[Federal Register Volume 83, Number 119 (Wednesday, June 20, 2018)]
[Notices]
[Pages 28678-28681]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-13163]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83435; File No. SR-NASDAQ-2018-042]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the Exchange's Transaction Fees at Rule 7014(j) and Rule 7018(a)

June 14, 2018.
    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 May 31, 2018, 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 transaction fees at 
Rule 7014(j) and Rule 7018(a), as described below. While these 
amendments are effective upon filing, the Exchange has designated the 
proposed amendments to be operative on June 1, 2018.
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaq.cchwallstreet.com/, 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

[[Page 28679]]

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 Exchange is proposing to: (i) Eliminate a credit that it 
provides to members for displayed liquidity under Rule 7018(a); and 
(ii) re-establish a tier in the Nasdaq Growth Program under Rule 
7014(j).
First Change
    Currently, the Exchange provides a credit of $ 0.00305 per share 
executed to a member for displayed quotes/orders (other than 
Supplemental Orders or Designated Retail Orders) that provide liquidity 
if the member has: (i) Shares of liquidity provided in all securities 
during the month representing at least 0.15% of Consolidated Volume \3\ 
during the month, through one or more of its Nasdaq Market Center 
Market Participant Identifiers; and (ii) adds Nasdaq Options Market 
(``NOM'') Market Maker liquidity in Penny Pilot Options and/or Non- 
Penny Pilot Options of 0.90% or more of total industry average daily 
volume in the customer clearing range for Equity and Exchange Traded 
Fund option contracts per day in a month on NOM. The Exchange provides 
the credit with the same criteria to securities of all three Tapes \4\ 
under Rule 7018(a)(1)-(3).
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    \3\ As used in Rule 7018(a), the term ``Consolidated Volume'' 
means the total consolidated volume reported to all consolidated 
transaction reporting plans by all exchanges and trade reporting 
facilities during a month in equity securities, excluding executed 
orders with a size of less than one round lot.
    \4\ There are three Tapes, which are based on the listing venue 
of the security: Tape C securities are Nasdaq-listed; Tape A 
securities are New York Stock Exchange-listed; and Tape B securities 
are listed on exchanges other than Nasdaq and NYSE.
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    The Exchange offers these credits as a means of improving market 
quality by providing its members with an incentive to increase their 
provision of liquidity on both the Exchange and NOM. However, the 
Exchange has observed over time that these credits are not serving 
their intended purpose. Indeed, no members presently qualify for 
receipt of the credits. Accordingly, the Exchange proposes to eliminate 
them.
Second Change
    The Exchange is proposing to revive, under Rule 7014(j), a portion 
of the Nasdaq Growth Program that it previously eliminated.
    Nasdaq introduced the Growth Program in 2016.\5\ The purpose of the 
Growth Program is to provide a credit per share executed for members 
that meet certain growth criteria. The credit is designed to provide an 
incentive to members that do not qualify for other credits under Rule 
7018 in excess of the Growth Program credit to increase their 
participation on the Exchange.
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    \5\ See Securities Exchange Act Release No. 78977 (September 29, 
2016), 81 FR 69140 (October 5, 2016) (SR-NASDAQ-2016-132).
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    Presently, the Growth Program provides a member with a $0.0027 per 
share executed credit in securities priced $1 or more per share. The 
credit is provided in lieu of other credits provided to the member for 
displayed quotes/orders (other than Supplemental Orders or Designated 
Retail Orders) that provide liquidity under Rule 7018, if the credit 
under the Growth Program is greater than the credit attained under Rule 
7018.
    Until late 2017, the Growth Program also included a second credit 
tier.\6\ That is, it provided a member with either a $0.0027 per share 
executed credit in securities priced $1 or more per share, or a $0.0025 
