[Federal Register Volume 84, Number 71 (Friday, April 12, 2019)]
[Notices]
[Pages 15013-15015]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-07242]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85546; File No. SR-NASDAQ-2019-023]
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 Equity 7, Section 118(a)
April 8, 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 28, 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), as described further below.
While these amendments are effective upon filing, the Exchange has
designated the proposed amendments to be operative on April 1, 2019.
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)(1), (2), and (3) to adjust
the qualifying terms for an existing credit it offers to members with
orders that provide liquidity to the Exchange in all three Tapes.
The Exchange operates on the ``maker-taker'' model, whereby it pays
credits to members that provide liquidity and charges fees to members
that access liquidity. Currently, the Exchange offers several different
credits for orders that display quotes/orders in securities (other than
Supplemental Orders or Designated Retail Orders) in Tapes A, B, and C
that provide liquidity to the Exchange. Among these credits, the
Exchange offers a $0.0027 per share executed credit to a member (i)
with shares of liquidity provided in all securities during the month
representing more than 0.10% of Consolidated Volume \3\ during the
month, through one or more of its Nasdaq Market Center MPIDs, and (ii)
adds Customer,\4\ Professional,\5\ Firm,\6\ Non-NOM Market Maker \7\
and/or Broker-Dealer \8\ liquidity in Non-Penny
[[Page 15014]]
Pilot Options of 0.40% or more of total industry average daily volume
(``ADV'') in the customer clearing range for Equity and ETF option
contracts per day in a month on The Nasdaq Options Market (``NOM'').
The Exchange proposes to recalibrate the credit by eliminating the
requirement that a member must add liquidity ``in Non-Penny Pilot
Options'' on NOM to qualify for it.
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\3\ Pursuant to Equity 7, Section 118(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.
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 is excluded from both total
Consolidated Volume and the member's trading activity.
\4\ The term ``Customer'' applies to any transaction that is
identified by a participant for clearing in the Customer range at
The Options Clearing Corporation (``OCC'') which is not for the
account of broker or dealer or for the account of a
``Professional,'' as defined in Chapter I, Section 1 of the NOM
rules.
\5\ A ``Professional'' is defined in Chapter I, Section 1 of the
NOM rules as ``any person or entity that (i) is not a broker or
dealer in securities, and (ii) places more than 390 orders in listed
options per day on average during a calendar month for its own
beneficial account(s).''
\6\ The term ``Firm'' or (``F'') applies to any transaction that
is identified by a Participant for clearing in the Firm range at
OCC.
\7\ The term ``Non-NOM Market Maker'' or (``O'') is a registered
market maker on another options exchange that is not a NOM Market
Maker. A Non-NOM Market Maker must append the proper Non-NOM Market
Maker designation to orders routed to NOM.
\8\ The term ``Broker-Dealer'' or (``B'') applies to any
transaction which is not subject to any of the other transaction
fees applicable within a particular category.
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When the Exchange first added this particular credit program in
2016,\9\ it limited the availability of the credit to members that add
liquidity on NOM in Non-Penny Pilot Options because the Exchange wanted
to specifically encourage liquidity-adding behavior on NOM in less
liquid option classes in order to help improve the markets for those
options classes. The Exchange still wishes to encourage such market-
improving behavior for Non-Penny Pilot Options, but it seeks to revise
the credit so that it also encourages members to add liquidity in other
options classes on NOM, including Penny Pilot Options.
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\9\ See Securities Exchange Act Release No. 34-78354 (July 19,
2016), 81 FR 48487 (July 25, 2016) (SR-NASDAQ-2016-102).
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\10\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\11\ 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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\10\ 15 U.S.C. 78f(b).
\11\ 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.'' \12\
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\12\ 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
\13\ (``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.\14\ 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.'' \15\
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\13\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\14\ See NetCoalition, at 534-535.
\15\ 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'. . . .'' \16\ 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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\16\ 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 its proposal is reasonable to eliminate
the credit-qualifying requirement that a member must add liquidity on
NOM specifically in Non-Penny Pilot Options [sic]. Under Rule 7018(a),
the various credits the Exchange provides for members that add
liquidity require members to contribute significantly to market quality
by providing certain levels of Consolidated Volume through one or more
of its [sic] Nasdaq Market Center MPIDs, and by also contributing
volume on NOM. Although the Exchange originally designed this
particular credit to encourage members to add liquidity on NOM only in
Non-Penny Pilot Options, the Exchange believes that it is reasonable to
revise the credit so that it more broadly encourages members to add
liquidity on NOM in all options classes. Indeed, the proposed change
will help to improve the market on NOM for all, rather than a subset
of, options classes.
The Exchange believes that the proposed change [sic] is equitably
allocated among members, and is not designed to permit unfair
discrimination. By eliminating the requirement that a member must add
liquidity only in Non-Penny Pilot Options, the Exchange will
potentially expand the availability of the credit to additional
members, including those that provide liquidity on NOM primarily or
exclusively in Penny Pilot Options. Moreover, all similarly situated
members are equally capable of qualifying for the credit if they choose
to meet the revised requirements. The Exchange notes that the proposed
change applies to securities of all Tapes.
The Exchange believes that the proposed revised requirements for
qualifying for the credit are proportionate to the amount of the credit
and that the revised requirements equitably reflect the purpose of the
credit, which is to incentivize members to transact greater volume on
Nasdaq and NOM.
Finally, the Exchange notes that the proposed volume threshold is
consistent with other volume-based credits that the Exchange offers in
Equity 7, Section 118(a)(1), (2), and (3) to members for displayed
quotes/orders (other than Supplemental Orders or Designated Retail
Orders) that provide liquidity. Nasdaq currently offers a variety of
credits for displayed quotes/orders (other than Supplemental Orders or
Designated Retail Orders) that add liquidity, some of which are linked
to activity on NOM and some of which relate to activity on Nasdaq only,
which range from $0.0025 per share executed to $0.00305 per share
executed, and which apply progressively more stringent requirements in
return for higher per share executed credits.
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
[[Page 15015]]
burden on competition is extremely limited.
In this instance, the proposed changes 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. The proposal to eliminate from
the credit the requirement that members provide liquidity on NOM in
Non-Penny Pilot Options is designed to promote competition by improving
overall market quality on NOM. The Exchange also notes that its
proposed change reflects the Exchange's need to balance the incentives
that it provides in return for the market improving behavior it seeks
to incentivize. The Exchange has limited funds to apply toward
incentives, and therefore must adjust its credit tier qualification
criteria to ensure that it applies its limited funds in the most
efficient manner.
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. 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.\17\
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\17\ 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-2019-023 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-2019-023. 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-2019-023 and should be submitted
on or before May 3, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-07242 Filed 4-11-19; 8:45 am]
BILLING CODE 8011-01-P