[Federal Register Volume 85, Number 202 (Monday, October 19, 2020)]
[Notices]
[Pages 66379-66384]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-23015]



[[Page 66379]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90164; File No. SR-NASDAQ-2020-067]


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

October 13, 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 October 1, 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.
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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 (i) amend the Exchange's additional rebate 
to Qualified Market Maker (``QMM'') at Equity 7, Section 114(e); (ii) 
remove a rebate provided through the Nasdaq Growth Program at Equity 7, 
Section 114(j); and (iii) establish and amend certain credits and fees 
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
    The purpose of the proposed rule change is to make modifications to 
the Exchange's pricing schedule in a further attempt to improve the 
attractiveness of the market to new and existing market participants. 
Accordingly, the Exchange proposes to amend its schedule of fees and 
credits pursuant to Equity 7, Section 114 and Section 118 in several 
respects. The Exchange also proposes to make certain non-substantive 
changes to Equity 7, Section 118.
Changes to Section 114
    Currently, the Exchange provides an additional rebate of $0.00005 
per share executed when a QMM's MPID meets certain requirements in 
Section 114(e). The Exchange is proposing to amend the rebate to 
provide $0.000075 per share executed in Tapes A and C, while 
maintaining the current rebate amount for Tape B in order to 
incentivize firms to increase their liquidity providing activity on the 
Exchange, thereby encouraging market quality.
    The Nasdaq Growth Program discussed in Section 114(j), which was 
established in 2016,\3\ presently provides a member with credits of 
$0.0025 per share executed and a $0.0027 per share executed to 
qualified members. The credit of $0.0027 per share executed was 
introduced in 2017 to provide members with additional flexibility in 
qualifying for the Growth Program and incentive to provide greater 
Consolidated Volume, thereby furthering the Growth Program's goal of 
incentivizing participation on the Exchange.\4\ The Exchange proposes 
to eliminate the credit of $0.0027 per share executed because the 
thresholds for the pricing incentive is no longer effective in 
incentivizing liquidity adding activity.
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    \3\ See Securities Exchange Act Release No. 78977 (September 29, 
2016), 81 FR 69140 (October 5, 2016) (SR-NASDAQ-2016-132).
    \4\ See Securities Exchange Act Release No. 80997 (June 22, 
2017), 82 FR 29348 (June 28, 2017) (SR-NASDAQ-2017-060).
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Changes to Section 118(a)
    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.
    First, by way of background, when the Exchange initially 
established the RTFY order type,\5\ the Exchange explained that it 
would allow Designated Retail Orders to post on the exchange or be 
routed externally to seek price improvement. The Exchange routes to 
several destinations that are ineligible for a protected quotation 
under Regulation NMS when seeking price improvement. Over time the 
Exchange has seen more orders remove liquidity on Nasdaq and route to 
other exchanges. When introduced, the fees associated with removing 
liquidity on Nasdaq and routing away were covered by the Exchange as a 
promotion to incentivize usage of the order type. Since its inception, 
RTFY has become more widely used and the Exchange has waived more fees 
for removing liquidity on Nasdaq and incurred more fees for routing to 
other exchanges. As a result, the Exchange established a $0.0020 per 
share executed fee in August 2020.\6\
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    \5\ RTFY is a routing option designed to enhance execution 
quality and benefit retail investors by providing price improvement 
opportunities to retail order flows. This routing strategy is 
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)(A)(v)(b).
    \6\ See Securities Exchange Act Release No. 89781 (September 8, 
2020), 85 FR 56663 (September 14, 2020) (SR-NASDAQ-2020-059).
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    Currently, the Exchange charges a fee of $0.0020 per share executed 
to a member entering RTFY orders that remove liquidity from the 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 fee is applicable to Tape A, 
Tape B and Tape C and only applies to orders submitted with the RTFY 
routing option. The Exchange continued to charge a $0.0000 per share 
executed fee to other members entering a RTFY order that removes 
liquidity on the Nasdaq Market Center or executes in a venue other than 
the Nasdaq Market Center.
    The Exchange is proposing to increase the fee to $0.0030 per share 
executed and to amend the requirement by charging a member for shares 
executed above 4 million shares during the month for RTFY orders that 
remove liquidity from the Nasdaq Market Center or that execute in a 
venue with a protected quotation under Regulation NMS other than the 
Nasdaq Market Center. Although the Exchange will continue to not charge 
a fee for RTFY orders in all other instances, the Exchange is also

