
[Federal Register Volume 88, Number 159 (Friday, August 18, 2023)]
[Notices]
[Pages 56667-56670]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-17758]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98128; File No. SR-NASDAQ-2023-028]


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

August 14, 2023.
    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 August 1, 2023, 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) to establish a new credit tier, 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 56668]]

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 schedule of 
credits it provides to members, pursuant to Equity 7, Section 118(a), 
by establishing a new credit tier.
    Specifically, the Exchange proposes to provide a new credit for 
displayed quotes/orders (other than Supplemental Orders or Designated 
Retail Orders) of $0.0030 per share executed to a member with: (i) 
shares of liquidity provided in all securities that represent 0.70% or 
more (in securities priced at or greater than $1) of Consolidated 
Volume (in securities priced at or greater than $1); (ii) 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; and (iii) shares of non-displayed liquidity (other 
than midpoint orders) provided in all securities that represent 0.10% 
or more of Consolidated Volume. The new credit of $0.0030 per share 
executed would apply to displayed quotes/orders (other than 
Supplemental Orders or Designated Retail Orders) in Tape A, Tape B, and 
Tape C. Members would not be permitted to combine the new $0.0030 per 
share executed with QMM credits set forth in Equity 7, Section 114(e).
    The purpose of this credit is to provide members with a new 
incentive to add significant amounts of liquidity to the Exchange and, 
in particular, to add significant volumes of liquidity in securities in 
Tape B and in non-displayed liquidity (other than midpoint orders) in 
all Tapes. An increase in liquidity adding activity on the Exchange 
would help to improve the quality of the market for all 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.
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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. 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 establish a new 
$0.0030 per share executed credit as a means of incentivizing members 
to provide meaningful amounts of liquidity to the Exchange, 
particularly in securities in Tape B as well as non-displayed orders 
(other than midpoint orders) in securities in any Tape. To the extent 
that the Exchange succeeds in increasing liquidity adding activity on 
the Exchange, including in securities in Tape B and non-displayed order 
flow (other than midpoint orders), then the Exchange would experience 
improvements in its market quality, which would benefit all market 
participants.
    The Exchange also believes that it is equitable to establish a new 
$0.0030 per share executed credit. Again, this proposed credit stands 
to improve the market quality of the Exchange, to the benefit of all 
participants, by incentivizing members to provide meaningful amounts of 
liquidity to the Exchange, particularly in securities in Tape B as well 
as in non-displayed orders (other than midpoint orders) in securities 
in any Tape. The Exchange also believes that it is equitable to target 
the credit, in part, to liquidity adding activity in securities in Tape 
B, and non-displayed orders (other than midpoint orders) in any Tape, 
because the Exchange believes that the market for such securities and 
orders would benefit from additional liquidity. The Exchange notes that 
it has limited funds to apply in the form of incentives, and thus must 
deploy those limited funds to incentives that it believes will be the 
most effective at improving market quality in areas that the Exchange 
determines are in need of improvement.
    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

[[Page 56669]]

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 proposed $0.0030 per share executed 
credit is not unfairly discriminatory because the credit is available 
to all members. Moreover, the proposed credit stands to improve the 
overall market quality of the Exchange, to the benefit of all 
participants, by incentivizing members to provide meaningful amounts of 
liquidity to the Exchange, including in securities in Tape B as well as 
in non-displayed orders (other than midpoint orders) in securities in 
any Tape. It is not unfairly discriminatory to target the credit, in 
part, to liquidity adding activity in securities in Tape B and non-
displayed orders (other than midpoint orders) in all Tapes, because the 
Exchange believes that the market for such securities and orders would 
benefit from additional liquidity. The Exchange notes that it has 
limited funds to apply in the form of incentives, and thus must deploy 
those limited funds to incentives that it believes will be the most 
effective at improving market quality in areas that the Exchange 
determines are in need of improvement.
    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. To the 
contrary, the proposed change will provide an opportunity for members 
to receive a new credit based on their market-improving behavior. Any 
member may elect to provide the levels of market activity required in 
order to receive the new credit.
    The Exchange notes that its members are free to trade on other 
venues to the extent they believe that the Exchange's schedule of 
credits is 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 and 
credit changes in this market may impose any burden on competition is 
extremely limited.
    Even as one of the largest U.S. equities exchanges by volume, the 
Exchange has less than 20% 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.
    The Exchange's proposal is pro-competitive in that the Exchange 
intends for the proposal to increase liquidity on the Exchange and 
thereby render the Exchange a more attractive and vibrant venue to 
market participants.
    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.\7\
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    \7\ 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-NASDAQ-2023-028 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-2023-028. 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 (https://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

[[Page 56670]]

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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-NASDAQ-2023-028 and should 
be submitted on or before September 8, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-17758 Filed 8-17-23; 8:45 am]
BILLING CODE 8011-01-P


