[Federal Register Volume 87, Number 156 (Monday, August 15, 2022)]
[Notices]
[Pages 50135-50137]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-17433]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95458; File No. SR-NASDAQ-2022-045]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the Exchange's Pricing Schedule at Equity 7, Section 114(f)

August 9, 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 28, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Exchange's Pricing Schedule at 
Equity 7, Section 114(f) (``Pricing Schedule'').
    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 
Pricing Schedule at Equity 7, Section 114(f) applicable to the 
Designated Liquidity Provider (``DLP'') \3\ Program. The Exchange 
proposes to amend certain of the market quality metrics (``MQMs'') for 
rebates applicable to DLPs in Nasdaq-listed securities.
---------------------------------------------------------------------------

    \3\ Equity 7, Section 114(f)(2) defines a ``Designated Liquidity 
Provider'' or ``DLP'' as a registered Nasdaq market maker for a 
Qualified Security that has committed to maintain minimum 
performance standards. A DLP shall be selected by Nasdaq based on 
factors including, but not limited to, experience with making 
markets in exchange-traded products, adequacy of capital, 
willingness to promote Nasdaq as a marketplace, issuer preference, 
operational capacity, support personnel, and history of adherence to 
Nasdaq rules and securities laws. Nasdaq may limit the number of 
DLPs in a security, or modify a previously established limit, upon 
prior written notice to members.
---------------------------------------------------------------------------

    The Exchange proposes to amend Equity 7, Section 114(f)(4) to 
revise the monthly performance criteria related to the specific rebates 
provided under Equity 7, Section 114(f)(5). Specifically, the Exchange 
is adding a fifth MQM that concerns auction quality requirements 
(``Auction Quality Requirements''). In order for a DLP to qualify for a 
DLP Standard Rebate, it will need to meet 4 of 5 of the Standard MQMs 
in the assigned exchange-traded product (``ETP'') as measured by Nasdaq 
to qualify for the Standard Rebate (rather than the current 4 of 4 of 
the Standard MQMs). In order for a DLP to qualify for an Enhanced 
Rebate, a DLP will need to meet all 5 Enhanced MQMs in the assigned ETP 
as measured by Nasdaq to qualify for the Enhanced Rebate. The current 
MQMs are measured on average in the assigned ETP during regular market 
hours, however, the Auction Quality Requirements will be measured each 
auction against the metrics set forth below.
    The Auction Quality Requirement for the Standard Rebate requires 
that the auction price must be within 350 basis points (opening) and 
100 basis points (closing) of the first reference price within 30 
seconds prior to the market open (opening) and within 120 seconds prior 
to the market close (closing). The Auction Quality Requirement for the 
Enhanced Rebate requires that the auction price must be within 150 
basis points (opening) and 50 basis points (closing) of the first 
reference price

[[Page 50136]]

within 30 seconds prior to the market open (opening) and within 120 
seconds prior to the market close (closing). The Exchange believes that 
the Auction Quality Requirement thresholds for the Standard Rebate 
outlined above are very achievable for DLPs, while the Auction Quality 
Requirement thresholds for the Enhanced Rebate outlined above are 
within reach for most DLPs.
    The Exchange also proposes to amend Equity 7, Section 114(f)(4) to 
revise the monthly performance criteria related to secondary DLPs 
(``Secondary DLPs''). Specifically, the current MQM says that the 
Secondary DLP qualifies for Secondary DLP Rebates in ETPs if it meets 
any 2 of the 4 Enhanced MQMs. This will be revised to say that it must 
meet 2 of the Enhanced MQMs, excluding the Auction Quality Requirements 
metric. In essence, this means this MQM will remain unchanged.
Description of the Changes
    This proposal amends Equity 7, Section 114(f)(4) for certain of the 
MQMs tied to the rebates applicable for DLPs in Nasdaq-listed 
securities. The Exchange believes that these changes will encourage 
DLPs to monitor orders leading up to the auctions and participate in 
the auctions for Nasdaq-listed securities. As previously discussed, the 
revision to the monthly performance criteria related to Secondary DLPs 
in Equity 7, Section 114(f)(4) is being made simply to maintain the 
status quo of the MQMs for Secondary DLPs.
    Nasdaq is proposing these changes to encourage DLPs to maintain 
better market quality leading up to and at the time of the opening and 
closing auctions for Nasdaq-listed securities, as well as to remain 
competitive with NYSE Arca, Inc. (``Arca'') and Cboe BZX Exchange, Inc. 
(``Cboe''),\4\ which have both recently added auction quality standards 
for their DLP equivalents as well.
---------------------------------------------------------------------------

    \4\ See Securities and Exchange Act Release No. 92053 (May 27, 
2021), 86 FR 29868 (June 3, 2021) (SR-NYSEArca-2021-43); and 
Securities and Exchange Act Release No. 93616 (Nov. 19, 2021), 86 FR 
67524 (Nov. 26, 2021) (SR-CboeBZX-2021-073) [sic].
---------------------------------------------------------------------------

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 its 
facilities and do not unfairly discriminate between customers, issuers, 
brokers or dealers. The Exchange also notes that its ETP listing 
business operates in a highly-competitive market in which market 
participants, which include both DLPs and ETP issuers, can readily 
transfer their listings or opt not to participate, respectively, if 
they deem fee levels, liquidity incentive programs, or any other factor 
at a particular venue to be insufficient or excessive. The proposed 
rule change reflects a competitive pricing structure designed to 
incentivize issuers to list new products and transfer existing products 
to the Exchange and market participants to enroll and participate as 
DLPs on the Exchange, which the Exchange believes will enhance market 
quality in qualified ETPs listed on the Exchange.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b) (5).
---------------------------------------------------------------------------