per share executed credit in securities priced at $1 or more, if the 
member met certain criteria. Again, these credit [sic] were provided in 
lieu of other credits provided to the member for displayed quotes/
orders (other than Supplemental Orders or Designated Retail Orders) 
that provide liquidity under Rule 7018, if the credit under the Growth 
Program was greater than the credit attained under Rule 7018.
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    \6\ The Growth Program originally included only the $0.0025 
credit. See id. It added the $0.0027 credit in June 2017. See 
Securities Exchange Act Release No. 34-80997 (June 28, 2017), 82 FR 
29348 (June 22, 2017) (SR-NASDAQ-2017-060).
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    Rule 7014(j) provided three ways in which a member could qualify 
for the $0.0025 rebate in a given month. First, the member could 
qualify for this rebate by: (i) Adding greater than 750,000 shares a 
day on average during the month through one or more of its Nasdaq 
Market Center MPIDs; and (ii) increasing its shares of liquidity 
provided through one or more of its Nasdaq Market Center MPIDs as a 
percent of Consolidated Volume by 20% versus the member's Growth 
Baseline.\7\ Second, the member could qualify for the $0.0025 rebate 
by: (i) Adding greater than 750,000 shares a day on average during the 
month through one or more of its Nasdaq Market Center MPIDs; (ii) 
increasing its shares of liquidity provided through one or more of its 
Nasdaq Market Center MPIDs as a percent of Consolidated Volume by 20% 
versus the member's Growth Baseline in the preceding month, and (iii) 
maintaining or increasing its shares of liquidity provided through one 
or more of its Nasdaq Market Center MPIDs as a percent of Consolidated 
Volume as compared to the preceding month. Third, a member could 
qualify for the Growth Program by: (i) Adding greater than 750,000 
shares a day on average during the month through one or more of its 
Nasdaq Market Center MPIDs in three separate months; (ii) increasing 
its shares of liquidity provided through one or more of its Nasdaq 
Market Center MPIDs as a percent of Consolidated Volume by 20% versus 
the member's Growth Baseline in three separate months; and (iii) 
maintaining or increasing its shares of liquidity provided through one 
or more of its Nasdaq Market Center MPIDs as a percent of Consolidated 
Volume compared to the Growth Baseline established when the member met 
the criteria for the third month.
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    \7\ The Growth Baseline was defined as the member's shares of 
liquidity provided in all securities through one or more of its 
Nasdaq Market Center MPIDs as a percent of Consolidated Volume 
during the last month a member qualified for the Nasdaq Growth 
Program under Rule 7014(j)(1)(B)(i) (increasing its Consolidated 
Volume by 20% versus its Growth Baseline). If a member had not yet 
qualified for a credit under this program, its August 2016 share of 
liquidity provided in all securities through one or more of its 
Nasdaq Market Center MPIDs as a percent of Consolidated Volume was 
used to establish a baseline.
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    In 2017, the Exchange eliminated the $0.0025 rebate tier, stating 
that it wished to simplify the operation of the Growth Program.\8\ 
However, the $0.0027 credit remains a part of the Growth Program, as 
set forth in Rule 7014(j).
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    \8\ See Securities Exchange Act Release No. 34-82062 (Nov. 13, 
2017), 82 FR 54457 (Nov. 17, 2017) (SR-NASDAQ-2017-119).
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    Since it eliminated the $0.0025 rebate tier, the Exchange has 
received interest in reviving it, and it proposes to do so now. 
However, the Exchange proposes modifications to the $0.0025 rebate tier 
that will simplify and update it. In particular, the Exchange proposes 
to omit one of the three means that it previously provided to qualify 
for the $0.0025 rebate tier--namely, the provision that qualified a 
member that (i) adds greater than 750,000 shares a day on average 
during the month through one or more of its Nasdaq Market Center MPIDs; 
(ii) increases its shares of liquidity provided through one or more of 
its Nasdaq Market Center MPIDs as a percent of Consolidated Volume by 
20% versus the member's Growth Baseline in the preceding month, and 
(iii) maintains or increases its shares of liquidity provided through

