[Federal Register Volume 86, Number 31 (Thursday, February 18, 2021)]
[Notices]
[Pages 10134-10139]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-03212]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91107; File No. SR-NASDAQ-2021-006]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the Exchange's Transaction Credits at Equity 7, Sections 114 and 
118(a)

February 11, 2021.
    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 February 1, 2021, 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 credits 
at Equity 7, Sections 114 and 118(a), 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 amend the Exchange's 
schedule of credits, at Equity 7, Sections 114 and 118(a).
Proposed Changes to Qualified Market Maker Rebates
    Presently, in Equity 7, Section 114, the Exchange offers several 
special pricing programs that are based, in part, upon members' 
activities in securities priced at or more than $1 relative to total 
``Consolidated Volume.'' \3\ Among them is a program that provides 
rebates to Qualified Market Makers (``QMMs'').\4\ Pursuant to Equity 7, 
Section 114(e), a member that qualifies as a QMM is entitled to receive 
a rebate per share executed with respect to all displayed orders (other 
than Designated Retail Orders, as defined in Equity 7, Section 118) in 
securities priced at $1 or more per share that provide liquidity in 
each of Tapes A, B, and C. Such a rebate is in addition to any rebate 
payable under Equity 7, Section 118(a). Specifically, the Exchange 
offers several tiers of rebates to QMMs. Among them, it offers a Tier 1 
rebate of $0.0001 per share executed to any QMM that executes shares of 
liquidity provided in all securities through one or more of its Nasdaq 
Market Center MPIDs that represent above 0.70% up to, and including, 
0.90% of Consolidated Volume during the month. Additionally, the 
Exchange offers a Tier 2 rebate of $0.0002 per share executed to any 
QMM that executes shares of liquidity provided in all securities 
through one or more of its Nasdaq Market Center MPIDs that represent 
above 0.90% of Consolidated Volume during the month.
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    \3\ Pursuant to Equity 7, Section 114(h), the term 
``Consolidated Volume'' shares the meaning of that term set forth in 
Equity 7, Section 118(a). Equity 7, Section 118(a) defines 
``Consolidated Volume'' to mean the total consolidated volume 
reported to all consolidated transaction reporting plans by all 
exchanges and trade reporting facilities during a month in equity 
securities, excluding executed orders with a size of less than one 
round lot. For purposes of calculating Consolidated Volume and the 
extent of a member's trading activity the date of the annual 
reconstitution of the Russell Investments Indexes is excluded from 
both total Consolidated Volume and the member's trading activity.
    \4\ Pursuant to Equity 7, Section 114(d), a member may be 
designated as a QMM if: (1) The member is not assessed any ``Excess 
Order Fee'' under Equity 7, Section 118 during the month; and (2) 
the member quotes at the NBBO at least 25% of the time during 
regular market hours in an average of at least 1,000 securities per 
day during the month.
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    For the month of December 2020 only, the Exchange amended the 
definition of ``Consolidated Volume'' in Equity 7, Section 114,\5\ to 
account for an unexpected rise in sub-dollar trading which stood to 
adversely impact

[[Page 10135]]

members' qualifications for tiered pricing programs--including the QMM 
pricing program--because such qualifications depend upon members 
achieving threshold percentages of volumes as a percentage of 
Consolidated Volume, and the rise in sub-dollar volume had diluted 
these percentage calculations. Specifically, the Exchange amended the 
definition of ``Consolidated Volume'' to state that for purposes of 
determining which credits were applicable to a member during the month 
of December 2020, the Exchange would calculate the member's volume and 
total Consolidated Volume twice. First, it would calculate the member's 
volume and Consolidated Volume as presently set forth in Equity 7, 
Section 118(a). Second, it would calculate the member's volume and 
Consolidated Volume by excluding volume and Consolidated Volume that 
consists of executed orders in securities priced less than $1. 
Thereafter, the Exchange would evaluate which of these two member 
volume and Consolidated Volume calculations would qualify members for 
the most advantageous credits and charges for the month of December 
2020 and then it would apply those credits and charges to its members. 
Thus, if but for the rise of sub-dollar volume in December, a member 
would have qualified for a higher credit or a lower fee tier that 
month, then the Exchange would have applied that higher credit or lower 
fee tier to the member's trading activity during the month.
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    \5\ See Securities Exchange Act Release No. 34-90719 (December 
18, 2020), 85 FR 84437 (December 28, 2020) (SR-NASDAQ-2020-87).
