[Federal Register Volume 87, Number 81 (Wednesday, April 27, 2022)]
[Notices]
[Pages 25059-25062]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-08912]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94774; File No. SR-NASDAQ-2022-032]


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

April 21, 2022.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 25060]]

(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on April 12, 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 fees at 
Equity 7, Section 118, as described further below.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, at 
the principal office of the Exchange, and at the Commission's Public 
Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend the Exchange's 
schedule of fees, at Equity 7, Section 118(a), to incent members to 
grow the extent to which they participate in Nasdaq's routing strategy 
for Designated Retail Orders (``RFTY'').
    RFTY is an order routing option designed to enhance execution 
quality and benefit retail investors by providing price improvement 
opportunities to Designated Retail Orders (``DROs'').\3\ As set forth 
in Equity 7, Section 118(a), for securities in each Tape, the Exchange 
presently charges a $0.0030 per share executed fee to a member for 
shares executed above 4 million shares during the month for RFTY orders 
that remove liquidity from the Nasdaq Market Center or that execute in 
a venue with a protected quotation under Regulation NMS other than the 
Nasdaq Market Center. For purposes of calculating the 4 million share 
threshold described above and assessing the charge set forth herein, 
the Exchange excludes RFTY orders that execute at taker-maker venues. 
The Exchange charges no fee per share executed to a member for shares 
executed up to 4 million shares during the month for RFTY orders that 
remove liquidity from the Nasdaq Market Center or that execute in a 
venue with a protected quotation under Regulation NMS.
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    \3\ See Securities Exchange Act Release No. 34-75987 (September 
25, 2015), 80 FR 59210 (October 1, 2015) (SR-NASDAQ-2015-112). A DRO 
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 
rule, provided that no change is made to the terms of the order with 
respect to price or side of market and the order does not originate 
from a trading algorithm or any other computerized methodology. An 
order from a ``natural person'' can include orders on behalf of 
accounts that are held in a corporate legal form--such as an 
Individual Retirement Account, Corporation, or a Limited Liability 
Company--that has been established for the benefit of an individual 
or group of related family members, provided that the order is 
submitted by an individual. Members must submit a signed written 
attestation, in a form prescribed by Nasdaq, that they have 
implemented policies and procedures that are reasonably designed to 
ensure that substantially all orders designated by the member as 
``Designated Retail Orders'' comply with these requirements.
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    In adopting the existing fee structure for RFTY, the Exchange 
intended to provide incentives for members to adopt RFTY while also 
allowing the Exchange to mitigate the costs it incurs when RFTY routes 
large volumes of orders to venues that charge access fees.\4\ Although 
the Exchange continues to believe that the RFTY fee structure is 
appropriate, it also recognizes that the specter of incurring fees 
inhibits new or existing light users of RFTY from increasing their use 
of this strategy, even as the Exchange works to augment the value that 
RFTY offers. The Exchange now proposes to amend the RFTY fee structure 
to provide a new incentive for new or existing light RFTY users to grow 
the extent of their use of RFTY during the month.\5\ The Exchange 
intends for this new incentive to be temporary,\6\ and hopes that even 
after it no longer applies, participants that benefited from it will 
continue to make significant use of RFTY, notwithstanding the 
associated fees, in recognition of the value it provides to them and 
their customers.
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    \4\ See Securities Exchange Act Release No. 34-90164 (October 
13, 2020), 85 FR 66379 (October 19, 2020) (SR-NASDAQ-2020-067).
    \5\ The proposed amendment is applicable both to existing RFTY 
users as well as to new users that exceed 4 million shares executed 
using RFTY during regular market hours during a month. Since new 
users would, by definition, lack March 2022 baseline RFTY volume 
against which to measure subsequent growth, such new users would 
meet the growth requirement through whatever volume of RFTY shares 
they execute during regular market hours during the first month of 
use.
    \6\ The Exchange has yet to propose a date for sunsetting this 
incentive; it will do so in a future rule filing.
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    Specifically, the Exchange proposes to amend Equity 7, Section 
118(a) to state that the Exchange will charge no fee per share executed 
during regular market hours to a member that executes orders using 
RFTY, when the member exceeds the 4 million share executed threshold 
for RFTY orders described above, if the member also grows the volume of 
its shares executed using RFTY during regular market hours during the 
month by at least 100 percent relative to a baseline month of March 
2022.\7\ Again, the Exchange intends for this amendment to reward RFTY 
users that grow substantially the extent of their use of the RFTY 
strategy during regular market hours.\8\
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    \7\ The proposal also corrects typographical errors in the Rule 
whereby the Exchange, in several instances, mistakenly refers to 
RFTY as ``RTFY.'' The Exchange anticipates submitting another rule 
filing in the near future to make the same corrections to other 
instances in typographical error in the Rulebook.
    \8\ The Exchange proposes to apply this incentive to members 
with shares executed using RFTY during regular market hours, and to 
members that grow shares executed using RFTY during regular market 
hours, because the Exchange believes that the full functionality and 
value of RFTY will be most apparent to members during regular market 
hours, when market makers and liquidity providers are available to 
execute orders. The Exchange wishes to target use and growth of RFTY 
during that time period.
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    The Exchange notes that those participants that are dissatisfied 
with the proposed amendment to the RFTY fee schedule are free to shift 
their order flow to competing venues that offer more favorable terms 
for routing and executing retail orders. Such participants may also 
refrain from using RFTY or adjust their use of RFTY to avoid incurring 
execution fees.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\9\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\10\ 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,

