[Federal Register Volume 87, Number 135 (Friday, July 15, 2022)]
[Notices]
[Pages 42521-42523]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-15118]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95226; File No. SR-NASDAQ-2022-039]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Its Schedule of Credits, at Equity 7, Section 118

July 11, 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 July 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 schedule of credits, 
at Equity 7, Section 118(a)(1), 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 eliminate a credit 
that the Exchange provides to members for displayed liquidity under 
Equity 7, Section 118(a)(1).
    Currently, the Exchange provides a $0.0018 per share executed 
credit for securities in Tape C \3\ to a member with shares of 
liquidity provided in all securities representing less than 0.10% of 
Consolidated Volume,\4\ through one or more of its Nasdaq Market Center 
MPIDs; provided that (i) the member also provides a daily average of at 
least 250,000 shares of liquidity provided in securities listed on an 
exchange other than Nasdaq, or (ii) the member routes a daily average 
volume of at least 10,000 shares during the month via the QDRK \5\ 
routing strategy. The Exchange proposes to eliminate this credit.
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    \3\ There are three Tapes, which are based on the listing venue 
of the security: Tape C securities are Nasdaq-listed; Tape A 
securities are New York Stock Exchange-listed; and Tape B securities 
are listed on exchanges other than Nasdaq and NYSE.
    \4\ Pursuant to Equity 7, Section 118(a), the term 
``Consolidated Volume'' means 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. 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 count as liquidity-adding 
activity on Nasdaq.
    \5\ QDRK is a routing option under which orders check the System 
for available shares and simultaneously route the remaining shares 
to destinations on the System routing table that are not posting 
Protected Quotations within the meaning of Regulation NMS. If shares 
remain un-executed after routing, they are posted on the book. Once 
on the book, should the order subsequently be locked or crossed by 
another market center, the System will not route the order to the 
locking or crossing market center.
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    The Exchange offers this credit as a means of improving market 
quality by providing its members with an incentive to increase 
liquidity on the Exchange. However, the Exchange has observed over time 
that this credit has not been successful in accomplishing its 
objective. That is, it has not induced members to add liquidity to the 
Exchange and members are not targeting this credit for growth or 
general use of the QDRK strategy. The Exchange has limited resources 
available to it to offer its members market-improving incentives, and 
it allocates those limited resources to those segments of the market 
where it perceives the need to be greatest and/or where it determines 
that the incentive is likely to achieve its intended objective. 
Accordingly, the Exchange proposes to eliminate the credit noted above.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\6\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\7\ 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.
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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 Exchange's proposed change to its schedule of credits 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'. . . .'' \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

[[Page 42522]]

``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. As such, the 
proposal represents a reasonable attempt by the Exchange to increase 
its liquidity and market share relative to its competitors.
    The Exchange believes that its proposal is reasonable, equitable, 
and not unfairly discriminatory to eliminate the $0.0018 per share 
executed credit for securities in Tape C. The credit has not been 
effective in achieving its intended objective of incentivizing members 
to provide liquidity to the Exchange. The Exchange has limited 
resources available to it to offer its members market-improving 
incentives, and it allocates those limited resources to those segments 
of the market where it perceives the need to be greatest and/or where 
it determines that the incentive is likely to achieve its intended 
objective.
    The proposal is also equitable and not unfairly discriminatory 
because the proposed change to the credits will apply uniformly to all 
similarly situated members. All market participants stand to benefit to 
the extent that the proposal is successful in freeing limited resources 
and improving market quality. Any member that is dissatisfied with the 
credits is free to shift their order flow to competing venues that 
provide more favorable rates 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 participants at a competitive disadvantage. 
Members are free to trade on other venues to the extent they believe 
that the credits provided are not attractive or the qualifying criteria 
for such credits is too stringent. 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
    The Exchange believes that the proposed change to its schedule of 
credits to eliminate the $0.0018 per share executed credit for 
securities in Tape C as noted above will not impose a burden on 
competition because the Exchange's execution services are completely 
voluntary and subject to extensive competition both from the other live 
exchanges and from off-exchange venues, which include alternative 
trading systems that trade national market system stock. 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 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 fees in 
response, and because market participants may readily adjust their 
order routing practices, the Exchange believes that the degree to which 
fee changes in this market may impose any burden on competition is 
extremely limited.
    The proposed change to the Exchange's credits is reflective of this 
competition because, as a threshold issue, the Exchange is a relatively 
small market so its ability to burden intermarket competition is 
limited. In this regard, even the largest U.S. equities exchange by 
volume only has 17-18% 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 more 
than 40% of industry volume in recent months.
    In sum, if the changes proposed herein are unattractive to market 
participants, it is likely that the Exchange will either fail to 
increase its market share or even 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) of the Act \10\ and paragraph (f) of Rule 19b-4 \11\ 
thereunder.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f).
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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-2022-039 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.


[[Page 42523]]


All submissions should refer to File Number SR-NASDAQ-2022-039. 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-2022-039 and should be submitted 
on or before August 5, 2022.

    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. 2022-15118 Filed 7-14-22; 8:45 am]
BILLING CODE 8011-01-P