[[Page 66380]]

proposing to amend the descriptions of its two RTFY fees of $0.0000 per 
share executed, to reflect that members will not incur a fee for shares 
up to 4 million, during the month, that remove from the Exchange or a 
venue with a protected quotation under Regulation NMS, or if executed 
in a venue ineligible for a protected quotation under Regulation NMS.
    Second, the Exchange currently provides a $0.0029 per share credit 
to members with shares of liquidity provided in all securities through 
one or more of its Nasdaq Market Center MPIDs that represent more than 
0.40% 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 more than 0.10% of 
Consolidated Volume. The Exchange is proposing to amend the threshold 
for the $0.0029 per share executed credit to apply to a member (i) with 
shares of liquidity provided in all securities through one or more of 
its Nasdaq Market Center MPIDs that represent more than 0.50% 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 more than 0.10% of Consolidated 
Volume, and (ii) with a ratio of at least 15% volume that sets the NBBO 
provided through one or more of its Nasdaq Market Center MPIDs to all 
displayed volume that provides liquidity through one or more of its 
Nasdaq Market Center MPIDs during the month. This change will apply to 
Tapes A, B and C. The Exchange hopes that this proposed amendment will 
incentivize firms to increase their liquidity providing activity on 
Nasdaq, to set the NBBO, and will promote tighter spreads and improve 
market quality.
    Third, the Exchange proposes to add a new supplemental credit for 
displayed quotes/orders (other than Supplemental Orders \7\ or 
Designated Retail Orders) that provide liquidity. The proposed credit 
would provide $0.000025 per share executed to a member with (i) shares 
of liquidity provided in Tape A securities during the month 
representing at least 1.40% of Consolidated Volume during the month, 
and (ii) shares of liquidity provided in Tape C representing at least 
1.40% of Consolidated Volume during the month. This supplemental credit 
only applies to Tapes A and C securities because the Exchange hopes to 
incentivize firms to increase their display liquidity added in Tapes A 
and C securities.
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    \7\ A Supplemental Order is an Order Type with a Non-Display 
Order Attribute that is held on the Nasdaq Book in order to provide 
liquidity at the NBBO through a special execution process described 
in Rule 4757(a)(1)(D). See Rule 4702(b)(6).
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    Fourth, the Exchange proposes in Section 118(a) to add two new 
credits across Tapes A, B and C for certain non-displayed orders (other 
than Supplemental Orders) that provide liquidity. The Exchange proposes 
to adopt a credit for such non-displayed orders if the member, during 
the month (i) provides 0.30% or more of Consolidated Volume through 
non-displayed orders (including midpoint orders) and through M-ELO 
orders; and (ii) increases providing liquidity through non-displayed 
orders (including midpoint orders) and through M-ELO orders by 0.06% or 
more relative to the member's August 2020 Consolidated Volume provided 
through non-displayed orders (including midpoint orders) and through M-
ELO (``credit 1''). Additionally, the Exchange proposes to adopt a 
credit for such non-displayed orders if the member, during the month 
(i) provides 0.30% or more of Consolidated Volume through non-displayed 
orders (including midpoint orders) and through M-ELO orders; and (ii) 
increases providing liquidity through non-displayed orders (including 
midpoint orders) and through M-ELO orders by 0.10% or more relative to 
the member's August 2020 Consolidated Volume provided through non-
displayed orders (including midpoint orders) and through M-ELO 
(``credit 2''). The Exchange will provide a credit of $0.00075 per 
share executed to Tape C and a credit of $0.0010 per share executed to 
Tapes A and B for credit 1. The Exchange will provide a credit of 
$0.0010 per share executed to Tape C and a credit of $0.00125 per share 
executed to Tapes A and B for credit 2. The Exchange hopes that by 
proposing these new credits it will incentive firms to increase their 
non-display volume on the Exchange.
    Lastly, the Exchange is making certain non-conforming changes to 
remove the duplicative words ``during the month'' from the $0.0027 per 
share executed credit to members for displayed quotes/orders (other 
than Supplemental Orders or Designated Retail Orders) that provide 
liquidity in Tape A. Additionally, the Exchange is adding the word 
``and'' to the $0.0025 per share executed credit for non-displayed 
orders (other than Supplemental Orders) that provide liquidity in Tape 
B.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) 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.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4) and (5).
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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\
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    \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)).
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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

