[Federal Register Volume 83, Number 186 (Tuesday, September 25, 2018)]
[Notices]
[Pages 48476-48479]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-20770]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84200; File No. SR-NASDAQ-2018-076]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Fees at Rule 7014

September 19, 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 September 13, 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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[[Page 48477]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the its fees at Rule 7014 to: (i) 
Eliminate the requirement that a member be a market maker to 
participate in the Qualified Market Maker (``QMM'') Program; and (ii) 
eliminate the additional $0.0002 per share executed credit under the 
NBBO Program.
    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 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
    Rule 7014 provides various Market Quality Incentive Programs 
available to members. The purpose of the proposed rule change is to 
amend Rule 7014 to: (i) Eliminate the requirement that a member be a 
market maker to participate in the QMM Program; and (ii) eliminate the 
additional $0.0002 per share executed credit under the NBBO Program.
    The Exchange initially filed the proposed pricing changes on 
September 4, 2018 (SR-NASDAQ-2018-071). On September 13, 2018, the 
Exchange withdrew that filing and submitted this filing, which makes a 
technical change to the proposed rule text.
First Change
    The purpose of the first proposed rule [sic] change is to eliminate 
the requirement that a member be a market maker to participate in the 
QMM Program. A QMM is a member that makes a significant contribution to 
market quality by providing liquidity at the national best bid and 
offer (``NBBO'') in a large number of stocks for a significant portion 
of the day. In addition, the member must avoid imposing the burdens on 
Nasdaq and its market participants that may be associated with 
excessive rates of entry of orders away from the inside and/or order 
cancellation. The designation reflects the QMM's commitment to provide 
meaningful and consistent support to market quality and price discovery 
by extensive quoting at the NBBO in a large number of securities. In 
return for its contributions, certain financial benefits are provided 
to a QMM with respect to its order activity, as described under Rule 
7014(e). These benefits include a lower rate charged for executions of 
orders in securities priced at $1 or more per share that access 
liquidity on the Nasdaq Market Center.
    Rule 7014(d) provides the qualification criteria a member must meet 
to be eligible for the QMM Program. Specifically, to be designated a 
QMM, a member must meet the following criteria: (1) The member is not 
assessed any ``Excess Order Fee'' under Rule 7018 during the month; (2) 
the member quotes at the NBBO at least 25% of the time during regular 
market hours in an average of at least 1,000 securities per day during 
the month; and (3) the member is a registered Nasdaq market maker.\3\ 
The Exchange is proposing to eliminate the requirement that a member be 
a Nasdaq market maker to be designated as a QMM. As a consequence, any 
member may participate in the program if it meets the other 
qualification criteria of the rule.
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    \3\ In 2015, the Exchange adopted the requirement under Rule 
7014(d) that a member must be a market maker to be designated a QMM. 
See Securities Exchange Act Release No. 74725 (April 14, 2015), 80 
FR 21778 (April 20, 2015) (SR-NASDAQ-2015-032). Prior to the change, 
a QMM need not have been a Nasdaq market maker. Thus, the QMM 
designation does not by itself impose a two-sided quotation 
obligation or convey any of the benefits associated with being a 
registered market maker. This is currently the case and it will 
continue to be the case with the elimination of the market maker 
requirement.
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Second Change
    The purpose of the second proposed rule [sic] change is to 
eliminate the additional $0.0002 per share executed credit under the 
NBBO Program at Rule 7014(g). The NBBO Program provides two rebates per 
share executed. The Exchange is proposing to eliminate the $0.0002 per 
share executed credit, which is provided to a member for displayed 
quotes/orders (other than Supplemental Orders or Designated Retail 
Orders) that provide liquidity priced at $1 or more. Under Rule 
7014(g), to qualify for the additional $0.0002 per share executed 
credit for displayed quotes/orders (other than Supplemental Orders or 
Designated Retail Orders) that provide liquidity priced at $1 or more, 
a member must (i) execute shares of liquidity provided in all 
securities through one or more of its Nasdaq Market Center MPIDs that 
represents 0.5% or more of Consolidated Volume \4\ during the month, 
and (ii) has a ratio of at least 25% NBBO liquidity provided \5\ to 
liquidity provided during the month. The Exchange has observed that no 
members have qualified for this credit and is consequently proposing to 
eliminate it.
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    \4\ Consolidated Volume is defined as 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. For purposes of calculating Consolidated Volume 
and the extent of a member's trading activity the date of the annual 
reconstitution of the Russell Investments Indexes shall be excluded 
from both total Consolidated Volume and the member's trading 
activity. See Rule 7018(a).
    \5\ NBBO liquidity provided means liquidity provided from orders 
(other than Designated Retail Orders, as defined in Nasdaq Rule 
7018), that establish the NBBO, and displayed a quantity of at least 
one round lot at the time of execution.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\6\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\7\ 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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    \6\ 15 U.S.C. 78f(b).
    \7\ 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.'' \8\
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    \8\ 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 \9\

