[Federal Register Volume 84, Number 58 (Tuesday, March 26, 2019)]
[Notices]
[Pages 11379-11381]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05706]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85373; File No. SR-NASDAQ-2019-015]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Equity 7, Section 118(a)(3)
March 20, 2019
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 March 12, 2019, 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
Equity 7, Section 118(a)(3) to adopt a $0.00005 per share executed
credit provided to members for displayed quotes/orders (other than
Supplemental Orders or Designated Retail Orders) in securities listed
on exchanges other than Nasdaq and NYSE (``Tape B Securities'') that
provide liquidity, as described further below.
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
The purpose of the proposed rule change is to amend the Exchange's
transaction fees at Equity 7, Section 118(a)(3) to adopt a $0.00005 per
share executed credit provided to members for displayed quotes/orders
(other than Supplemental Orders or Designated Retail Orders) in Tape B
Securities that provide liquidity. The proposed credit would be
provided to a member in addition to any other credit it qualifies for
under Section 118(a)(3), including the $0.0001 per share executed
credit for displayed quotes/orders in Tape B securities provided in
addition to other credits under Section 118(a)(3).\3\ To
[[Page 11380]]
qualify for the proposed credit, a member must have shares of liquidity
provided in all securities through one or more of its Nasdaq Market
Center MPIDs that represent at least 1.75% of Consolidated Volume \4\
during the month, including shares of liquidity provided with respect
to Tape B securities that represent at least 0.60% of Consolidated
Volume.
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\3\ The Exchange provides the credit to members with shares of
liquidity provided in Tape B securities during the month
representing at least 0.10% of Consolidated Volume during the month
through one or more of its Nasdaq Market Center MPIDs. Thus, a
member that qualifies for the proposed credit would also qualify for
the existing $0.0001 per share executed credit, resulting in a
combined credit of $0.00015 per share executed provided in addition
to other credits under Section 118(a)(3).
\4\ Consolidated Volume is 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 Equity 7, Section 118(a).
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\5\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\6\ 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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\5\ 15 U.S.C. 78f(b).
\6\ 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.'' \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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Likewise, in NetCoalition v. Securities and Exchange Commission \8\
(``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.\9\ 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.'' \10\
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\8\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\9\ See NetCoalition, at 534-535.
\10\ 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'. . . .'' \11\
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\11\ 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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The Exchange believes that the proposed credit is reasonable
because it is similar to an existing credit provided by the Exchange.
As described above, the Exchange currently provides a $0.0001 per share
executed credit for displayed quotes/orders in Tape B securities, which
is provided in addition to other credits under Section 118(a)(3). The
proposed credit will likewise be provided in addition to any other
credits that a member may qualify for including the $0.0001 per share
executed credit. The Exchange has set the level of Consolidated Volume
in Tape B securities required to qualify for the credit higher than the
current $0.0001 per share executed credit's criteria and added an
additional 1.75% or greater Consolidated Volume requirement to reflect
the significant credits a member would receive if it qualified for the
proposed credit. In this regard, a member that qualifies for the
proposed $0.00005 per share executed credit would also qualify for the
existing $0.0001 per share executed credit for displayed quotes/orders
in Tape B securities. Consequently, a member would receive a combined
credit of $0.00015 per share executed provided in addition to other
credits under Section 118(a)(3) if it qualified for the proposed new
credit. Consequently, the Exchange believes that the proposed
qualification criteria are commensurate with level of credit received.
The Exchange believes that the proposed credit is an equitable
allocation and is not unfairly discriminatory because the Exchange will
apply the same credit to all similarly situated members. The proposed
qualification criteria of the proposed credit is [sic] set at a
sufficiently high level to reflect the significant credits a member
would receive if it qualified. Any member may elect to provide the
levels of market activity required by the proposed credit's
qualification criteria in order to receive the credit. If the member
determines that the level of Consolidated Volume is too high, it has
other opportunities to receive credits that require less Consolidated
Volume, including the $0.0001 per share executed credit currently
provided under Section 118(a)(3). The Exchange also believes that it is
an equitable allocation and is not unfairly discriminatory to limit the
credit to only quotes/orders in Tape B securities because the Exchange
has observed lower overall volume on the Exchange in Tape B securities
in comparison to Tapes A and C securities, and is thus providing
incentive to members to provide displayed liquidity in Tape B
securities. The Exchange has limited funds with which to apply in the
form of incentives, and thus must deploy those limited funds to
incentives that it believes will be the most effective and improve
market quality in areas that the Exchange determines are in need of
improvement. For these reasons, the Exchange believes that the proposed
credit is an equitable allocation and is not unfairly discriminatory.
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 credits available to
member firms
[[Page 11381]]
for execution of securities in Tape B securities does 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. The proposed change
provides another opportunity for members to receive a credit based on
their market-improving behavior. As noted above, the proposed credit
would be provided in addition to other credits under the rule for which
the member qualifies. Thus, any member may elect to provide the levels
of market activity required by the credit's qualification criteria in
order to receive the credit. Moreover, other market venues are free to
adopt the same or similar credits and incentives as a competitive
response to this proposed change. As a consequence, the Exchange does
not believe that the proposed credit burdens competition among market
participants or market venues. In sum, if the changes proposed herein
are unattractive to market participants, it is likely that the Exchange
will lose market share as a result and, conversely, if the proposal is
successful at attracting greater volume to the Exchange other market
venues are free to make similar changes as a competitive response.
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.\12\
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\12\ 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-2019-015 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-2019-015. 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-2019-015 and should be submitted
on or before April 16, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-05706 Filed 3-25-19; 8:45 am]
BILLING CODE 8011-01-P