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    In making this change, the Exchange reasoned that it would have 
been unfair for its members that execute significant dollar volumes in 
securities priced at or above $1 on the Exchange to fail to achieve or 
to lose their existing qualifications for special pricing in December 
2020 due to anomalous behavior to which they did not contribute. The 
Exchange noted that although the change applied only to pricing in 
December 2020, it would monitor sub-dollar volumes going forward, and 
assess whether additional pricing adjustments are warranted if sub-
dollar volumes remained elevated relative to the norm.
    In fact, the Exchange has observed that the rise in sub-dollar 
volume has not abated, and that it continues to threaten the ability of 
some Exchange members to qualify for their pricing tiers. In January 
2021, sub-dollar volume comprised 13.65 percent of Consolidated Volume. 
By comparison, sub-dollar volume comprised only 9.28 percent of 
Consolidated Volume, on average, during all of 2020. In particular, the 
sub-dollar phenomenon continues to threaten the ability of QMMs to 
attain their Tier 1 and Tier 2 credit tiers. In January 2021, several 
QMMs experienced these adverse impacts.
    Accordingly, the Exchange proposes to amend the definition of 
``Consolidated Volume'' in Equity 7, Section 114(h) to apply the 
December 2020 pricing formulation going forward for purposes of 
determining whether a QMM qualifies for Tier 1 or Tier 2 QMM 
rebates.\6\ That is, the Exchange will calculate a QMM's volume and 
total Consolidated Volume twice. First, it will calculate the QMM's 
volume and Consolidated Volume as presently set forth in Equity 7, 
Section 118(a). Second, with certain modifications discussed below, it 
will calculate the QMM's volume and Consolidated Volume by excluding 
volume and Consolidated Volume that consists of executed orders in 
securities priced less than $1. Thereafter, the Exchange will evaluate 
which of these two QMM volume and Consolidated Volume calculations 
would qualify QMMs for the most advantageous credit tier and then it 
will apply those credits.
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    \6\ The Exchange also proposes to delete rule text in Equity 7, 
Section 118 that set forth the same special methodology for 
calculating volumes as a percentage of Consolidated Volume during 
the month of December 2020. At this time, the Exchange does not 
propose to apply this special methodology beyond December 2020 to 
its schedule of transaction fees and credits, at Equity 7, Section 
118. This, for purposes of calculating the pricing tiers set forth 
in Equity 7, Section 118, the Exchange does not exclude sub-dollar 
volume. The Exchange proposes to remove the special methodology from 
the rule text, as it is no longer operative.
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    The Exchange believes that its QMM program plays an important role 
in improving the quality of, deepening liquidity in, and tightening 
spreads in its market. The QMM pricing program, in turn, offers rebates 
that are critical to incenting members to meet the quoting requirements 
for acting as QMMs. To the extent that a rise in sub-dollar trading by 
non-QMMs imperils the ability of QMMs to qualify for the rebates that 
motivate members to serve as QMMs, the Exchange believes that it is 
appropriate to act to preserve the effectiveness of these rebates, 
including by potentially excluding sub-dollar volume from the rebate 
eligibility criteria.
    Where the Exchange proposes to exclude sub-dollar volume from the 
QMM rebate qualification formulas, the Exchange also proposes to raise 
the threshold percentages of Consolidated Volume that a QMM must 
achieve to qualify for Tier 1 rebates. The Exchange proposes to raise 
the eligibility threshold for the Tier 1 rebate to ensure that it is 
calibrated appropriately. That is, while the Exchange proposes to 
exclude sub-dollar volume to prevent the rebate qualification criteria 
from becoming too difficult to attain, the Exchange also wants to 
ensure that, exclusive of sub-dollar volume, these criteria do not 
become too easy to attain and that they continue to incentivize QMMs to 
add more liquidity to the Exchange in securities priced at $1 or more. 
The Exchange believes that a small upward adjustment to the 
Consolidated Volume threshold will ensure that the Tier 1 rebate 
remains reasonably challenging for QMMs to achieve if sub-dollar volume 
is excluded. Specifically, to qualify for the Tier 1 rebate (when 
excluding sub-dollar volume), the Exchange proposes that a QMM must 
execute shares of liquidity in securities through one or more of its 
Nasdaq Market Center MPIDs that represent above 0.80%, up to and 
including, 0.90% of Consolidated Volume during a month. Meanwhile, to 
qualify for the Tier 2 rebate (again, when excluding sub-dollar 
volume), the Exchange proposes that the qualification requirements will 
remain unchanged: A QMM must execute shares of liquidity in securities 
through one or more of its Nasdaq Market Center MPIDs that represent 
above 0.90% of Consolidated Volume during a month.