[[Page 66381]]

broader forms that are most important to investors and listed 
companies.'' \11\
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    \11\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    Numerous indicia demonstrate the competitive nature of this market. 
For example, clear substitutes to the Exchange exist in the market for 
equity security transaction services. The Exchange is only one of 
several equity venues to which market participants may direct their 
order flow. Competing equity exchanges offer similar tiered pricing 
structures to that of the Exchange, including schedules of rebates and 
fees that apply based upon members achieving certain volume 
thresholds.\12\
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    \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.
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    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\ 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.
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    \13\ See n. 12, supra.
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    In particular, the Exchange believes that it is reasonable to 
increase the additional QMM credit of $0.00005 per share executed to 
$0.000075 per share executed for Tapes A and C in Section 114(e) 
because with the launch of new exchanges this month, the Exchange hopes 
to incentivize participants to maintain or increase their liquidity 
adding activity and quoting at the NBBO in Tapes A and C. 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 remove the 
credit of $0.0027 per share executed for the Nasdaq Growth Program in 
Section 114(j) because the credit did not accomplish the growth in 
activity as originally intended because the thresholds for the pricing 
incentive is no longer effective in incentivizing liquidity adding 
activity.\14\ It is reasonable to evaluate and update the Exchange's 
fee schedule to reflect the fees and rebates that are effective for the 
Exchange and market participants.
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    \14\ See n. 4, supra.
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    The Exchange also believes it is reasonable to adjust the fee and 
the qualifications for RTFY orders. Until August 2020,\15\ there had 
been no charge to participants entering RTFY orders because there were 
no fees charged to participants for removing liquidity from the 
Exchange and fees charged by other venues with a protected quotation 
under Regulation NMS for RTFY orders that are routed away to other 
venues were covered by the Exchange as a promotion to incentivize usage 
of the order type. Given that RTFY orders have become more widely used 
and as a result, the Exchange has waived more fees for removing 
liquidity from the Exchange and incurred more costs for covering the 
fees for routing to other venues with a protected quotation under 
Regulation NMS, the Exchange believes that it is reasonable to amend 
its RTFY fees to cap the number of executed RTFY shares that members 
receive for free when such orders remove liquidity from the Nasdaq 
Market Center or execute in a venue with a protected quotation under 
Regulation NMS. Similarly, the Exchange believes that it is reasonable 
to amend the RTFY fee qualifications for the $0.0000 per share executed 
to align with the qualifications for the proposed $0.0030 per share 
executed fee. The Exchange hopes to continue to encourage market 
participants to increase their RTFY usage while allowing the Exchange 
to mitigate the costs it incurs by capping the number of shares that 
members receive for free when such orders remove liquidity from the 
Nasdaq Market Center or execute in a venue with a protected quotation 
under Regulation NMS.
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    \15\ See n. 6, supra.
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    The Exchange also believes that it is reasonable to adjust the 
qualifications for the $0.0029 per share executed credit in Section 
118(a) provided to members for displayed quotes/orders (other than 
Supplemental Order or Designated Retail Orders \16\) that provide 
liquidity. The proposed change is intended to incentivize members to 
increase liquidity and set the NBBO, which will further improve overall 
market quality.
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    \16\ Pursuant to Rule Section 118, a ``Designated Retail Order'' 
is an agency or riskless principal order that meets the criteria of 
FINRA Rule 5320.03 and that originates from a natural person and is 
submitted to Nasdaq by a member that designates it pursuant to this 
section, provided that no change is made to the terms of the order 
with respect to price or side of market and the order does not 
originate from a trading algorithm or any other computerized 
methodology. An order from a ``natural person'' can include orders 
on behalf of accounts that are held in a corporate legal form--such 
as an Individual Retirement Account, Corporation, or a Limited 
Liability Company--that has been established for the benefit of an 
individual or group of related family members, provided that the 
order is submitted by an individual. Members must submit a signed 
written attestation, in a form prescribed by Nasdaq, that they have 
implemented policies and procedures that are reasonably designed to 
ensure that substantially all orders designated by the member as 
``Designated Retail Orders'' comply with these requirements. Orders 
may be designated on an order by-order basis, or by designating all 
orders on a particular order entry port as Designated Retail Orders.
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    Additionally, the Exchange believes it is reasonable to add three 
new credits to Section 118(a). The Exchange believes that the 
availability of the new $0.000025 per share executed supplemental 
credit for displayed quotes/orders (other than Supplemental Orders or 
Designated Retail Orders) that provide liquidity, as well as the two 
new credits for certain non-displayed orders (other than Supplemental 
Orders) that provide liquidity will incentivize members to increase 
their liquidity adding activity on the Exchange in order to qualify for 
the new credits. An increase in liquidity adding activity on the 
Exchange would help to improve the quality of the market for all 
participants. Moreover, the Exchange believes that it is reasonable to 
apply the supplemental credit only to Tapes A and C because the 
Exchange's goal is to promote increased liquidity in Tapes A and C and 
hopes to incentivize market participants to increase their liquidity 
adding activity by providing these additional credits. Similarly, the 
Exchange believes that it is reasonable to provide a higher credit 
certain for non-displayed orders (other than Supplemental Orders) that 
provide liquidity in Tapes A and B due to the Exchange's goal to 
specifically promote increased non-displayed order liquidity in 
securities in these Tapes because the Exchange is not seeing the level 
of liquidity that it expected in Tapes A and B.

