[Federal Register Volume 87, Number 203 (Friday, October 21, 2022)]
[Notices]
[Pages 64123-64125]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-22839]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96091; File No. SR-NASDAQ-2022-053]


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(a)

October 17, 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 October 3, 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), 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). Specifically, with 
respect to its schedule of credits for displayed quotes/orders (other 
than Supplemental Orders or Designated Retail Orders) that provide 
liquidity, the Exchange proposes to amend the criteria for an existing 
credit of $0.0029 per share executed.
    The Exchange proposes to amend its existing credit of $0.0029 per 
share executed to a member: (i) with shares of liquidity provided in 
all securities through one or more of its Nasdaq Market Center MPIDs 
that represent more than 0.60% 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 more 
than 0.10% of Consolidated Volume, and (ii) that adds at least 0.175% 
of Consolidated Volume during the month in non-displayed orders 
(excluding midpoint orders) for securities in any tape during the 
month. The Exchange proposes to amend this credit by lowering the 
threshold percentage of Consolidated Volume added during the month in 
non-displayed orders (excluding midpoint orders) for securities in any 
tape during the month. Specifically, the Exchange proposes lowering 
this threshold percentage from 0.175% to 0.15%.
    The Exchange proposes to amend the existing criteria because it 
proved too difficult for members to meet in combination with the other 
criterion set forth in the credit, and has hindered the credit in 
achieving its intended effect. The Exchange has limited resources at 
its disposal to devote to incentives and it periodically reassesses the 
allocation of those resources when they prove to be ineffective. The 
lower threshold proposed will be more readily attainable for members 
and will continue to incent members to add substantial volumes of non-
displayed liquidity to the Exchange. From time to time, the Exchange 
believes it is reasonable to recalibrate the criteria for credits such 
as this one to ensure that the credits remain relevant to current 
levels of liquidity providing activity on the Exchange.
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.
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    \3\ 15 U.S.C. 78f(b).
    \4\ 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.

[[Page 64124]]

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\
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    \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)).
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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.'' \6\
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    \6\ 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 it is reasonable to require a member to 
(i) provide shares of liquidity provided in all securities through one 
or more of its Nasdaq Market Center MPIDs that represent more than 
0.60% 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 more than 0.10% of 
Consolidated Volume, and (ii) add at least 0.15% (instead of 0.175%) of 
Consolidated Volume during the month in non-displayed orders (excluding 
midpoint orders) for securities in any tape during the month in order 
to qualify for the existing $0.0029 per share executed credit. The 
Exchange believes that it is reasonable to lower the threshold 
percentage of Consolidated Volume in non-displayed orders (excluding 
midpoint orders) for securities in any tape in order to qualify for the 
credit to ensure that this credit remains relevant to current levels of 
liquidity providing activity on the Exchange.
    The Exchange believes it is reasonable to establish a lower 
threshold because it proved too difficult for members to meet in 
combination with the other criterion set forth in the credit, and has 
hindered the credit in achieving its intended effect. The Exchange has 
limited resources at its disposal to devote to incentives and it 
periodically reassesses the allocation of those resources when they 
prove to be ineffective. The proposal to lower the requirement that a 
member add at least 0.175% of Consolidated Volume to 0.15% of 
Consolidated Volume (during the month in non-displayed orders 
(excluding midpoint orders)) is reasonable because the proposed 
amendment will be more readily attainable for members and will still 
incent members to add substantial volumes of non-displayed liquidity to 
the Exchange.
    The Exchange believes its proposal will allocate its charges and 
credits fairly among its market participants. The Exchange also 
believes it is equitable to recalibrate or revise existing criteria for 
its credits to ensure that the credits remain appropriate for 
participants to attain.
    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 decrease the non-
displayed volume threshold percentage to qualify for an existing 
$0.0029 transaction credit is not unfairly discriminatory because the 
credit is available to all members. The Exchange also believes it is 
not unfairly discriminatory to recalibrate or revise existing criteria 
for its credits to ensure that the credits are effective and readily 
attainable.
    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. Any 
member may elect to achieve the levels of liquidity required in order 
to qualify for the credit. The Exchange notes that its members are free 
to trade on other venues to the extent they believe that the Exchange's 
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
    The Exchange believes that the proposed change to its schedule of 
credits to amend the criteria to qualify for an existing $0.0029 
transaction credit 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

[[Page 64125]]

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.
    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.
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 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-2022-053 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-2022-053. 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-2022-053 and should be submitted 
on or before November 14, 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,
Deputy Secretary.
[FR Doc. 2022-22839 Filed 10-20-22; 8:45 am]
BILLING CODE 8011-01-P