    The following example illustrates the operation of the proposed 
changes to the QMM rebate tiers when taken together. During a month, a 
QMM adds 90 million shares to the Exchange, of which 300,000 shares 
consists of volume in sub-dollar securities. Meanwhile, total 
Consolidated Volume for that month is 13 billion shares, of which 1.8 
billion shares consists of executions in sub-dollar securities. To 
determine whether the QMM qualifies for a Tier 1 QMM rebate under the 
proposal, the Exchange would first determine whether the QMM's volume, 
inclusive of its sub-dollar activity, is between 0.70% and 0.90% of 
Consolidated Volume (including sub-dollar volume). In this example, the 
QMM would not qualify for Tier 1 under this formula because the QMM 
added only 0.69% of Consolidated Volume during the month. Nevertheless, 
the Exchange would determine next whether the QMM would qualify for the 
Tier 1 rebate under the alternative formula in which the QMM's sub-
dollar volume and sub-dollar-attributable Consolidated Volume are 
excluded from the calculation, while also raising the QMM's qualifying 
threshold percentages of Consolidated Volume to between 0.80% and 
0.90%. Under this alternative formula, the QMM would

[[Page 10136]]

qualify for Tier 1 rebates as it added 0.80% of Consolidated Volume 
(exclusive of sub-dollar volume). Insofar as the proposal would provide 
for the Exchange to apply the calculation results that are most 
advantageous to the QMM, the Exchange in this example would apply the 
Tier 1 rebate to the QMM.
Proposed Amendments to Existing Transaction Credits
    In addition to the above, the Exchange proposes to amend three of 
the credits it offers to members in displayed quotes or orders in 
securities in all three Tapes (other than Supplemental Orders or 
Designated Retail Orders) that add liquidity to the Exchange, as set 
forth in Equity 7, Section 118(a).
    First, the Exchange proposes to amend a credit it presently offers 
of $0.00295 per share executed to a member with shares of liquidity 
provided in all securities through one or more of its Nasdaq Market 
Center MPIDs that represent 0.90% 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 0.25% or more of Consolidated Volume. The Exchange proposes 
to decrease the threshold percentage of Consolidated Volume necessary 
to qualify for this credit from 0.90% to 0.85%. The Exchange proposes 
to lower this threshold to render it easier for members to qualify for 
the $0.00295 per share executed credit. More members may seek to attain 
this credit to the extent that it is more accessible to them. If more 
members increase their liquidity adding activity on the Exchange to 
attain this credit, then the quality of the market will improve, to the 
benefit of all participants.
    Second, the Exchange proposes to amend a credit it presently offers 
of $0.0029 per share executed 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 0.70% of Consolidated Volume 
during the month. The Exchange proposes to decrease the threshold 
percentage of Consolidated Volume necessary to qualify for this credit 
from 0.70% to 0.675%. The Exchange also proposes to lower this 
threshold to render it easier for members to qualify for the $0.0029 
per share executed credit. Again, more members may seek to attain this 
credit to the extent that it is more accessible to them. If more 
members increase their liquidity adding activity on the Exchange to 
attain this credit, then the quality of the market will improve, to the 
benefit of all participants.
    Third, the Exchange proposes to amend a credit it presently offers 
of $0.0025 per share executed to a member that provides a daily average 
of at least 4 million shares of liquidity, of which greater than 1.5 
million shares per day must comprise non-displayed liquidity, excluding 
midpoint orders. The Exchange proposes to amend the credit to state 
that the ``greater than 1.5 million shares per day'' requirement may be 
satisfied, not only by adding non-displayed liquidity (excluding 
midpoint orders), but also by using Midpoint Extended Life Orders (``M-
ELOs''). The Exchange proposes this change to provide a new incentive 
for members to increase significant liquidity each day in M-ELO Orders, 
as well as to render the credit easier for members to attain, thereby 
enticing more members to try to grow their liquidity adding activity on 
the Exchange to do so. To the extent that the proposed amended credit 
succeeds in increasing the number of its members that attain the 
credit, and in increasing the volume of liquidity provided to the 
Exchange, then the quality of the market will improve for all 
participants.