[[Page 66382]]

The Proposal Is an Equitable Allocation of Fees and Credits
    The Exchange believes its proposal will allocate its credits and 
fees fairly among its market participants.
    In particular, it is equitable to increase the additional credit in 
Section 114(e) for QMMs in securities in Tapes A and C in order to 
incentivize members to increase their liquidity adding activity in 
those Tapes because the Exchange is not seeing the volume that it had 
hoped to see in Tapes A and C. Moreover, the fees will be applied 
uniformly to all QMMs.
    The Exchange also believes that it is equitable to increase certain 
fees and qualifications for RTFY orders in Section 118(a) because the 
Exchange must balance providing a variety of order types, including 
order types that allow market participants to remove liquidity and 
route orders out of the Exchange, while ensuring that the Exchange is 
not incurring significant costs as a result of providing a discounted 
fee. Additionally, the Exchange is assessed various fees for the 
execution of such orders at away venues and the proposed fee is 
reflective of the value provided by the Exchange in providing this 
functionality and the overall fees assessed by such venues. Moreover, 
the fee and qualifications will apply uniformly to all participants 
that enter RTFY orders.
    Moreover, it is equitable for the Exchange to remove the $0.0027 
per share executed credit from the Growth Program in Section 114(j) 
because, discussed above, the credit did not accomplish the growth in 
activity as originally intended. When the fees and credits of the 
Exchange are not meeting their expected goals, it is reasonable for the 
Exchange to re-evaluate them, and equitable for the Exchange to amend 
its fees and credits for all members.
    Furthermore, it is equitable for the Exchange to adjust the 
qualifications for the $0.0029 per share executed credit for displayed 
quotes/orders (other than Supplemental Orders and Designated Retail 
Orders). The Exchange provides credits with varying qualifications to 
provide its members with various ways for obtaining the credit. The 
Exchange believes that it is equitable to adjust the qualifications for 
a credit in order to incentivize an increase in liquidity adding 
activity and setting the NBBO on the Exchange. As discussed above, 
greater liquidity on the Exchange will further improve overall market 
quality.
    The Exchange also believes that it is equitable to establish new 
credits in Section 118(a). In particular, the Exchange believes it is 
equitable to establish a new supplemental credit for members that 
provide liquidity for displayed quotes/orders (other than Supplemental 
Orders or Designated Retail Orders). Additionally, the Exchange 
believes that it is equitable for the Exchange to establish two new 
credits for members that provide liquidity for certain non-displayed 
orders (other than Supplemental Orders). The Exchange hopes that these 
credits will increase the incentive for participants to add 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. Moreover, the 
Exchange believes it is equitable to apply the $0.000025 per share 
executed credit to Tapes A and C for members that provide liquidity for 
displayed quotes/orders (other than Supplemental Orders or Designated 
Retail Orders) because it is the Exchange's goal to specifically 
promote increased liquidity in securities in Tapes A and C for 
displayed quotes/orders (other than Supplemental Orders or Designated 
Retail Orders). Additionally, the Exchange believes that it is 
equitable to provide a higher credit to members with certain non-
displayed orders (other than Supplemental Orders) in securities in Tape 
A and B due to the Exchange's goal to specifically promote increased 
non-displayed order liquidity in securities in these tapes. 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 Proposed Amended Fees and 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.
    The Exchange intends for its proposal to improve market quality for 
all members on the Exchange and by extension attract more liquidity to 
the market, improving market wide quality and price discovery. Net 
adders of liquidity to the Exchange stand to benefit directly from the 
proposed changes. Moreover, to the extent that the proposed changes 
increase liquidity adding and removing activity on the Exchange, this 
will improve market quality and the attractiveness of the Nasdaq 
market, to the benefit of all existing and prospective participants.
    More particularly, to the extent that Section 114(e) of the 
Exchange's proposal to allow a QMM to qualify for a credit of $0.000075 
per share executed in Tapes A and C will result in an increase in 
liquidity on the Exchange, it 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 the 
higher credit is free to shift its order flow to a competing venue. 
Additionally, the proposal to remove the Growth Program $0.0027 per 
share executed credit in Section 114(j) is not unfairly discriminatory 
because the credit will be removed for all market participants given 
that it did not accomplish the growth in activity as originally 
intended.
    Additionally, the Exchange does not believe that the proposed RTFY 
fee increase in Section 118(a) is unfairly discriminatory because all 
members sending Designated Retail Orders to Nasdaq for execution are 
eligible to use RTFY. Each member may elect to use the RTFY routing 
strategy and to execute as many shares as the member sees fit. 
Furthermore, given that the Exchange only incurs a fee for RTFY orders 
that route and execute at venues with a protected quotation under 
Regulation NMS, the Exchange does not believe that it is unfairly 
discriminatory to not charge a fee for RTFY orders that route and 
execute at venues without a protected quotation under Regulation NMS 
because the Exchange is not charged a fee for those RTFY orders. 
Moreover, assessing different rates when a member elects to use a 
routing strategy but executes on the venue where the order was 
originally entered is not novel. For example, the Exchange charges fees 
ranging from $0.0030 per share executed to no charge to a member

