[Federal Register Volume 86, Number 51 (Thursday, March 18, 2021)]
[Notices]
[Pages 14787-14790]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-05554]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91307; File No. SR-NASDAQ-2021-011]


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, Section 118(a)

March 12, 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 March 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, Section 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, Section 118(a).
    Presently, in Equity 7, Section 118(a), the Exchange offers several 
credits that are based, in part, upon members' activities in securities 
priced at or more than $1 relative to total ``Consolidated Volume.'' 
\3\
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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. 
Unlike Section 118(a), however, Section 114(h) states that, for 
purposes of calculating a member's qualifications for Tiers 1 and 2 
of the QMM Program credits set forth in Equity 4, Section 114(e), 
the Exchange will calculate a member's volume and total Consolidated 
Volume twice. First, the Exchange will calculate a member's volume 
and total Consolidated Volume inclusive of volume that consists of 
executions in securities priced less than $1. Second, the Exchange 
will calculate a member's volume and total Consolidated Volume 
exclusive of volume that consists of executions in securities priced 
less than $1, while also applying distinct qualifying volume 
thresholds to each Tier. The Exchange will then assess which of 
these two calculations would qualify the member for the most 
advantageous credits for the month and then it will apply those 
credits to the member.

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[[Page 14788]]

    The Exchange proposes to amend two 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.
    First, the Exchange proposes to amend a credit it presently offers 
of $0.00295 per share executed to a member that, through one or more of 
its Nasdaq Market Center MPIDs (i) adds shares of liquidity during the 
month representing at least 0.50% of Consolidated Volume during the 
month; (ii) adds at least 0.35% of Consolidated Volume during the month 
in securities in Tape C; and (iii) adds at least 0.15% of Consolidated 
Volume during the month in Designated Retail Orders \4\ for securities 
in any Tape. The Exchange proposes to increase the threshold percentage 
of Consolidated Volume necessary to qualify for this credit from 0.50% 
to 0.80%. The Exchange proposes to raise this threshold to incentivize 
members to increase the extent of their liquidity adding activity to 
continue to qualify for the $0.00295 per share executed credit. If 
members increase their liquidity adding activity on the Exchange to 
continue to qualify for this credit, then the quality of the market 
will improve, to the benefit of all participants.
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    \4\ Pursuant to Equity 7, 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.
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    Second, the Exchange proposes to amend a credit it presently offers 
of $0.0030 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 1.00% of Consolidated Volume 
during the month and shares of non-displayed liquidity provided in all 
securities through one or more of its Nasdaq Market Center MPIDs that 
represent more than 0.25% of Consolidated Volume. The Exchange proposes 
to decrease the threshold percentage of Consolidated Volume necessary 
to qualify for this credit from 1.00% to 0.95%. The Exchange proposes 
to lower this threshold to render it easier for members to qualify for 
the $0.0030 per share executed credit. The Exchange believes that 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.
    In addition to the above, the Exchange proposes to establish a new 
credit for non-displayed orders (other than supplemental orders). 
Specifically, the Exchange proposes to provide a new credit for other 
non-displayed orders if a member, during the month: (i) Provides 0.30% 
or more of Consolidated Volume through non-displayed orders (other than 
midpoint orders); and (ii) increases providing liquidity through non-
displayed orders (including midpoint orders) by 10% or more relative to 
the member's February 2021 average daily volume provided through non-
displayed orders (including midpoint orders). The amount of this credit 
will be $0.00125 per share executed for securities in Tapes A and B and 
$0.00075 per share executed for securities in Tape C.
    The Exchange intends for this new credit to reward members that 
provide significant volumes of non-displayed liquidity on the Exchange 
and to encourage such members to further grow the extent to which they 
provide non-displayed liquidity to the Exchange. The Exchange believes 
that any ensuing increase in non-displayed liquidity on the Exchange 
will improve the quality of the Nasdaq market. In particular, the 
Exchange intends to encourage members to increase the extent to which 
they provide non-displayed liquidity in securities in Tapes A and B, as 
the Exchange believes that an increase in such liquidity is most needed 
and likely to be most beneficial to market quality.
2. Statutory Basis
    The Exchange believes that its proposals are consistent with 
Section 6(b) of the Act,\5\ in general, and further the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\6\ 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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    \5\ 15 U.S.C. 78f(b).
    \6\ 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'. . . .'' \7\
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    \7\ 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 broader forms that are most 
important to investors and listed companies.'' \8\
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    \8\ 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