New Proposed Growth Tier
    Finally, the Exchange proposes to amend Equity 7, Section 118(a), 
to establish a new $0.0029 per share executed credit to a member, for 
displayed quotes or orders in securities in all three Tapes (other than 
Supplemental Orders or Designated Retail Orders) that add liquidity to 
the Exchange, to the extent that the member, through one or more of its 
Nasdaq Market Center MPIDs: (i) Provides shares of liquidity in all 
securities that represent equal to or greater than 0.65% of 
Consolidated Volume during the month; (ii) increases its average daily 
volume of M-ELO Orders executed by 150% or more during the month 
relative to the month of January 2021; and (iii) executes an average 
daily volume of at least 750,000 shares in M-ELO Orders for the month. 
The Exchange intends for this new credit to encourage members to grow 
the extent to which they utilize the M-ELO Order Type on the Exchange, 
and to reward those members that do so in significant volumes. The 
Exchange believes that any ensuing increase in M-ELO liquidity on the 
Exchange will improve the quality of the Nasdaq market generally as 
well as the experiences of those members that choose to interact with 
the market through M-ELO. To the extent that the proposed new credit 
succeeds in having its members attain the credit, and in increasing the 
volume of liquidity provided to the Exchange, then the quality of the 
market will improve for all participants.
2. Statutory Basis
    The Exchange believes that its proposals are consistent with 
Section 6(b) of the Act,\7\ in general, and further the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\8\ in particular, in that they 
provide for the equitable allocation of reasonable dues, fees and other 
charges among members and issuers and other persons using any facility, 
and are not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers. The proposals are also consistent with 
Section 11A of the Act relating to the establishment of the national 
market system for securities.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposals Are Reasonable
    The Exchange's proposals 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 '. . . .'' \9\
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    \9\ 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 10137]]

broader forms that are most important to investors and listed 
companies.'' \10\
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    \10\ 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.
    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. Within the 
foregoing context, the proposals represent reasonable attempts by the 
Exchange to increase its liquidity and market share relative to its 
competitors.
    As to the Exchange's proposal to potentially exclude sub-dollar 
volume for purposes of determining QMMs' qualifications for Tier 1 and 
Tier 2 rebates, the Exchange believes that this proposal is reasonable 
because in its absence, QMMs may fail to qualify for their existing QMM 
pricing tiers or fail to qualify for better pricing tiers. The Exchange 
does not wish to penalize QMMs that engage in significant activity on 
the Exchange in securities priced at or above $1 due to the sub-dollar 
trading activities of other firms. The proposed rule change would seek 
to avoid such a penalty by calculating eligibility for Tier 1 and Tier 
2 rebates by first including and then excluding sub-dollar volume, and 
then by applying the calculation that would result in the pricing 
determination that is most advantageous to each QMM.
    At the same time, the Exchange believes that it is reasonable, when 
excluding sub-dollar volume from its QMM Tier eligibility formulas, to 
increase the threshold percentages of Consolidated Volume that a QMM 
must achieve to qualify for the Tier 1 rebate. This proposal will help 
to properly calibrate eligibility criteria for the QMM Tier 1 rebate so 
that, when excluding sub-dollar volume, the Tier is neither too hard 
nor too easy for QMMs to attain. That is, even though excluding sub-
dollar volume from the calculations may help QMMs to remain in their 
existing Tiers even as sub-dollar activity by other firms rises, the 
Exchange also wants to be sure that the Tiers continue to challenge 
QMMs to add additional volume in stocks priced at or above $1. The 
Exchange notes that if QMMs are unable to meet the higher Consolidated 
Volume percentage requirements for Tier 1, they still may qualify for 
the Tier under the existing qualification formula, which includes sub-
dollar volume but applies lower Consolidated Volume percentage 
requirements.
    As to the Exchange's proposals to ease the qualification criteria 
for three of its transaction credits, at Equity 7, Section 118(a), the 
Exchange believes that these proposals are reasonable because they will 
ease or broaden the eligibility criteria for the credits and, in doing 
so, they will encourage more members to try to attain the credits by 
adding additional liquidity to the Exchange. If more members increase 
their liquidity adding activity on the Exchange to attain these 
credits, then the quality of the market will improve, and the Exchange 
will become more attractive to existing and prospective participants.
    Finally, the Exchange believes that its proposal is reasonable to 
establish a new add credit with a growth component tied to M-ELO 
activity. The proposal will encourage members to increase the extent to 
which they utilize M-ELO Orders on the Exchange, and it will reward 
members that do so in significant volumes. The Exchange believes that 
any ensuing increase in M-ELO liquidity on the Exchange will improve 
the quality of the Nasdaq market generally as well as the experiences 
of those members that choose to interact with the market through M-ELO. 
