
[Federal Register Volume 88, Number 221 (Friday, November 17, 2023)]
[Notices]
[Pages 80358-80360]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-25382]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98912; File No. SR-NASDAQ-2023-043]


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

November 13, 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 November 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 
and fees 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 (i) eliminate a 
credit to members for displayed quotes/orders

[[Page 80359]]

(other than Supplemental Orders or Designated Retail Orders) that 
provide liquidity and (ii) eliminate a fee for routing orders at Equity 
7, Section 118(a).
    The Exchange proposes to eliminate the $0.0026 per share executed 
credit for securities in Tapes A, B, and C offered to a member that, 
through one or more of its Nasdaq Market Center MPIDs: (i) provides 
shares of liquidity in all securities that represent equal to or 
greater than 0.15% of Consolidated Volume; (ii) increases the extent to 
which it provides liquidity in all securities as a percentage of 
Consolidated Volume by 20% or more during the month relative to the 
month of May 2021; and (iii) has a ratio of at least 50% NBBO liquidity 
provided (as defined in Equity 7, Section 114(g)) to liquidity provided 
by displayed quotes/orders (other than Supplemental Orders or 
Designated Retail Orders) during the month. The Exchange proposes to 
eliminate this credit because it is not heavily utilized and includes a 
baseline month of May 2021 for the growth element of the credit, which 
is no longer a relevant benchmark. As such, this credit no longer 
provides a growth incentive that is aligned with the Exchange's needs. 
The Exchange also seeks to simplify its schedule of credits. The 
Exchange has limited resources to allocate to incentives and it must, 
from time to time, reallocate those resources to maximize their net 
impact on the Exchange, market quality, and participants.
    Additionally, the Exchange proposes to eliminate the $0.01 per 
order charge for round lot or mixed lot DOTI Orders, incurred when, 
during the month: (i) a market participant sends an average of more 
than 10,000 DOTI Orders per day through one or more of its MPIDs; and 
(ii) the ratio of DOTI Orders to executions exceeds 300 to 1.\3\ The 
Exchange seeks to simplify its charges for routed orders by eliminating 
such fee. 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.
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    \3\ The fee applies to each DOTI Order that exceeds the 300 to 1 
ratio. In calculating daily average DOTI Orders, the Exchange 
excludes the day with the highest ratio of DOTI Orders to 
executions.
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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 and fees 
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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    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 to eliminate the Exchange's $0.0026 per share executed 
transaction credit and the Exchange's $0.01 fee for routing orders. The 
Exchange seeks to simplify and streamline its schedule of credits by 
eliminating the $0.0026 per share executed credit that is not heavily 
utilized and is no longer based on a relevant benchmark, as described 
above. The Exchange also seeks to eliminate the $0.01 charge for round 
lot or mixed lot DOTI Orders described above in an effort to simplify 
and streamline its fees for routing orders. Together, the proposed 
changes are designed to better align 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.
    Those participants that are dissatisfied with the eliminations from 
the Exchange's schedule of credits and fees are free to shift their 
order flow to competing venues that provide incentives or qualifying 
criteria more in line with participants' objectives.

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 proposals will place any 
category of Exchange participant at a competitive disadvantage.
    The Exchange intends for the proposed changes to simplify its 
credit and fee schedule, remove a credit with an outdated benchmark 
month, preserve its limited resources for optimized effect, and better 
align the schedule of credits and fees 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

[[Page 80360]]

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 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 proposals are reflective of this 
competition.
    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 upwards of 40% of industry volume.
    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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-NASDAQ-2023-043 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-2023-043. 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 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-2023-043 and should 
be submitted on or before December 8, 2023.

    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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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-25382 Filed 11-16-23; 8:45 am]
BILLING CODE 8011-01-P


