[Federal Register Volume 87, Number 239 (Wednesday, December 14, 2022)]
[Notices]
[Pages 76527-76530]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-27051]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96467; File No. SR-NASDAQ-2022-070]


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)

December 8, 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 December 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), 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 76528]]

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 supplemental credits for displayed quotes/
orders (other than Supplemental Orders or Designated Retail Orders) 
that provide liquidity, the Exchange proposes to (1) add a restriction 
to and reduce an existing supplemental credit, (2) delete an existing 
supplemental credit of $0.0001 currently labeled as ``M-ELO 
Supplemental Credit B,'' and (3) make conforming changes to its 
schedule of credits.
Reduction of Existing Growth Credit and Proposed Restriction
    Currently, the Exchange provides a supplemental credit of $0.0001 
per share to a member that, through one or more of its Nasdaq Market 
Center MPIDs, (i) increases its shares of liquidity provided in all 
securities by at least 30% as a percentage of Consolidated Volume 
during the month relative to the month of October or November 2021 and 
(ii) has shares of liquidity provided of least 15 million average daily 
volume (``ADV'') during the month. The Exchange proposes to reduce this 
credit from $0.0001 per share to $0.00005 per share. Currently, this 
credit is in addition to other credits otherwise available to members 
for adding displayed liquidity to the Exchange (other than Supplemental 
Orders or Designated Retail Orders). The Exchange proposes to add a 
restriction to this existing credit whereby the credit cannot be 
combined with the Qualified Market Maker (``QMM'') Program Tier 2 
credit set forth in Equity 7, Section 114(e).\3\ The Exchange provides 
this current $0.0001 supplemental credit to incentivize members to 
increase their liquidity providing activity on the Exchange. However, 
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 
reduce the credit from $0.0001 to $0.00005 and to exclude firms already 
benefitting from Tier 2 QMM Program credits from receiving this 
modified supplemental growth credit of $0.00005.
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    \3\ The credit may continue to be combined with the QMM Program 
Tier 1 credit set forth in Equity 7, Section 114(e).
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Deletion of M-ELO Supplemental Credit B
    Currently, the Exchange provides a credit of $0.0001 per share 
executed to a member which, through one or more of its Nasdaq Market 
Center MPIDs, either: (i) increases the extent of its ADV of M-ELO 
Orders and/or midpoint orders (that execute against M-ELO Orders) in 
all securities by an ADV of 2 million shares or more during the month 
relative to the month of June 2021; or (ii) executes a combined volume 
of at least 4 million shares ADV through midpoint orders provided and 
M-ELO Orders during the month and increases the extent of its ADV of 
midpoint orders provided and M-ELO Orders in all securities by 150% or 
more during the month relative to the month of June 2021. The Exchange 
proposes to delete this credit. The Exchange provides this credit to 
incentivize members to grow or add M-ELO or midpoint liquidity. 
However, 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. As M-ELO volume has grown over time, 
the current M-ELO Supplemental Credit C, which is more aligned with 
current volumes, will continue to provide members an incentive to grow 
or add M-ELO or midpoint liquidity during the month. Accordingly, the 
Exchange proposes to streamline the M-ELO Supplemental Credits and 
eliminate current M-ELO Supplemental Credit B.
Conforming Changes
    The Exchange also proposes to rename current M-ELO Supplemental 
Credit C as M-ELO Supplemental Credit B given the proposed deletion of 
current M-ELO Supplemental Credit B. In addition, the Exchange proposes 
to clarify that M-ELO Supplemental Credit A may not be combined with 
proposed M-ELO Supplemental Credit B (current M-ELO Supplemental Credit 
C), rather than with both M-ELO Supplemental Credits B and C, given the 
removal of current M-ELO Supplemental Credit B. Similarly, the Exchange 
proposes to clarify that proposed M-ELO Supplemental Credit B (current 
M-ELO Supplemental Credit C) may not be combined with M-ELO 
Supplemental Credit A, rather than with both M-ELO Supplemental Credits 
A and B, given the removal of current M-ELO Supplemental Credit B.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\4\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\5\ 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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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange's proposed changes to its schedule of credits 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'. . . .'' \6\
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    \6\ 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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[[Page 76529]]

    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.'' \7\
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    \7\ 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 it is reasonable, equitable, and not unfairly 
discriminatory for the Exchange to add a restriction to an existing 
credit for displayed orders (other than Supplemental Orders or 
Designated Retail Orders) that provide liquidity to the Exchange and 
reduce the amount of the credit from $0.0001 to $0.00005, as described 
above. These changes would better align the growth incentives with the 
Exchange's needs. The Exchange has limited resources to devote to 
incentive programs, and it is appropriate for the Exchange to 
reallocate these incentives periodically in a manner that best achieves 
the Exchange's overall mix of objectives.
    It is also reasonable, equitable, and not unfairly discriminatory 
for the Exchange to eliminate the current M-ELO Supplemental Credit B 
for displayed quotes/orders (other than Supplemental Orders or 
Designated Retail Orders) that provide liquidity to the Exchange and 
make related conforming changes. Elimination of current M-ELO 
Supplemental Credit B and related conforming changes will streamline 
and recalibrate the M-ELO Supplemental Credits to account for changes 
in member behavior over time. As M-ELO volume has grown over time, the 
proposed M-ELO Supplemental Credit B (i.e., the current M-ELO 
Supplemental Credit C), which is more aligned with current volumes, 
will continue to provide members an incentive to grow or add M-ELO or 
midpoint liquidity during the month. To the extent that the Exchange 
succeeds in increasing the addition of midpoint or M-ELO liquidity or 
executions on the Exchange, all participants will benefit from the 
increase in market quality.
    The Exchange notes that the credits affected by this proposal are 
voluntary. Moreover, nothing about the Exchange's volume-based tiered 
pricing model, as set forth in Equity 7, 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.
    Those participants that are dissatisfied with the amendments to the 
Exchange's schedule of credits are free to shift their order flow to 
competing venues that provide more generous incentives 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 intends for its proposed changes to 
its credits to reallocate its limited resources more efficiently and 
optimally, to recalibrate the credit schedule to reflect changing 
market behavior, and to align the credit schedule with the Exchange's 
overall mix of objectives. The Exchange notes that its members are free 
to trade on other venues to the extent they believe that these 
proposals 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 changes to its schedule of 
credits as described 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 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 proposed changes to the Exchange's credits are 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.

[[Page 76530]]

    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.\8\
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    \8\ 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-2022-070 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-2022-070. 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-2022-070 and should be submitted 
on or before January 4, 2023.
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    \9\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-27051 Filed 12-13-22; 8:45 am]
BILLING CODE 8011-01-P