[[Page 48478]]

(``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.\10\ 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.'' \11\
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    \9\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \10\ See NetCoalition, at 534-535.
    \11\ 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' . . . .'' \12\
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    \12\ 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 Exchange believes that the fees and credits of the QMM Program 
remain reasonable because the Exchange is not proposing to amend them. 
Thus, the basis set forth when the fees were adopted remain [sic] 
valid. The proposed elimination of the market maker requirement is 
reasonable, an equitable allocation and is not unfairly discriminatory 
because the Exchange seeks to broaden participation in the program. 
When the Exchange limited the QMM Program to market makers, it noted 
that market makers had provided the vast majority of participation in 
the program and were the only market participant [sic] utilizing the 
program at the time.\13\ The Exchange now seeks broader participation 
in the program by allowing any Nasdaq member to participate in the QMM 
Program that qualifies under the remaining criteria. The Exchange 
believes that circumstances have changed over the three years since it 
last allowed non-Nasdaq market makers to participate in the program, 
such that non-market makers may have interest in meeting the criteria 
required to receive the fees and credits under the QMM Program. 
Allowing broader participation in the QMM Program may increase the 
market-improving participation in the QMM Program, to the extent the 
number of members participating in the program increase [sic]. As a 
consequence, the proposed change is reasonable, an equitable allocation 
and will not discriminate in any way.
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    \13\ Supra note 3.
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Second Change
    The Exchange believes that elimination of the $0.0002 per share 
executed NBBO credit is reasonable because it eliminates a credit that 
the Exchange has determined to be unnecessary. In particular, the 
credit has not provided adequate incentive to members to meet the 
related qualifying requirements. The Exchange notes that the $0.0004 
per share executed NBBO Program rebate will remain, thus members will 
continue to have the opportunity to qualify for significant rebates 
under the NBBO Program.
    The Exchange believes that elimination of the $0.0002 per share 
executed NBBO credit is an equitable allocation and is not unfairly 
discriminatory because no member currently qualifies for the credit. 
Thus, eliminating the credit will not discriminate in any manner and 
the proposed change will be applied equitably among all members. 
Moreover, elimination of the credit from rule book will allow the 
Exchange to consider new incentives.

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 changes to the incentive programs 
under Rule 7014 do not impose a burden on competition because the 
Exchange's execution services are completely voluntary and subject to 
extensive competition both from other exchanges and from off-exchange 
venues. Elimination of the market maker qualification requirement from 
the QMM Program may promote competition among trading venues to the 
extent that allowing broader participation in the program makes the 
Exchange a more attractive venue on which to participate. The proposed 
elimination of the $0.0002 per share executed NBBO credit will not 
place any burden on competition because no members currently qualify 
for the credit. As noted above, the credit has not served its purpose 
of incentivizing members to provide the market-improving participation 
required by the credit's qualification criteria. Consequently, removal 
of the credit should not affect competition among market participants 
or market venues whatsoever.

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.\14\
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    \14\ 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

[[Page 48479]]

     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2018-076 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-2018-076. 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-2018-076, and should be submitted 
on or before October 16, 2018.
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    \15\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-20770 Filed 9-24-18; 8:45 am]
 BILLING CODE 8011-01-P