change would be applicable to Tape A, Tape B and 
Tape C. Although the Exchange is lowering the credit, it is providing 
members with three additional new credit options as discussed below.
    Third, the Exchange proposes to add three new credits in Section 
118(a). The Exchange proposes to adopt a credit of $0.00295 per share 
executed across Tapes A, B and C to a member (i) with shares of 
liquidity provided in all securities through one or more of its Nasdaq 
Market Center MPIDs that represent 0.70% or more of Consolidated Volume 
during the month; (ii) executes 0.20% or more of Consolidated Volume 
during the month through providing midpoint orders and through MELO; 
and (iii) removes at least 1.10% of Consolidated Volume during the 
month. The Exchange also proposes to adopt a credit of $0.0030 per 
share executed across Tapes A, B and C to a member with shares of 
liquidity provided in all securities through one or more of its Nasdaq 
Market Center MPIDs that represent 1.30% or more of Consolidated Volume 
during the month, which includes shares of liquidity provided with 
respect to securities that are listed on exchanges other than Nasdaq or 
NYSE that represent 0.40% or more of Consolidated Volume. The Exchange 
also proposes to add a $0.00075 per share executed credit for Tape C 
securities for certain non-displayed orders that provide liquidity if 
the member, during the month (i) provides 0.90% or more of Consolidated 
Volume; (ii) increases providing liquidity through non-displayed orders 
(other than midpoint orders) by 10% or more relative to the member's 
July 2020 Consolidated Volume provided through non-displayed orders 
(other than midpoint orders) and; (iii) provides 0.20% or more 
Consolidated Volume through non-displayed orders (other than midpoint 
orders). The Exchange believes that the availability of the three new 
credits will incentivize members to increase their liquidity adding and 
removing activity on the Exchange in order to attain one of the new 
credits. An increase in liquidity adding and removing activity on the 
Exchange would help to improve the quality of the market for all 
participants.
    Fourth, the Exchange currently provides a credit of $0.0030 per 
share executed in Section 118(a) to a member with shares of liquidity 
provided in all securities through one or more of its Nasdaq Market 
Center MPIDs that represent more than 0.75% of Consolidated Volume 
during the month and provides a daily average of at least 5 million 
shares of non-displayed liquidity. The Exchange proposes to amend the 
qualifications by increasing the volume threshold from 0.75% to 1.00%. 
The Exchange also proposes to remove the requirement for providing a 
daily average of at least 5 million shares of non-displayed liquidity 
and to add a requirement that a member's non-displayed liquidity 
provided in all securities through one or more of its Nasdaq Market 
Center MPIDs represents more than 0.25% of Consolidated Volume.
    Lastly, the Exchange currently charges a Tier A fee of $0.0008 per 
executed share in Section 118(d) for Market-on-Close and Limit-on-Close 
(``MOC/LOC'') orders for members with shares of liquidity provided in 
all securities through one or more of its Nasdaq Market Center MPIDs 
that represent above 1.80% of Consolidated Volume or MOC/LOC volume 
above 0.50% of Consolidated Volume. Additionally, the Exchange 
currently charges a Tier B fee of $0.0011 per executed share in Section 
118(d) for MOC and LOC orders for members with shares of liquidity 
provided in all securities through one or more of its Nasdaq Market 
Center MPIDs that represent above 0.80% to 1.80% of Consolidated Volume 
or MOC/LOC volume above 0.30% to 0.50% of Consolidated Volume. The 
Exchange proposes to lower the volume threshold from 1.80% to 1.75% for 
Tier A and proposes to make a conforming change for Tier B. Similarly 
to lowering the volume threshold for credits, by lowering the volume 
threshold from 1.80% to 1.75%for charging the fee, the Exchange hopes 
to incentivize members who are close to, but currently do not meet the 
1.75% threshold to increase their liquidity in order to qualify for the 
lower fee.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b)

[[Page 56665]]

of the Act,\8\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\9\ 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. The proposal is also consistent with 
Section 11A of the Act relating to the establishment of the national 
market system for securities.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

The Proposal Is Reasonable
    The Exchange's proposed changes to its schedule of fees and credits 
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'. . . .'' \10\
---------------------------------------------------------------------------

    \10\ 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)).
---------------------------------------------------------------------------

    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.'' \11\
---------------------------------------------------------------------------

    \11\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
---------------------------------------------------------------------------

    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. 
\12\
---------------------------------------------------------------------------

    \12\ As an example, CBOE EDGX provides a standard rebate for 
liquidity adders of $0.00170 per share executed (or between $0.0020 
and $0.0029) per share executed if a member qualifies for a volume 
tier.
---------------------------------------------------------------------------