Amend Equity 7, Section 114(f)(4) To Revise the Monthly Performance 
Criteria Related to Specific Rebates Provided Under Equity 7, Section 
114(f)(5), and To Address Secondary DLPs
    The Exchange believes that amending Equity 7, Section 114(f)(4) to 
revise the monthly performance criteria related to the specific rebates 
provided under Equity 7, Section 114(f)(5) by better aligning the 
behavior required to qualify for rebates with the nature of the rebates 
provided is reasonable because the Exchange must from time to time 
assess the effectiveness of the incentives it provides to market 
participants in return for the beneficial behavior required to receive 
the incentive.
    The MQM will be changed from the current requirement to meet all 4 
of 4 of the Standard MQMs to qualify for the Standard Rebate to needing 
to meet 4 of 5 of the Standard MQMs in the assigned ETP as measured by 
Nasdaq to qualify for the Standard Rebate. Additionally, the MQM will 
be changed from the current requirement to meet all 4 of 4 of the 
Enhanced MQMs to qualify for the Enhanced Rebate to needing to meet all 
5 of 5 of the Enhanced MQMs in the assigned ETP as measured by Nasdaq 
to qualify for the Enhanced Rebate.
    The Exchange believes that the Auction Quality Requirements for the 
Standard Rebate and the Enhanced Rebate, as discussed above, are an 
equitable allocation and are not unfairly discriminatory because the 
Exchange believes that the Auction Quality Requirement thresholds for 
the Standard Rebate are very achievable for DLPs, while the Auction 
Quality Requirement thresholds for the Enhanced Rebate are within reach 
for most DLPs.
    The Exchange believes that the proposed revisions to the MQMs for 
Primary and Secondary DLPs are an equitable allocation and are not 
unfairly discriminatory because the Exchange will apply the same 
criteria to all DLPs so that they can qualify for rebates that are 
available to all qualifying members and that reward meaningful quote 
quality and liquidity in ETPs. The Exchange also believes that the 
proposed revisions to the MQMs for Primary and Secondary DLPs are an 
equitable allocation and are not unfairly discriminatory among Exchange 
members because any member may become a market maker and take the steps 
necessary to also become a DLP, including meeting the proposed minimum 
criteria under Equity 7, Section 114(f)(4).\7\ The DLP Program is 
limited to Exchange market makers because of their unique role in the 
markets, including their obligation to provide liquidity in the 
securities in which they are registered. Thus, the DLP Program is a 
further extension of the market maker's role in providing liquidity in 
specific securities, to the benefit of all market participants.
---------------------------------------------------------------------------

    \7\ The Exchange will select DLPs based on the factors in Equity 
7, Section 114(f)(2).
---------------------------------------------------------------------------

    The Exchange also believes these changes are an equitable 
allocation and are not unfairly discriminatory because the Exchange is 
proposing these changes to the DLP Program to encourage DLPs to 
maintain better market quality leading up to and at the time of the 
opening and closing auctions for Nasdaq-listed securities, as well as 
to remain competitive with Arca and Cboe,\8\ which have both recently 
added auction quality standards for their DLP equivalents as well.
---------------------------------------------------------------------------

    \8\ Supra note 4.
---------------------------------------------------------------------------

    The Exchange believes that its proposal to amend Equity 7, Section 
114(f)(4) to address Secondary DLPs is reasonable because it simply 
maintains the status quo of the MQMs for Secondary DLPs.
    The Exchange also believes that amending the DLP Program as 
proposed is an equitable allocation of rebates and is not unfairly 
discriminatory because it will allocate its rebates fairly among its 
market participants (i.e., the Exchange will pay higher rebates to DLPs 
that meet higher MQMs and will pay DLPs higher fixed rebates for the 
ETPs with lower ADVs).

[[Page 50137]]

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. The Exchange notes that it 
operates in a highly competitive market in which market participants 
can readily favor competing venues if they deem rebates (this includes 
the related MQMs) or 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 
rebates (this includes the related MQMs) 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 rebates 
(this includes the related MQMs) and fees in response, and because 
market participants may readily adjust their order routing practices, 
the Exchange believes that the degree to which rebate (this includes 
the related MQMs) and fee changes in this market may impose any burden 
on competition is extremely limited.
    In this instance, the Exchange is proposing to modify certain of 
the MQMs to qualify for the incentives provided to market makers for 
participation in the DLP program in an effort to improve the program by 
providing more targeted measurements to improve and increase market 
quality in all ETPs.
    The Exchange uses incentives, such as the rebates of the DLP 
program, to incentivize market participants to improve the market. The 
Exchange must, from time to time, assess the effectiveness of 
incentives (and related MQMs) and adjust them when they are not as 
effective as the Exchange believes they could be. Moreover, the 
Exchange is ultimately limited in the amount of rebates it may offer. 
The proposed amended MQMs are reflective of such an analysis.
    The Exchange notes that participation in the DLP program is 
entirely voluntary and, to the extent that registered market makers 
determine that the MQMs and related rebates are not in line with the 
level of market-improving behavior the Exchange requires, a DLP may 
elect to deregister as such with no penalty.
    The Exchange does not believe that the proposed changes place an 
unnecessary burden on competition and, in sum, if the changes proposed 
herein are unattractive to market makers, it is likely that the 
Exchange will lose participation in the DLP program as a result. Thus, 
the Exchange does not believe that the proposal represents a burden on 
competition among Exchange members, or that the proposal 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 \9\ and paragraph (f) of Rule 19b-4 \10\ 
thereunder.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

    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-2022-045 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-2022-045. 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-2022-045 and should be submitted 
on or before September 6, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
---------------------------------------------------------------------------

    \11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-17433 Filed 8-12-22; 8:45 am]
BILLING CODE 8011-01-P