[[Page 14789]]

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.
    The Exchange believes that it is reasonable to modify the 
qualification criteria for two of its transaction credits, at Equity 7, 
Section 118(a) because they will each encourage the addition of 
liquidity to the Exchange, first by making it easier for additional 
members to qualify for the $0.0030 credit, and second by challenging 
members that currently qualify for the $0.00295 per share executed 
credit to add additional liquidity to the Exchange to continue to 
qualify for it. If more members seek to qualify for a credit by adding 
liquidity to the Exchange, and if members increase their extent of 
their liquidity adding activity on the Exchange to continue to qualify 
for a credit, then the quality of the market will improve, and the 
Exchange will become more attractive to existing and prospective 
participants.
    The Exchange also believes that its proposal is reasonable to 
establish a new add non-displayed credit with a growth component tied 
to the addition of non-displayed liquidity. The proposal will encourage 
members to increase the extent to which they provide non-displayed 
liquidity to the Exchange, and it will reward members that do so in 
significant volumes. The Exchange believes that any ensuing increase in 
non-displayed liquidity on the Exchange--and in particular, non-
displayed liquidity in securities in Tapes A and B--will improve the 
quality of the Nasdaq market, and it will cause the Exchange to become 
more attractive to existing and prospective participants. The Exchange 
notes that it selected February 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 more generous pricing or less stringent 
qualifying criteria.
The Proposals Are Equitable Allocations of Credits
    The Exchange believes its proposals will allocate its charges and 
credits fairly among its market participants.
    The Exchange believes that is an equitable allocation to increase 
the eligibility requirements for the $0.00295 per share executed 
credit, and to lower the eligibility requirements for the $0.0030 per 
share executed credit, because both proposals will encourage members to 
add additional liquidity to the Exchange. To the extent that the 
Exchange succeeds in increasing liquidity on the Exchange, then the 
Exchange will experience improvements in its market quality, which 
again stands to benefit all market participants.
    Additionally, the Exchange believes that it is equitable to 
establish a new add credit tier that is tied to the growth of non-
displayed liquidity. The addition of this new proposed credit tier will 
encourage members to increase the extent to which they add non-
displayed liquidity to the Exchange, and it will reward members that do 
so in significant volumes. The Exchange believes that any increase in 
non-displayed liquidity on the Exchange that follows from the 
introduction of this new credit--and in particular, non-displayed 
liquidity in securities in Tapes A and B--will improve the quality of 
the Nasdaq market, and it will cause the Exchange to 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 proposals to amend the qualifying 
Consolidated Volume criteria for two of its transaction credits are not 
unfairly discriminatory because these credits are available to all 
members. Moreover, these proposals stand to improve the overall market 
quality of the Exchange, to the benefit of all market participants, by 
incentivizing members to increase the extent of their liquidity adding 
activity on the Exchange.
    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 non-displayed liquidity on the 
Exchange, which if successful, stands to improve the quality of the 
Nasdaq market, to the benefit of all market participants. The Exchange 
notes that its proposal to offer higher credits to members with orders 
in non-displayed securities in Tapes A and B than to those in Tape C is 
fair because the Exchange observes that its market has a greater need 
for, and its market quality would benefit most from, growth in non-
displayed liquidity in securities in Tapes A and B. The Exchange has 
limited resources with which to apply to incentives, and it must 
allocate those limited resources in a manner that prioritizes areas of 
greatest need and potential effect.
    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 proposed changes to the qualifying criteria for 
two of its transaction credits are intended to have market-improving 
effects, to the benefit of all members. Any member may elect to achieve 
the levels of liquidity required in order to qualify for the credits or 
fees.
    Likewise, the proposed addition of a rebate tied to a member's 
activity in non-displayed liquidity will encourage growth in that 
activity, to the benefit of overall market quality. Any member may 
elect to engage in the levels of non-displayed liquidity adding 
activity that are 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 
qualification criteria for these fees and credits are not attractive. 
As one can observe by looking at any market share chart, price 
competition

[[Page 14790]]

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 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 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 increase liquidity 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.\9\
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    \9\ 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-2021-011 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-2021-011. 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-2021-011 and should be submitted 
on or before April 8, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-05554 Filed 3-17-21; 8:45 am]
BILLING CODE 8011-01-P