    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. As such, the 
proposal represents a reasonable attempt by the Exchange to increase 
its liquidity and market share relative to its competitors.
    The Exchange has designed its proposed schedule of credits and 
charges to provide increased overall incentives to members to increase 
their liquidity removal and adding activity on the Exchange. An 
increase in liquidity removal and adding activity on the Exchange will, 
in turn, improve the quality of the Nasdaq market and increase its 
attractiveness to existing and prospective participants. Generally, the 
proposed new credits and charges will be comparable to, if not 
favorable to, those that its competitors provide.\13\
---------------------------------------------------------------------------

    \13\ Id.
---------------------------------------------------------------------------

    Moreover, the Exchange believes that it is reasonable to modify 
certain fees and credits within its fee schedule as a means of 
incentivizing market participants to increase their contributions to 
the improvement of the quality of the Exchange.
    In particular, the Exchange believes that it is reasonable to 
create a stricter qualification for the additional rebate of $0.00005 
per share executed for a QMM and to apply the qualifications to each 
MPID because the activity of QMMs that currently qualify for the Tier 3 
credit has grown, such that an increase in credit qualifying criteria 
is needed to ensure that this credit remains relevant to current levels 
of liquidity providing activity on the Exchange and continues to 
incentivize QMMs to provide liquidity and quote at the NBBO in more 
securities. To the extent that this proposal results in an increase in 
liquidity adding and quoting activity on the Exchange, this will 
improve the quality of the Nasdaq market and increase its 
attractiveness to existing and prospective participants. Additionally, 
the Exchange believes it is reasonable to increase the volume threshold 
for the QMM fees. By increasing the volume threshold and adding a new 
threshold requirement for liquidity adding activity to qualify for the 
lower fee, the Exchange hopes to incentivize liquidity adding activity 
on the Exchange.
    The Exchange also believes that it is reasonable to charge a fee of 
$0.0020 per share executed in Section 118(a) to a member entering RTFY 
orders that remove liquidity from Nasdaq Market Center or that execute 
on a venue other than the Nasdaq Market Center and has less than a 75% 
ratio of its RTFY liquidity adding activity to its RTFY total volume. 
Since the inception of the RTFY routing option, there has been no 
charge to participants entering RTFY orders even if the order 
ultimately executes on the Exchange.\14\ Retail order flow firms 
benefit from the RTFY routing option by not incurring liquidity removal 
fees while obtaining potential price improvements and better execution 
quality. By proposing a new fee for participants that have less than a 
75% ratio of its RTFY liquidity adding activity to its RTFY total 
volume, the Exchange hopes to incentivize participants to increase 
their RTFY liquidity adding activity rather than removing liquidity or 
submitting orders that route outside of the Exchange.
---------------------------------------------------------------------------

    \14\ See Securities Exchange Act Release No. 75987 (September 
25, 2015), 80 FR 59210 (October 1, 2015) (SR-Nasdaq-2015-112).
---------------------------------------------------------------------------

    The Exchange believes that it is reasonable to lower the $0.0030 
per share executed credit in Section 118(a) to $0.0029 per share 
executed because the Exchange is proposing three new credit options for 
members to qualify for.
    Moreover, the Exchange believes it is reasonable to add three new 
credits to Section 118(a). The Exchange believes that the availability 
of the three new credits will incentivize members to increase their 
liquidity adding and removing activity on the Exchange in order to 
attain one of the new credits. An increase in liquidity adding and 
removing activity on the Exchange would help to improve the quality of 
the market for all participants.
    Additionally, the Exchange believes that it is reasonable to modify 
the Section 118(a) requirements for the credit of $0.0030 per share 
executed by increasing the volume threshold from 0.75% to 1.00% and 
removing the requirement for providing a daily average of at least 5 
million shares of non-displayed liquidity and adding a requirement that 
a member's non-

[[Page 56666]]

