[Federal Register Volume 85, Number 5 (Wednesday, January 8, 2020)]
[Notices]
[Pages 939-942]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-00060]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87882; File No. SR-NASDAQ-2019-101]


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)

January 2, 2020.
    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 December 23, 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) to amend the Exchange's transaction fees at 
Equity 7, Section 118(a) to raise the qualifying thresholds for several 
of the Exchange's credits for displayed orders/quotes that provide 
liquidity to the Exchange and to eliminate one such credit, as 
described further below.
    While these amendments are effective upon filing, the Exchange has 
designated the proposed amendments to be operative on January 2, 2020.
    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 Exchange proposes to amend the schedule of credits it provides 
to members, pursuant to Equity 7, Section 118(a), in several respects.
    First, the Exchange proposes to amend its schedule of credits by 
raising the volume thresholds to qualify for four of the credits it 
provides to its members for displayed quotes/orders (other than 
Supplemental Orders or Designated Retail Orders) that provide liquidity 
to the Exchange, as follows:
     For Orders in securities in each of Tapes A, B, and C, the 
Exchange presently provides a $0.0029 per share executed credit to a 
member with shares of liquidity provided in all securities through one 
or more of its Nasdaq Market Center MPIDs that represent more than 
0.60% of Consolidated Volume \3\ during the month. The Exchange 
proposes to raise the qualifying volume threshold for this credit from 
0.60% to 0.70% of Consolidated Volume.
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    \3\ As used in 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.
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     For Orders in securities in each of Tapes A, B, and C, the 
Exchange presently provides a $0.0029 per share executed credit to a 
member (i) with shares of liquidity accessed in all securities through 
one or more of its Nasdaq Market Center MPIDs that represent more than 
0.70% of Consolidated Volume during the month and (ii) with shares of 
liquidity provided in all securities through one or more of its Nasdaq 
Market Center MPIDs that represent more than 0.50% of Consolidated 
Volume during the month. The Exchange proposes to raise the first of 
these qualifying volume thresholds for this credit from 0.70% to 0.80% 
of Consolidated Volume and the second threshold from 0.50% to 0.60% of 
Consolidated Volume.
     For Orders in securities in each of Tapes A, B, and C, the 
Exchange presently provides a $0.0028 per share executed credit to a 
member (i) with shares of liquidity accessed in all securities through 
one or more of its Nasdaq Market Center MPIDs that represent more than 
0.60% of Consolidated Volume during the month,

[[Page 940]]

and (ii) with shares of liquidity provided in all securities through 
one or more of its Nasdaq Market Center MPIDs that represent more than 
0.225% of Consolidated Volume during the month. The Exchange proposes 
to raise the first of these qualifying volume thresholds for this 
credit from 0.60% to 0.75% of Consolidated Volume and the second 
threshold from 0.225% to 0.35% of Consolidated Volume.
     For Orders in securities in each of Tapes A, B, and C, the 
Exchange presently provides a $0.0027 per share executed credit to a 
member (i) with shares of liquidity accessed in all securities through 
one or more of its Nasdaq Market Center MPIDs that represent more than 
0.50% of Consolidated Volume during the month, and (ii) with shares of 
liquidity provided in all securities through one or more of its Nasdaq 
Market Center MPIDs that represent more than 0.175% of Consolidated 
Volume during the month. The Exchange proposes to raise the first of 
these qualifying volume thresholds for this credit from 0.50% to 0.60% 
of Consolidated Volume and the second threshold from 0.175% to 0.25% of 
Consolidated Volume.
    For each of the foregoing credits, the Exchange intends to raise 
qualifying volumes to incentivize members to increase the extent of 
their liquidity adding activity to qualify for and to continue to 
qualify for these credits.
    Second, the Exchange proposes to eliminate its $0.0026 per share 
executed credit that it presently provides to a member (i) with shares 
of liquidity provided in securities that are listed on exchanges other 
than Nasdaq or NYSE through one or more of its Nasdaq Market Center 
MPIDs that represents at least 800,000 shares a day on average during 
the month and (ii) doubles the daily average share volume provided in 
securities that are listed on exchanges other than Nasdaq or NYSE 
through one or more of its Nasdaq Market Center MPIDs during the month 
versus the member's daily average share volume provided in securities 
that are listed on exchanges other than Nasdaq or NYSE in January 2017. 
The Exchange has observed that historically, few members have received 
this credit, with little associated volume, and it has not served to 
meaningfully increase activity on the Exchange or improve the quality 
of the market. The Exchange therefore proposes to eliminate it.
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. The proposal is also consistent with 
Section 11A of the Act relating to the establishment of the national 
market system for securities.
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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 Proposal Is Reasonable
    The Exchange's proposed changes to its schedule of credits 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.
    In particular, the Exchange proposes to raise the volume thresholds 
to qualify for two of its $0.0029 per share executed credits and its 
$0.0028 and $0.0027 per share executed credits because as Nasdaq has 
grown over time, the activity of members that currently qualify for 
these credits has also grown, such that an increase in credit 
qualifying criteria is now needed to ensure that this credit remains 
relevant to current levels of liquidity providing activity on the 
Exchange. To the extent that this proposal results in an increase in 
liquidity adding activity on the Exchange, this will improve the 
quality of the Nasdaq market and increase its attractiveness to 
existing and prospective participants.
    Nasdaq also believes that it is reasonable to eliminate its $0.0026 
per share executed credit because few members historically have 
received the credit (and only one member currently receives it), 
related volume is low, and it has not served to meaningfully increase 
volume or market quality.
    The Exchange notes that those participants that are dissatisfied 
with the proposed amended credits are free to shift their order flow to 
competing venues.
The Proposal Is an Equitable Allocation of Charges
    The Exchange believes its proposal will allocate its charges fairly 
among its market participants. It is equitable for the Exchange to 
raise the qualification requirement for the two $0.0029 per share 
executed credits and the $0.0028 and $0.0027 per share executed credits 
because as Nasdaq has grown, the activity of members that currently 
qualify for these credits has also grown, such that an increase in 
credit qualifying criteria is now needed to ensure this credit remains 
relevant to current levels of liquidity providing