[[Page 25061]]

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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    \9\ 15 U.S.C. 78f(b).
    \10\ 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 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'. . . .'' \11\
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    \11\ 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.'' \12\
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    \12\ 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 is also subject to intense competition for retail order 
flow with off-exchange competitors, including wholesale market makers.
    The Exchange believes its proposed amendment to the RFTY fee 
schedule is a reasonable attempt to incent new and existing RFTY users 
to grow the extent of their usage substantially. Under the proposed 
rule change, RFTY users that grow their volumes of RFTY shares executed 
during regular market hours during the month by at least 100 percent 
relative to March 2022 will not incur fees for executing their orders 
using RFTY during regular market hoursthat [sic] exceed 4 million 
shares that month.\13\ The Exchange notes that it employs similar 
growth programs in other contexts for similar purposes.\14\
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    \13\ As noted above, the Exchange believes it is reasonable to 
apply this incentive to members with shares executed using RFTY 
during regular market hours, and to members that grow shares 
executed using RFTY during regular market hours, because the 
Exchange believes that the full functionality and value of RFTY will 
be most apparent to members during regular market hours, when market 
makers and liquidity providers are available to execute orders. The 
Exchange wishes to target use and growth of RFTY during that time 
period.
    \14\ See, e.g., Equity 4, Section 114(j) (Nasdaq Growth 
program), Equity 7, Section 118(a) (providing a credit to members 
that, among other things, increase the extent of their average daily 
volumes of Midpoint Extended Life Orders by 100% or more during the 
month relative to June 2021).
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    The Exchange notes that those participants that are dissatisfied 
with the proposed amendment to the RFTY fee schedule are free to shift 
their order flow to competing venues that offer more favorable terms 
for routing and executing retail orders. Such participants may also 
refrain from using RFTY or adjust their use of RFTY to avoid incurring 
execution fees.
The Proposal Is an Equitable Allocation of Fees and Is Not Unfairly 
Discriminatory
    The Exchange believes its proposal will allocate its charges fairly 
among its market participants and is not unfairly discriminatory.
    The Exchange believes that it is an equitable allocation and not 
unfairly discriminatory to continue to charge a transaction fee to 
certain participants that execute more than 4 million shares using RFTY 
during regular market hours during the month, while charging no fees to 
other participants that execute similar volumes using RFTY, because in 
the latter case, the Exchange's decision to charge no fees during 
regular market hours is a reward to participants that double the extent 
of the share volume they execute using RFTY during regular market hours 
during the month, relative to a baseline month of March 2022.\15\ As 
noted above, the Exchange expects this incentive to be a temporary 
measure to boost usage in RFTY and to compete for retail order flow. As 
also discussed earlier, the Exchange employs similar growth programs in 
other contexts for similar purposes.
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    \15\ As noted above, the proposed incentive program is available 
both to new and existing RFTY users, although in practice, the 
Exchange expects that only existing users will qualify for it.
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    The Exchange notes that those participants that are dissatisfied 
with the proposed amendment to the RFTY fee schedule are free to shift 
their order flow to competing venues that offer more favorable terms 
for routing and executing retail orders. Such participants may also 
refrain from using RFTY or adjust their use of RFTY to avoid incurring 
execution fees.

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 
inappropriately burden any category of market participant. Although 
under the proposal, the Exchange will charge a transaction fee to 
certain participants that execute more than 4 million shares using RFTY 
during regular market hours during the month, and charge no fees to 
other participants that execute similar volumes using RFTY, the 
Exchange believes this is appropriate because in the latter case, the 
Exchange's decision to charge no fees is a reward to participants that 
double the extent of the share volume they execute using RFTY during 
regular market hours during the month, relative a baseline month of 
March 2022. As noted above, the Exchange expects this incentive to be a 
temporary measure to boost usage in RFTY and to compete for retail 
order flow. As also discussed earlier, the Exchange employs similar 
growth programs in other contexts for similar purposes.
    Those participants that are dissatisfied with the proposed 
amendment to the RFTY fee schedule are free to shift their order flow 
to competing venues that offer more favorable terms for routing and 
executing retail orders. Such participants may also refrain from using 
RFTY or adjust their use of RFTY to avoid incurring execution fees.

[[Page 25062]]

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 proposal is reflective of this 
competition.
    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.
    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.\16\
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    \16\ 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-2022-032 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-2022-032. 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-2022-032 and should be submitted 
on or before May 18, 2022.
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    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-08912 Filed 4-26-22; 8:45 am]
BILLING CODE 8011-01-P