Additionally, if members increase their liquidity adding activity on 
the Exchange to attain this new credit, then the quality of the market 
will improve, and the Exchange will become more attractive to existing 
and prospective participants. The Exchange notes that it selected 
January 2021 as the baseline for the growth requirements because it is 
the month immediately preceding the establishment of the new tier.
    The Exchange notes that those market participants that are 
dissatisfied with the proposals are free to shift their order flow to 
competing venues that offer them lower charges or higher or more 
readily attainable credits.
The Proposals Are Equitable Allocations of Credits
    The Exchange believes its proposals will allocate its credits 
fairly among its market participants.
    The Exchange believes that its proposal to amend the qualification 
criteria for Tier 1 and Tier 2 QMM rebates is an equitable allocation 
because it would bolster the effectiveness of QMM rebates, which are 
imperiled by a rise in sub-dollar trading. Maintaining the 
attainability of QMM rebates is crucial to ensuring participation in 
the QMM program, which in turn is an important contributor to the 
quality of the Nasdaq market. Although the recent spike in sub-dollar 
pricing also threatens to upend the ability of members to qualify for 
Nasdaq's other volume-based tiers of credits and charges, the Exchange 
believes that its most pressing need is to address the threat to the 
QMM program given that several QMMs are already experiencing adverse 
pricing effects from the sub-dollar phenomenon. The Exchange notes that 
it continues to assess whether and how to modify its other volume-based 
pricing programs going forward to accommodate the rise in sub-dollar 
volumes.
    The Exchange also believes that it an equitable allocation, when 
excluding sub-dollar volume from the QMM Tier 1 eligibility formula, to 
increase the threshold percentage of Consolidated Volume that a QMM 
must achieve to qualify for the credit. The Exchange believes that it 
is fair to calibrate eligibility criteria for the Tier 1 rebate so that 
the Tiers are neither too hard nor too easy for QMMs to attain. That 
is, just as the Exchange believes that it is equitable, for the reasons 
discussed above, to help QMMs to remain in their existing Tiers by 
excluding sub-dollar activity, the Exchange also believes it is 
beneficial to market quality to continue to challenge QMMs to add 
additional volume in stocks priced at or above $1. The Exchange notes 
that if QMMs are unable to meet the higher Consolidated Volume 
percentage requirement for the Tier 1 rebate, they still may qualify 
for the Tier under the existing qualification formula, which includes 
sub-dollar volume but applies lower Consolidated Volume percentage 
requirements.
    It is also equitable for the Exchange to amend three of its 
transaction credits, by lowering and broadening their eligibility 
requirements, respectively, as a means of encouraging more members to 
try to attain the credits by adding additional liquidity to the 
Exchange, including in M-ELO Orders. To the extent that the Exchange 
succeeds in increasing liquidity on the Exchange, including in M-ELO 
Orders, then the Exchange will experience improvements in its market 
quality, which will benefit all market participants.
    Lastly, the Exchange believes that it is equitable to establish a 
new add credit tier that is tied to the growth of M-ELO activity. The 
M-ELO Order Type

[[Page 10138]]

provides a valuable means by which like-minded participants, with 
shared time horizons, can safely interact on the market and mitigate 
the risk of adverse selection and information leakage. The addition of 
this new proposed credit tier will encourage members to increase the 
extent of their use of M-ELO Orders on the Exchange, and it will reward 
members that do so in significant volumes. The Exchange believes that 
any increase in M-ELO liquidity on the Exchange that follows from the 
introduction of this new credit will improve the quality of the Nasdaq 
market generally as well as the experiences of those members that 
choose to interact with the market through M-ELO Orders. Additionally, 
if members increase their liquidity adding activity on the Exchange to 
attain this credit, then the quality of the market will improve, and 
the Exchange will become more attractive to existing and prospective 
participants.
    Any participant that is dissatisfied with the proposals is free to 
shift their order flow to competing venues that provide more generous 
pricing or less stringent qualifying criteria.
The Proposals Are Not Unfairly Discriminatory
    The Exchange believes that its proposals ae 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 believes that its proposal to amend the qualification 
criteria for Tier 1 and Tier 2 QMM rebates is not unfairly 
discriminatory. Although the rise in sub-dollar trading affects the 
attainability of many of Nasdaq's volume-based pricing tiers, it is 
fair for the Exchange to address the impact on QMM rebates, in 
particular, because maintaining the attainability of QMM rebates is 
crucial to maintaining participation in the QMM program, which in turn 
is an important contributor to the quality of the Nasdaq market. Even 
as the Exchange continues to assess whether and how to generally modify 
its volume-based pricing programs going forward to accommodate the rise 
in sub-dollar volumes, the Exchange believes that a pressing need 
exists now to address the particular threat this phenomenon poses to 
the QMM program given that several QMMs are already experiencing 
adverse pricing effects.