[[Page 66383]]

entering an MIDP Order.\17\ The fees vary based on whether the MIDP 
Order routes and executes at venues with a protected quotation under 
Regulation NMS other than BX or Nasdaq, or whether the MIDP Order 
routes and executes at venues ineligible for a protected quotation 
under Regulation NMS.\18\ The charge for MIDP Orders that route and 
execute at venues with a protected quotation under Regulation NMS, 
other than BX or Nasdaq, is the same as the proposed charge for RTFY 
orders that route and execute at venues with a protected quotation 
under Regulation NMS. Therefore, the Exchange is not seeking to charge 
RTFY orders a greater amount than MIDP Orders; rather, the fees are 
comparable.
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    \17\ The MIDP routing option allows Nasdaq members to seek 
midpoint liquidity on Nasdaq and other markets on the Nasdaq system 
routing table.
    \18\ See Rule Equity 7, Section 118(a). See also Securities 
Exchange Act Release No. 87186 (October 1, 2019), 84 FR 53504 
(October 7, 2019) (SR-Nasdaq-2019-080).
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    Moreover, the Exchange does not believe that it is unfairly 
discriminatory to add new credits or to amend the qualifications for a 
member to obtain a current credit in Section 118(a) because to the 
extent that the proposal increases liquidity adding activity on the 
Exchange, this will result in improved market quality, which will 
benefit all existing and prospective participants.
    Furthermore, the Exchange does not believe it is unfairly 
discriminatory for the Exchange to propose a supplemental credit for 
members that provide liquidity for displayed quotes/orders (other than 
Supplemental Orders or Designated Retail Orders) in Tapes A and C 
because the Exchange seeks to promote increased liquidity adding 
activity specifically in securities in Tapes A and C. Similarly, the 
Exchange does not believe that it is unfairly discriminatory to provide 
a higher credit to QMMs who provide liquidity adding activity in Tapes 
A and C because the Exchange seeks to encourage liquidity adding 
activity and quoting at the NBBO by QMMs in Tapes A and C. Likewise, 
the Exchange does not believe that it is unfairly discriminatory to 
provide a higher credit for certain non-displayed orders (other than 
Supplemental Orders) that provide liquidity in Tapes A and B than it 
proposes for participants with orders in Tape C because the Exchange 
seeks to promote increased liquidity adding activity for certain non-
displayed orders (other than Supplemental Orders) specifically in 
securities in Tapes A and B.
    Finally, any participant that is dissatisfied with the proposed 
amended fees or credits is free to shift their order flow to competing 
venues that provide more favorable pricing or less stringent qualifying 
criteria.

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

    The Exchange does not believe that the proposed rule 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 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. Furthermore, 
all members of the Exchange will benefit from any increase in market 
activity that the proposals effectuates. Additionally, As discussed 
above, the $0.0027 per share executed Growth Program credit removal is 
applicable to all members and does not place anyone at a competitive 
disadvantage because the thresholds for the pricing incentive is no 
longer effective in incentivizing liquidity adding activity.
    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 14 live exchanges (soon to be 
16) 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 44% of industry volume for the month of 
August 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.

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,\19\ 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

[[Page 66384]]

member of the self-regulatory organization, which renders the proposed 
rule change effective upon filing.
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    \19\ 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-2020-067 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-2020-067. 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-2020-067 and should be submitted 
on or before November 9, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-23015 Filed 10-16-20; 8:45 am]
BILLING CODE 8011-01-P