[[Page 28680]]

one or more of its Nasdaq Market Center MPIDs as a percent of 
Consolidated Volume as compared to the preceding month. The Exchange 
also proposes to reset the Growth Baseline as a member's May 2018 share 
of liquidity provided in all securities through one or more of its 
Nasdaq Market Center MPIDs as a percent of Consolidated Volume.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\9\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\10\ 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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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4) and (5).
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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.''\11\
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    \11\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    Likewise, in NetCoalition v. Securities and Exchange Commission 
\12\ (``NetCoalition'') the D.C. Circuit upheld the Commission's use of 
a market-based approach in evaluating the fairness of market data fees 
against a challenge claiming that Congress mandated a cost-based 
approach.\13\ As the court emphasized, the Commission ``intended in 
Regulation NMS that `market forces, rather than regulatory 
requirements' play a role in determining the market data . . . to be 
made available to investors and at what cost.''\14\
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    \12\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \13\ See NetCoalition, at 534-535.
    \14\ Id. at 537.
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    Further, ``[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'. . . .'' \15\ Although the court and 
the SEC were discussing the cash equities markets, the Exchange 
believes that these views apply with equal force to the options 
markets.
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    \15\ Id. at 539 (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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First Change
    The proposal to eliminate the $0.00305 per share executed credits 
for all three Tapes is reasonable because these credits have not been 
effective in achieving their intended objective of incentivizing 
members to provide liquidity to the Exchange and to NOM. The Exchange 
has limited resources available to it to devote to the operation of 
special pricing programs and as such, it is reasonable and equitable 
for the Exchange to allocate those resources to those programs that are 
effective and away from those programs that are ineffective. The 
proposals are also equitable and not unfairly discriminatory because 
the proposed changes to the credits will apply uniformly to all 
similarly situated members.
Second Change
    The Exchange believes that re-establishing a $0.0025 per share 
executed credit as part of the Nasdaq Growth Program is reasonable for 
the reasons that the Exchange set forth in its original proposal to 
establish that credit.\16\ In addition, the Exchange believes that it 
is reasonable to re-establish the credit tier notwithstanding the fact 
that it previously eliminated the tier, because the Exchange believes 
that the program is more likely to be successful now than it was 
previously in achieving its objective of increasing participation on 
the Exchange. In particular, the Exchange notes that it has recently 
received member interest in re-establishing the tier and has determined 
that it is worthwhile to respond to such interest if doing so will 
promote increased Exchange participation. The Exchange notes that it 
intends to monitor the Growth Program closely to determine whether it 
does, in fact, attract qualifying interest and incentivize greater 
participation. If it does not do so, the Exchange will either further 
modify or once again move to eliminate the $0.0025 rebate tier.
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    \16\ See Securities Exchange Act Release No. 78977 (September 
29, 2016), 81 FR 69140 (October 5, 2016) (SR-NASDAQ-2016-132).
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    The Exchange also believes that it is reasonable to modify the 
rebate tier from its prior formulation as a means of streamlining the 
qualifications for the tier and rendering it easier for the Exchange to 
administer and members to understand. The Exchange furthermore believes 
that it is reasonable to reset the Growth Baseline to May 2018 as that 
is the last month of activity prior to the restart of the program.
    Again, the Exchange believes that the proposal to re-establish the 
$0.0025 rebate tier is an equitable allocation and is not unfairly 
discriminatory for the reasons that the Exchange set forth in its 
original proposal to establish that credit.\17\ The Exchange also 
believes that its proposed changes to the prior iteration of the rebate 
tier are equitable and non-discriminatory because they will apply 
uniformly to members and will simplify the Growth Program. The Exchange 
further notes that reviving this tier will benefit members and the 
markets by providing additional means by which members may obtain 
credits in exchange for increasing their participation in the markets.
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    \17\ See id.
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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. 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.
    In this instance, the proposed elimination of the $0.00305 per 
share executed credit and the revival of the $0.0025 credit will not 
impose a burden on competition because the Exchange's

[[Page 28681]]

execution services are completely voluntary and subject to extensive 
competition both from other exchanges and from off-exchange venues.
    The proposed changes to the credits are reflective of a robust and 
competitive securities market, where trading venues must provide 
incentives to participants in the form of credits to attract order flow 
and adjust those incentives to make them more competitive or to allow 
the Exchange to provide other market-improving incentives elsewhere.
    Moreover, trading venues are free to adjust their fees and credits 
in response to any changes that the Exchange makes to its fees and 
credits. If any of 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)(ii) of the Act.\18\
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    \18\ 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-2018-042 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-2018-042. 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-2018-042, and should be submitted 
on or before July 11, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-13163 Filed 6-19-18; 8:45 am]
 BILLING CODE 8011-01-P