    At the same time, it is not unfairly discriminatory to increase the 
threshold percentage of Consolidated Volume that a QMM must achieve to 
qualify for the Tier 1 rebate when the Exchange also excludes sub-
dollar volume from the eligibility calculation. The Exchange believes 
that it is fair to calibrate eligibility criteria for the QMM Tier 1 
rebate so that the Tiers are neither too hard nor too easy for QMMs to 
attain. That is, just as the Exchange believes that it is not unfairly 
discriminatory, for the reasons discussed above, to help QMMs to remain 
in their existing Tiers by excluding sub-dollar activity, the Exchange 
also believes it is beneficial to market quality to continue to 
challenge QMMs to add additional volume in stocks priced at or above 
$1. The Exchange notes that if QMMs are unable to meet the higher 
Consolidated Volume percentage requirement for Tier 1, they still may 
qualify for the Tier under the existing qualification formula, which 
includes sub-dollar volume but applies lower Consolidated Volume 
percentage requirements.
    Moreover, the Exchange believes that its three proposed amendments 
to its transaction credits are not unfairly discriminatory because they 
stand to improve the overall market quality of the Exchange, to the 
benefit of all market participants, by incentivizing more members to 
provide additional liquidity to the Exchange, including M-ELO 
liquidity.
    Likewise, the Exchange believes that its new proposed add credit 
with a growth component is not unfairly discriminatory because it is 
aimed at encouraging the growth of M-ELO Orders on the Exchange, which 
if successful, stands to improve the quality of the Nasdaq market 
generally, to the benefit of all market participants, as well as 
improve the experiences of those members that choose to interact with 
the market through M-ELO. Additionally, if members increase their 
liquidity adding activity on the Exchange to attain this credit, then 
the quality of the market will improve, and the Exchange will become 
more attractive to existing and prospective participants.
    Any participant that is dissatisfied with the proposals is free to 
shift their order flow to competing venues that provide more generous 
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 changes 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 proposal will place any 
category of Exchange participant at a competitive disadvantage.
    As noted above, the proposal to amend the Exchange's QMM rebate 
pricing methodology will help to ensure that no QMM suffers a pricing 
disadvantage due to the ongoing spike in sub-dollar volumes, while at 
the same time it will provide an appropriately-calibrated incentive for 
QMMs to continue to add additional liquidity to the Exchange in 
securities priced at or above $1. It is not intended to provide a 
competitive advantage to any particular QMM.
    Meanwhile, the proposed changes to the qualifying criteria for 
three of the Exchange's transaction credits will make it easier for 
members to attain these credits, and will thereby encourage more 
members to try to attain these credits by increasing their market-
improving behavior. Any member may elect to provide the levels or types 
of liquidity required in order to receive the credits. Furthermore, all 
members of the Exchange will benefit from any increase in market 
activity that the proposals effectuate.
    Likewise, the proposed addition of a rebate tied to a member's 
activity in M-ELO Orders will encourage growth in that activity, to the 
benefit of users of those Order Types as well as the quality of the 
market in general. Any member may elect to engage in the levels of M-
ELO liquidity required to qualify for this new credit.
    The Exchange notes that its members are free to trade on other 
venues to the extent they believe that the proposed amended credits 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 its pricing tier structure is consistent with broker-dealer 
fee

[[Page 10139]]

practices as well as the other industries, as described above.
Intermarket Competition
    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 credits and 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 credits and 
fees in response, and because market participants may readily adjust 
their order routing practices, the Exchange believes that the degree to 
which credit or fee changes in this market may impose any burden on 
competition is extremely limited.
    The proposed new and amended credits are reflective of this 
competition because, even as one of the largest U.S. equities exchanges 
by volume, the Exchange has less than 20% 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 comprises upwards of 50% of industry volume.
    The Exchange's proposals are pro-competitive in that the Exchange 
intends for them to preserve and enhance its incentive programs, as 
well as to increase liquidity adding activity on the Exchange, thereby 
rendering 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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\11\
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    \11\ 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-2021-006 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-2021-006. 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-2021-006 and should be submitted 
on or before March 11, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-03212 Filed 2-17-21; 8:45 am]
BILLING CODE 8011-01-P