displayed liquidity provided in all securities through one or more of 
its Nasdaq Market Center MPIDs represents more than 0.25% of 
Consolidated Volume. By increasing the volume threshold for displayed 
liquidity and changing the requirement for the shares of non-displayed 
liquidity, the Exchange believes it will incentivize members to 
increase the extent of their liquidity adding activity on the Exchange 
to qualify for and to continue to qualify for this credit.
    Similarly to lowering the volume threshold for credits, the 
Exchange believes that it is reasonable to lower the volume threshold 
in Section 118(d) for MOC and LOC fees from 1.80% to 1.75% for Tiers A 
and B because the Exchange hopes to incentivize members who are close 
to, but currently do not meet the 1.75% threshold to increase their 
liquidity in order to qualify for the lower fee.
    To the extent that these proposed changes lead to an increase in 
overall liquidity activity on the Exchange and more competitive 
pricing, this will improve the quality of the Exchange's market and 
increase its attractiveness to existing and prospective participants. 
The Exchange notes that those market participants that are dissatisfied 
with the new fees or credits are free to shift their order flow to 
competing venues that offer them lower charges or higher credits.
The Proposal Is an Equitable Allocation of Credits
    The Exchange believes its proposal will allocate its credits and 
fees fairly among its market participants. The proposal will amend the 
$0.00005 per share executed credit for QMMs in Section 114 to allow a 
QMM to qualify at the MPID level. It is equitable to make the 
qualification requirement in Section 114 stricter for the additional 
rebate of $0.00005 per share executed for QMMs as a means of ensuring 
the credit remains relevant to current levels of liquidity providing 
activity on the Exchange. By amending the credit to allow a QMM to 
qualify at the MPID level, the Exchange intends to provide a further 
incentive for members to increase their activity on the Exchange that 
is attributable to adding liquidity and quoting at the NBBO. An 
increase in liquidity providing activity on the Exchange will improve 
the quality of the Nasdaq market and increase its attractiveness to 
existing and prospective participants.
    Furthermore, the Exchange also believes that it is equitable to 
establish three new credits in Section 118(a). In particular, the 
Exchange believes that it is equitable to establish a new $0.00295 per 
share executed credit in Tapes A, B and C and a new $0.0030 per share 
executed credit in Tapes A, B and C as a means of incentivizing members 
to provide and remove meaningful amounts of liquidity to the Exchange. 
To the extent that the Exchange succeeds in increasing liquidity adding 
and removal activity on the Exchange and in attracting additional order 
flow, then the Exchange would experience improvements in its market 
quality, which would benefit all market participants. Further, the 
Exchange believes it is equitable to lower the $0.0030 per share 
executed credit to $0.0029 because the Exchange has added two new 
credits with the Exchange's goal to promote increased liquidity. An 
increase in overall liquidity adding activity on the Exchange will 
improve the quality of the Nasdaq market and increase its 
attractiveness to existing and prospective participants.
    Lastly, the Exchange believes it is equitable to provide a $0.00075 
per share executed credit for other non-displayed orders in Tape C 
securities. The Exchange believes it is equitable for the Exchange to 
propose a credit for members with non-displayed orders in securities in 
Tapes C due to the Exchange's goal to specifically promote increased 
liquidity in securities in Tape C. Additionally, the Exchange has not 
seen the level of volume in Tape C that it has expected. An increase in 
overall liquidity adding activity on the Exchange will improve the 
quality of the Nasdaq market and increase its attractiveness to 
existing and prospective participants.
The Proposal Is an Equitable Allocation of Fees
    The Exchange believes its proposal will allocate its fees fairly 
among its market participants. It is equitable to modify the fees to 
members who execute MOC and LOC orders in the closing cross in Section 
118(d) and the fees to members whose RTFY orders remove liquidity or 
are routed out of the Exchange.
    In particular, the Exchange believes it is equitable for the 
Exchange to charge a fee of $0.0020 to a member entering RTFY orders 
that remove liquidity from Nasdaq Market Center or that execute in a 
venue other than the Nasdaq Market Center and has less than a 75% ratio 
of its RTFY liquidity adding activity to its RTFY total volume. By 
adding this fee, the Exchange hopes to incentivize participants to 
increase their RTFY liquidity adding activity rather than removing 
liquidity or submitting orders that route outside of the Exchange. 
Additionally, the Exchange believes that the fee will encourage market 
participants to increase their liquidity adding activity.
    Additionally, it is equitable for the Exchange to lower the volume 
threshold for obtaining the $0.0008 per executed share fee for MOC and 
LOC orders by incentivizing members to increase their liquidity in 
order to qualify for the lowest closing cross fee offered by the 
exchange.
    Furthermore, it is equitable for the Exchange to increase the 
volume threshold and add a new threshold requirement for QMM liquidity 
adding activity to qualify for the lower fees because increasing the 
volume threshold, the Exchange hopes to incentivize liquidity adding 
activity on the Exchange.
The Proposed Amended Credits Are Not Unfairly Discriminatory
    The Exchange believes that the proposal is 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.
    Although Section 114(e) of the Exchange's proposal to allow a QMM 
to qualify for an additional $0.00005 per share executed credit will 
require that a QMM meet the criteria at the MPID level, any resulting 
increase in liquidity on the Exchange will improve market-wide quality 
and price discovery, to the benefit of all participants. Moreover, to 
the extent that the proposal causes members to increase the extent of 
their liquidity adding and quoting activity on the Exchange, the 
Exchange market quality will improve, and all market participants will 
benefit. Moreover, any market participant that does not wish to receive 
lower a credit is free to shift its order flow to a competing venue.
    The Exchange also believes that its three proposed new credits in 
Section 118(a) are not unfairly discriminatory.

