[Federal Register Volume 86, Number 206 (Thursday, October 28, 2021)]
[Notices]
[Pages 59771-59774]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-23434]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93407; File No. SR-NASDAQ-2021-081]


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

October 22, 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 October 13, 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 schedule of 
transaction credits and charges, 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 transaction credits and charges, at Equity 7, Section 
118(a).
    Each month, the Exchange determines the applicability to a member 
of the various credits and charges set forth in this schedule based, in 
part, on the nature and extent of a member's activities on the Exchange 
during the month. Credits generally apply to members that add liquidity 
to the Exchange during the month, with credit amounts varying based 
upon the extent or nature of such liquidity adding activity, or other 
criteria, while transaction charges that are discounted

[[Page 59772]]

from the standard rate apply to members that remove liquidity from the 
Exchange during the month, with the amounts of the discounts varying 
based upon the extent or nature of such liquidity removal activity, or 
other criteria.
    Among the order types that comprise a member's activity on the 
Exchange during a month are Midpoint Extended Life Orders (``M-
ELOs'').\3\ Generally, the M-ELO order type (including its Holding 
Period) is designed to create additional trading opportunities on the 
Exchange for investors with longer investment time horizons. M-ELO 
Order will only execute against other M-ELO orders, as well as certain 
other qualified midpoint orders on the continuous book.
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    \3\ Pursuant to Equity 4, Rule 4702(b)(14), a ``Midpoint 
Extended Life Order'' is an Order Type with a Non-Display Order 
Attribute that is priced at the midpoint between the NBBO and that 
will not be eligible to execute until a minimum period of 10 
milliseconds has passed after acceptance of the Order by the System.
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    Currently, the Exchange charges a member that executes a M-ELO 
Order a flat fee of $0.0004 per share executed (for securities priced 
at $1 or more), but does not provide a credit for liquidity provided or 
charge a fee for liquidity removed.\4\ The design of the tiers of the 
Section 118 ``Nasdaq Market Center Order Execution and Routing'' 
mandates that member's trading activity that is not treated as 
``liquidity provided,'' necessarily becomes activity classified as 
``liquidity removed.'' Accordingly, before the proposed change became 
effective, all M-ELO trading activity was classified as removing 
liquidity.
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    \4\ Although the proposed rule change will classify all M-ELO 
trading activity as ``liquidity provided,'' a member that executes a 
M-ELO Order will continue to be assessed a fee of $0.0004 per share 
executed.
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    Nasdaq now proposes to count all M-ELO Orders that a member 
executes on Nasdaq during the month as liquidity-adding activity on 
Nasdaq for the purposes of calculating the extent of a member's trading 
activity during the month on Nasdaq and determining the charges and 
credits applicable to such member's activity.\5\ A M-ELO Order must 
rest on the book for at least 10 milliseconds, and therefore Nasdaq 
believes this approach is appropriate because M-ELO is an order type 
that focuses on the execution quality experience. Nasdaq believes that 
these qualities allow a M-ELO Order to have a lesser market price 
impact thus contributing to the market quality by providing passive 
liquidity.
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    \5\ Where a fee in a particular tier is determined based on 
shares of non-displayed liquidity (without specifying the treatment 
of M-ELO Orders) provided in all securities that represent more than 
a certain threshold of Consolidated Volume, executed M-ELO Orders 
will not be counted towards such non-displayed liquidity.
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    The purpose of counting all M-ELO Orders that a member executes on 
Nasdaq during the month as liquidity-adding activity on Nasdaq for the 
purposes of calculating the extent of a member's trading activity 
during the month is to provide extra incentives to members to be 
actively involved in M-ELO on the Exchange. The Exchange believes that 
if such incentives are effective, then any ensuing increase in M-ELO 
activity on the Exchange will improve market quality, to the benefit of 
all participants.
2. Statutory Basis
    The Exchange believes that its proposals are consistent with 
Section 6(b) of the Act,\6\ in general, and further the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\7\ 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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    \6\ 15 U.S.C. 78f(b).
    \7\ 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'. . . .'' \8\
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    \8\ 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.'' \9\
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    \9\ 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.
    The Exchange believes that it is reasonable to count all M-ELO 
Orders that a member executes on Nasdaq during the month as liquidity-
adding activity on Nasdaq for the purposes of calculating the extent of 
a member's trading activity during the month on Nasdaq and determining 
the charges and credits applicable to such member's activity.
    The proposal is reasonable because it will provide extra incentives 
to members to engage in substantial amounts of MELO-related activity on 
the Exchange during a month. Nasdaq believes that the qualities of a M-
ELO Order cause it to have a lesser market price impact thus 
contributing to the market quality by providing passive liquidity. The 
Exchange believes that if such incentives are effective, then any 
ensuing increase in M-ELO Orders will improve the quality of the M-ELO 
market, and the market overall, to the benefit of M-ELO and all market 
participants.

[[Page 59773]]

    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 Fees and Credits
    The Exchange believes that it is an equitable allocation to modify 
the eligibility requirements for its transaction credits and fees 
because the proposal will encourage members to increase the extent to 
which they add M-ELO liquidity to the Exchange. Nasdaq believes that 
the qualities of a M-ELO Order cause it to have a lesser market price 
impact thus contributing to the market quality by providing passive 
liquidity. To the extent that the Exchange succeeds in increasing the 
levels of M-ELO liquidity on the Exchange, then the Exchange will 
experience improvements in its market quality, which stands to benefit 
all market 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 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 believes that its proposal to amend the qualifying 
criteria for its transaction fees and credits is not unfairly 
discriminatory because these credits and fees are available to all 
members. Nasdaq believes that the qualities of a M-ELO Order cause it 
to have a lesser market price impact thus contributing to the market 
quality by providing passive liquidity. Moreover, the proposal stands 
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 M-ELO liquidity provision or activity on the Exchange.
    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 proposals will place any 
category of Exchange participant at a competitive disadvantage because 
the change represents a reasonable effort to enhance the ability of 
longer-term trading interest to participate effectively on an exchange, 
without discriminating unfairly against other market participants or 
inappropriately or unnecessarily burdening competition. Nasdaq believes 
that the qualities of a M-ELO Order cause it to have a lesser market 
price impact thus contributing to the market quality by providing 
passive liquidity. In addition, the proposal is applicable to all 
members on equal terms.
    The Exchange notes that its members are free to trade on other 
venues to the extent they believe that the proposed treatment of M-ELO 
Orders is not desirable. 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 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 or credit 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 and credits 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 proposal is 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 44% of industry volume.
    The Exchange's proposal is pro-competitive in that the Exchange 
intends for the change to increase M-ELO liquidity addition 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.\10\
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    \10\ 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

[[Page 59774]]

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 [email protected]. Please include 
File Number SR-NASDAQ-2021-081 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-2021-081. 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-2021-081 and should be submitted 
on or before November 18, 2021.
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    \11\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-23434 Filed 10-27-21; 8:45 am]
BILLING CODE 8011-01-P


