[Federal Register Volume 87, Number 178 (Thursday, September 15, 2022)]
[Notices]
[Pages 56721-56724]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-19918]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95718; File No. SR-NASDAQ-2022-050]


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 and Clarify Its 
Port-related Fees at Options 7, Section 3

September 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 September 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.
---------------------------------------------------------------------------

    \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: (i) the Exchange's transaction 
credits at Equity 7, Section 118(a), and (ii) the Exchange's port-
related fees at Options 7, Section 3, 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.

[[Page 56722]]

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 
transaction credits at Equity 7, Section 118(a) and amend the 
Exchange's port-related fees at Options 7, Section 3. Specifically, the 
Exchange proposes to (1) modify the volume requirement to achieve an 
existing credit for displayed quotes/orders that provide liquidity and 
(2) amend the options Rules to clarify that Nasdaq Testing Facility 
(``NTF'') ports are provided at no cost.
Change to Credit for Displayed Quotes/Orders
    Currently, the Exchange provides a $0.0029 per share executed 
credit for a member with shares of liquidity provided in all securities 
through one or more of its Nasdaq Market Center MPIDs that represent 
0.625% or more of Consolidated Volume during the month, including 
shares of liquidity provided with respect to securities that are listed 
on exchanges other than Nasdaq or NYSE that represent 0.15% or more of 
Consolidated Volume. The Exchange proposes to amend the requirement for 
a member to have shares of liquidity that represent 0.625% or more of 
Consolidated Volume during the month by increasing this requirement 
from 0.625% to 0.75%. The proposed change would be applicable to Tape 
A, Tape B and Tape C. The Exchange hopes that this change will 
incentivize members to increase their liquidity providing activity on 
the Exchange, which will improve market quality.
NTF Port Fee Clarification
    The Exchange also proposes to add language to Options 7, Section 
3(iv) to clarify the Exchange's existing practice that NTF Ports are 
provided at no cost. The NTF provides subscribers with a virtual System 
test environment that closely approximates the production environment 
on which they may test their automated systems that integrate with the 
Exchange. For example, the NTF provides subscribers a virtual System 
environment for testing upcoming releases and product enhancements, as 
well as testing firm software prior to implementation. The Exchange 
proposes adding express language in the options Rules to provide 
increased clarity to market participants.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\3\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\4\ 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.
---------------------------------------------------------------------------

    \3\ 15 U.S.C. 78f(b).
    \4\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The Exchange's proposed changes to its fee schedule 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' . . . .'' \5\
---------------------------------------------------------------------------

    \5\ 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)).
---------------------------------------------------------------------------

    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.'' \6\
---------------------------------------------------------------------------

    \6\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
---------------------------------------------------------------------------

    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 it is reasonable to require a member to 
provide shares of liquidity in all securities through one or more of 
its Nasdaq Market Center MPIDs that represent 0.75% (rather than 
0.625%) or more of Consolidated Volume during the month, including 
shares of liquidity provided with respect to securities that are listed 
on exchanges other than Nasdaq or NYSE that represent 0.15% or more of 
Consolidated Volume in order to qualify for the existing $0.0029 per 
share executed credit. The Exchange believes that it is reasonable to 
create a stricter qualification for the credit to ensure that this 
credit remains relevant to current levels of liquidity providing 
activity on the Exchange and continues to incentivize liquidity adding 
activity. To the extent that this proposal results in an increase in 
liquidity adding and quoting activity on the Exchange, this will 
improve the quality of the Nasdaq market and increase its 
attractiveness to existing and prospective participants.
    The Exchange believes its proposal will allocate its charges and 
credits fairly among its market participants. The Exchange believes 
that it is an equitable allocation to increase the volume threshold to 
qualify for an existing $0.0029 transaction credit because the proposal 
will encourage members to add displayed liquidity to the Exchange. To 
the extent that the

[[Page 56723]]

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.
    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 believes that its proposal to increase the volume 
threshold to qualify for an existing $0.0029 transaction credit is not 
unfairly discriminatory because the credit is available to all members. 
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 their liquidity adding activity on 
the Exchange.
    The Exchange also believes that it is just and equitable, and in 
the interests of market participants, for the Exchange to clarify the 
Exchange's existing practice to provide NTF ports at no cost in Options 
7, Section 3(iv), codifying existing practice where it is not expressly 
stated in the Rule. The Exchange believes that market participants will 
benefit from increased clarity, which will help limit any potential 
confusion in the future.
    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 to increase the volume 
threshold to qualify for an existing $0.0029 transaction credit is 
intended to have market-improving effects, to the benefit of all 
members. Any member may elect to achieve the levels of liquidity 
required in order to qualify for the credit. In addition, the proposed 
language to the options Rules that NTF ports are provided at no cost 
merely codifies and clarifies an existing practice of the Exchange.
    The Exchange notes that its members are free to trade on other 
venues to the extent they believe that the credits 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 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 qualifying criteria for an existing 
credit 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.
    The Exchange's proposal to modify the qualifying criteria for an 
existing credit is pro-competitive in that the Exchange intends for the 
change to increase liquidity addition activity on the Exchange, thereby 
rendering the Exchange a more attractive and vibrant venue to market 
participants.
    In addition, the proposed change to the options Rules to clarify 
that NTF ports are provided at no cost is designed to expressly state 
existing practice without changing its operation and, therefore, the 
Exchange believes that the proposed change will not impose a burden on 
competition.
    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) of the Act \7\ and paragraph (f) of Rule 19b-4 \8\ 
thereunder.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 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:

[[Page 56724]]

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-2022-050 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-2022-050. 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-2022-050 and should be submitted 
on or before October 6, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
---------------------------------------------------------------------------

    \9\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-19918 Filed 9-14-22; 8:45 am]
BILLING CODE 8011-01-P