[[Page 56667]]

These proposed credits stand to improve the overall market quality of 
the Exchange, to the benefit of all market participants, by 
incentivizing members to provide meaningful amounts of liquidity to the 
Exchange, including in securities in Tape C. Additionally, it is not 
unfairly discriminatory to target the $0.00075 per share executed 
credit in Tape C, in part, to increase activity in other non-displayed 
orders, because attracting additional order flow stands to benefit all 
market participants. Likewise, it is not unfairly discriminatory to 
target the $0.00075 per share executed credit, in part, to liquidity 
adding activity in securities in Tape C, because the Exchange believes 
that the market for such securities would benefit from additional 
liquidity. As discussed above the Exchange has not seen the level of 
volume in Tape C that it has expected. The Exchange notes that it has 
limited funds to apply in the form of incentives, and thus must deploy 
those limited funds to incentives that it believes will be the most 
effective at improving market quality in areas that the Exchange 
determines are in need of improvement.
The Proposed Amended Fees Are Not Unfairly Discriminatory
    The Exchange believes that the proposal is not unfairly 
discriminatory. Nasdaq currently charges a QMM a fee of $0.0030 per 
share executed for orders in Nasdaq-listed securities priced at $1 or 
more per share that access liquidity on the Nasdaq Market Center. The 
Exchange currently charges a QMM a fee of $0.00295 per share and 
$0.0029 per share if the QMM meets certain volume thresholds. It is not 
unfairly discriminatory for the Exchange to increase the volume 
thresholds for these fees and and to add a new volume thresholds for 
the $0.0029 per share fee because an increase in overall liquidity 
adding activity on the Exchange will improve the quality of the Nasdaq 
market and increase its attractiveness to existing and prospective 
market participants.
    The Exchange does not believe that it is discriminatory to charge a 
fee of $0.0020 to a member entering RTFY orders that remove liquidity 
Nasdaq Market Center or that execute in a venue other than the Nasdaq 
Market Center and has less than a 75% ratio of its RTFY liquidity 
adding activity to its RTFY total volume. The Exchange is proposing to 
add the fee to Tapes A, B and C. By adding this fee related to RTFY 
volume, the Exchange hopes to incentivize participants to increase 
their RTFY liquidity adding activity rather than removing liquidity or 
submitting orders that route outside of the Exchange. Similarly, the 
Exchange does not believe it is discriminatory to lower the volume 
threshold for obtaining the $0.0008 per executed share fee for MOC and 
LOC orders because it will incentivize members to increase their 
liquidity adding activity in order to obtain the lower fee, which 
enhances price discovery, and improves the overall quality of the 
equity markets.
    Moreover, any market participant that does not wish to pay higher 
charges is free to shift its order flow to a competing venue.

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.
Intramarket Competition
    The Exchange does not believe that its proposals will place any 
category of Exchange participant at a competitive disadvantage. To the 
contrary, the proposed changes will provide opportunities for members 
to receive new and amended credits or lower fees based on their market-
improving behavior. Any member may elect to provide the levels of 
market activity required in order to receive the new or amended credits 
or lower fees. Furthermore, all members of the Exchange will benefit 
from any increase in market activity that the proposals effectuates.
    Moreover, members are free to trade on other venues to the extent 
they believe that the credits provided are too low or the qualification 
criteria 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 fee and credit changes. The Exchange notes that the tier structure 
is consistent with broker-dealer fee practices as well as the other 
industries, as described above.
Intermarket Competition
    The Exchange believes that its proposed modification to its 
schedule of credits will not impose a burden on competition because the 
Exchange's execution services are completely voluntary and subject to 
extensive competition both from the other 12 live exchanges and from 
off-exchange venues, which include 34 alternative trading systems. 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 and 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 fees in response, and because market participants may readily 
adjust their order routing practices, the Exchange believes that the 
degree to which fee and credit changes in this market may impose any 
burden on competition is extremely limited.
    The proposed amended fees and credits are reflective of this 
competition because, even as one of the largest U.S. equities exchanges 
by volume, the Exchange has less than 18% 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 fee and credit changes. This is in 
addition to free flow of order flow to and among off-exchange venues 
which comprised more than 43% of industry volume for the month of July 
2020.
    The Exchange's proposals are pro-competitive in that the Exchange 
intends for them to increase liquidity on the Exchange and thereby 
render 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 56668]]

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,\15\ 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.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

    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-2020-059 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-2020-059. 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-2020-059 and should be submitted 
on or before October 5, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-20126 Filed 9-11-20; 8:45 am]
BILLING CODE 8011-01-P