[[Page 941]]

activity on the Exchange. The Exchange anticipates that all members 
that currently qualify for these credits will continue to do so under 
the proposals. The Exchange notes that any increase in liquidity 
providing activity on the Exchange that ensues from its proposals will 
improve the quality of the Nasdaq market and increase its 
attractiveness to existing and prospective participants.
    Likewise, the Exchange believes that it is equitable to eliminate 
the $0.0026 per share executed credit because few members have received 
this credit historically (only one receives it presently) and it has 
not prompted a meaningful increase in volume or market quality. The one 
member that would be affected by the elimination of the credit may seek 
to qualify for other credits that the Exchange offers.
The Proposed Amended Credits Are Not Unfairly Discriminatory
    The Exchange believes that the proposal is not unfairly 
discriminatory. As an initial matter, the Exchange believes that 
nothing about its volume-based tiered pricing model is inherently 
unfair; instead, it is a rational pricing model that is well-
established and ubiquitous in today's economy among firms in various 
industries--from co-branded credit cards to grocery stores to cellular 
telephone data plans--that use it to reward the loyalty of their best 
customers that provide high levels of business activity and incent 
other customers to increase the extent of their business activity. It 
is also a pricing model that the Exchange and its competitors have long 
employed with the assent of the Commission. It is fair because it 
incentivizes customer activity that increases liquidity, enhances price 
discovery, and improves the overall quality of the equity markets.
    Although the Exchange's proposal to raise the qualifying criteria 
for its two $0.0029 per share executed credits and its $0.0028 and 
$0.0027 per share executed credits will require members to add more 
liquidity than is currently required to qualify for these credits, any 
resulting increase in liquidity to the market will improve market-wide 
quality and price discovery, to the benefit all market participants.
    Additionally, the Exchange believes that elimination of its $0.0026 
per share executed credit is not unfairly discriminatory. Historically, 
only a few members have received the credit, and only one member 
presently qualifies for it and would be affected by its elimination. 
Elimination of the credit for this member would not be unfair, however, 
because the credit has not fulfilled its intended purpose of prompting 
meaningful increases in volume or market quality. Moreover, elimination 
of the credit from the rule book will allow the Exchange to consider 
new, more effective incentives.
    Finally, the Exchange notes that any participant that does not find 
the amended credits to be sufficiently attractive is free to shift its 
order flow to a competing venue.

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's proposals to raise the qualification requirements 
for two $0.0029 per share executed credits and the $0.0028 and $0.0027 
per share executed credits will not disadvantage any category of member 
because all members that currently qualify for these credits will 
continue to do so under the proposed changes. Furthermore, all members 
of the Exchange will benefit from any increase in market activity that 
the proposals effectuates.
    The Exchange's proposal to eliminate the $0.0026 per share executed 
credit will not place any undue burden on competition. Although 
elimination of the credit would impact the one member that currently 
receives it, that member may seek to mitigate the effects of the loss 
of the credit by qualifying for other similar credits that the Exchange 
offers. Any residual burden that the proposal imposes on this member is 
outweighed by the fact that the credit has not served its intended 
purpose of incentivizing a broader population of members to increase 
their market-improving participation.
    Moreover, members are free to trade on other venues to the extent 
they believe that the credits provided are too low or the qualification 
criteria are not 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. The Exchange notes that the tier structure 
is consistent with broker-dealer fee practices as well as the other 
industries, as described above.
Intermarket Competition
    The Exchange believes that its proposed modification to its 
schedule of credits will not impose a burden on competition because the 
Exchange's execution services are completely voluntary and subject to 
extensive competition both from the other 12 live exchanges and from 
off-exchange venues, which include 32 alternative trading systems. 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 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 
credit changes in this market may impose any burden on competition is 
extremely limited.
    The proposed amended credits are reflective of this competition 
because, 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 comprised more than 38% of industry volume for the month of 
November 2019.
    The Exchange's proposals to raise the qualification requirement for 
its two $0.0029 per share executed credits and its $0.0028 and $0.0027 
per share executed credits per share executed credit are pro-
competitive in that the Exchange intends for them to increase liquidity 
on the Exchange and thereby render the Exchange a more attractive and 
vibrant venue to market participants.
    As discussed above, the Exchange's proposal to eliminate its 
$0.0026 per share executed credit will not meaningfully impact 
intermarket competition. Only one member currently receives the credit.

[[Page 942]]

    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.\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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2019-101 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-2019-101. 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-2019-101 and should be submitted 
on or before January 29, 2020.

    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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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-00060 Filed 1-7-20; 8:45 am]
 BILLING CODE 8011-01-P