[Federal Register Volume 87, Number 32 (Wednesday, February 16, 2022)]
[Notices]
[Pages 8903-8905]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-03278]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94218; File No. SR-NASDAQ-2022-013]


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

February 10, 2022.
    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, 2022, 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, 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). The Exchange proposes 
to amend an existing credit to its members for displayed quotes/orders 
(other than Supplemental Orders or Designated Retail Orders) that 
provide liquidity to the Exchange.
    Currently, the Exchange provides a credit of $0.0029 per share 
executed to a member that, 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 \3\ 
during the month; (ii) increases its average daily volume of Midpoint 
Extended Life 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 Midpoint Extended Life Orders for 
the month. The Exchange proposes to amend this credit by providing an 
additional means of attaining it. Specifically, the Exchange proposes 
to amend the first criterion for the credit to state that a member must 
provide shares of liquidity in all securities that represent equal to 
or greater than either 0.65% of Consolidated Volume or an average daily 
volume of 70 million shares during the month.
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    \3\ Pursuant to Equity 7, Section 118(a), the term 
``Consolidated Volume'' shall 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 shall be excluded 
from both total Consolidated Volume and the member's trading 
activity. 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, all M-ELO 
Orders that a member executes on Nasdaq during the month will count 
as liquidity-adding activity on Nasdaq.
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    By providing an additional means by which a member can attain this 
credit, the Exchange intends to increase the number of members that 
strive to and do attain it, including by increasing their average daily 
volume of liquidity adding activity on the Exchange. To the extent that 
the proposal succeeds in this objective, then Exchange will experience 
an increase in liquidity, which in turn stands to improve the quality 
of the market, to the benefit all participants.
    The Exchange notes that those participants that are dissatisfied 
with this new proposal are free to shift their order flow to competing 
venues.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\4\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\5\ 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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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposal Is Reasonable
    The Exchange's proposal is 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

[[Page 8904]]

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'. . . .'' \6\
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    \6\ 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.'' \7\
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    \7\ 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.
    The Exchange believes it is reasonable to amend the criteria for 
its existing $0.0029 per share executed credit. By providing an 
additional means by which a member can attain this credit, the Exchange 
intends to increase the number of members that strive to and do attain 
it, including by increasing their average daily volume of liquidity 
adding activity on the Exchange. To the extent that the proposal 
succeeds in this objective, then Exchange will experience an increase 
in liquidity, which in turn stands to improve the quality of the 
market, to the benefit all participants.
    The Exchange notes that those participants that are dissatisfied 
with the amended credit are free to shift their order flow to competing 
venues.

The Proposal Is an Equitable Allocation of Credits

    The Exchange believes its proposal will allocate its charges and 
credits fairly among its market participants.
    The Exchange believes that its proposed amendment to its credit is 
an equitable allocation. The proposal will encourage members to 
increase the extent to which they add liquidity to the Exchange. To the 
extent that the Exchange succeeds in increasing the levels of liquidity 
and activity 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 proposal is free to 
shift their order flow to competing venues that provide more generous 
pricing or less stringent qualifying criteria.

The Proposal Is 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 
enhances price discovery and improves the overall quality of the equity 
markets.
    The Exchange also believes that its proposal is not unfairly 
discriminatory because the additional qualification option will be 
available to all members.
    Overall, 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 liquidity 
provision or activity on the Exchange. Any participant that is 
dissatisfied with the proposal 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 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 proposal will place any 
category of Exchange participant at a competitive disadvantage.
    As noted above, the Exchange's proposal is intended to have market-
improving effects, to the benefit of all members. The Exchange notes 
that its members are free to trade on other venues to the extent they 
believe that these proposals 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.
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 credit is reflective of this competition. Any 
participant that is dissatisfied with the proposal is free to shift 
their order flow to competing venues that provide more generous pricing 
or less stringent qualifying criteria.
    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

[[Page 8905]]

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.
    In sum, if the change proposed herein is 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 
change 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.\8\
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    \8\ 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 [email protected]. Please include 
File Number SR-NASDAQ-2022-013 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-2022-013. 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 R-NASDAQ-2022-013 and should be submitted 
on or before March 9, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-03278 Filed 2-15-22; 8:45 am]
BILLING CODE 8011-01-P


