[Federal Register Volume 85, Number 124 (Friday, June 26, 2020)]
[Notices]
[Pages 38414-38418]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-13770]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89115; File No. SR-NASDAQ-2020-030]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Equity 7, Section 114 and Equity 7, Section 118(a) of the Fee
Schedule
June 22, 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 June 10, 2020, 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 114(d) to add a Qualified Market Maker (``QMM'')
tier, and Section 118(a) to add several credits for displayed orders/
quotes that provide liquidity to the Exchange.
The text of the proposed rule change is available on the Exchange's
website at http://nasdaq.cchwallstreet.com/, at the
[[Page 38415]]
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 Qualified Market Maker (``QMM'')
tiers pursuant to Equity 7, Section 114 and also to amend the schedule
of credits it provides to member organizations, pursuant to Equity 7,
Section 118(a), in two respects.
The QMM tier rebate provides a tier rebate to QMMs with respect to
displayed orders (other than a Designated Retail Order \3\) in
securities priced at $1 or more per share that provide liquidity and
are for securities listed on NYSE (Tape A), Nasdaq (Tape C) or
securities listed on exchanges other than Nasdaq and NYSE (Tape B).
Currently, the Exchange provides a $0.0001 per share executed credit
when a QMM executes shares of liquidity provided in all securities
through one or more of its Nasdaq Market Center MPIDs that represent
above 0.70% up to, and including, 0.90% of Consolidated Volume \4\
during the month. The QMM may receive a $0.0002 per share executed
credit if the QMM executes shares of liquidity provided in all
securities through one or more of its Nasdaq Market Center MPIDs that
represent above 0.90% of Consolidated Volume during the month.
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\3\ As defined in Equity 7, Section 118, a ``Designated Retail
Order'' is an agency or riskless principal order that meets the
criteria of FINRA Rule 5320.03 and that originates from a natural
person and is submitted to Nasdaq by a member that designates it
pursuant to this section, provided that no change is made to the
terms of the order with respect to price or side of market and the
order does not originate from a trading algorithm or any other
computerized methodology.
\4\ 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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The Exchange proposes to provide a $0.00025 per share executed
credit to a QMM that (i) executes shares of liquidity provided in all
securities through one or more of its Nasdaq Market Center MPIDs that
represent above 1.25% of Consolidated Volume during the month; (ii)
quotes at the NBBO \5\ at least 25% of the time during the month during
regular market hours in an average of at least 2,700 symbols per day;
(iii) quotes at the NBBO at least 25% of the time during the month
during regular market hours in an average of at least 1,200 symbols in
securities in Tape A per day; and (iv) executes shares of liquidity
provided in securities in Tape A through one or more of its Nasdaq
Market Center MPIDs that represent an increase of at least 0.50% of
Consolidated Volume relative to May 2020. The Exchange notes that this
new QMM rebate is not cumulative. That is, a QMM may only qualify for
one of the three tiers in any given month.
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\5\ A member is considered to be quoting at the NBBO if one of
its MPIDs has a displayed order (other than a Designated Retail
Order) at either the national best bid or the national best offer or
both the national best bid and offer. On a daily basis, Nasdaq will
determine the number of securities in which each of a member's MPIDs
satisfied the 25% NBBO requirement. Nasdaq will aggregate all of a
member's MPIDs to determine the number of securities for purposes of
the 25% NBBO requirement. To qualify the QMM must meet the
requirement for an average of the symbols specified per day over the
course of the month.
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The Exchange also proposes to include the proposed Tier 3 in the
$0.0029 per share executed fee charged to a QMM for orders in
securities listed on exchanges other than Nasdaq priced at $1 or more
per share that access liquidity on the Nasdaq Market Center if the QMM
has a combined Consolidated Volume (adding and removing liquidity) of
at least 3.7% and MOC/LOC volume greater than 0.25% of Consolidated
Volume.
Additionally, the Exchange proposes to amend in two respects, its
schedule of credits, as set forth in Equity 7, Section 118, which it
provides to members for displayed quotes/orders (other than
Supplemental Orders or Designated Retail Orders) that provide
liquidity. First, for orders in securities in each of Tapes A, B, and
C, the Exchange proposes to provide a $0.00305 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 1.20% of Consolidated Volume during the month, and (ii) with
at least 0.25% of Consolidated Volume during the month that sets the
NBBO. Second, for adding liquidity in securities in Tape A, the
Exchange proposes to provide a new $0.00005 per share executed
supplemental credit to a member that, through one or more of its Nasdaq
Market Center MPIDs: (i) Adds liquidity in securities in Tape A that
represents at least 0.75% of Consolidated Volume during the month; and
(ii) adds liquidity in securities in Tape B of at least 0.60% of
Consolidated Volume during the month.
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. 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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\6\ 15 U.S.C. 78f(b).
\7\ 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'. . . .'' \8\
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\8\ 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
[[Page 38416]]
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.'' \9\
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\9\ 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 add an additional QMM tier
rebate that would provide a $0.00025 per share credit with the goal of
increasing the overall incentive to QMMs to further increase their
liquidity adding activity on the Exchange, and more specifically, in
securities in Tape A. The proposal will also provide an incentive for
QMMs to add liquidity at the NBBO in more securities, which is intended
to improve market quality. To the extent that this proposed change
leads to an increase in overall liquidity activity on the Exchange and
more competitive pricing, this will improve the quality of the
Exchange's market and increase its attractiveness to existing and
prospective participants. Additionally, the Exchange proposes to add
QMMs that meet the criteria for Tier 3 to the $0.0029 per share
executed fee charged for orders in securities listed on exchanges other
than Nasdaq priced at $1 or more per share that access liquidity on the
Nasdaq Market Center. It is reasonable to assess the fee to QMMs that
meet the Tier 3 requirements because QMMs that meet the Tier 2
requirements are already charged the fee, and any QMM that satisfies
the Tier 3 requirement has also met the Tier 2 requirement.
Similarly, the Exchange believes that it is reasonable to provide a
$0.00305 per share executed credit to a member that adds liquidity in
each of Tapes A, B, and C, and to provide a $0.00005 per share executed
supplemental credit to a member that adds liquidity in Tape A. The
proposed changes are intended to incentivize members to increase
liquidity and set the NBBO, which will further improve overall market
quality.
The Exchange notes that those participants that are dissatisfied
with the proposed credits are free to shift their order flow to
competing venues.
The Proposal Is an Equitable Allocation of Fees and Credits
The Exchange believes its proposal will allocate the proposed
credits fairly among market participants. The proposed amendments to
Equity 7, Section 114 will give a QMM the opportunity to receive a
higher credit for adding a higher volume of liquidity and quoting at
the NBBO in more securities. Additionally, it is reasonable to charge
the same fee to QMMs that meet the Tier 2 and Tier 3 requirements
because all QMMs that meet the Tier 3 requirements also meet the Tier 2
requirements and Tier 2 is currently assessed the fee.
The proposed amendments in Equity 7, Section 118 will allow members
to qualify for a credit by adding liquidity and setting the NBBO.
Additionally, it will provide a supplemental credit to members for
adding liquidity in securities in Tape A. It is equitable for the
Exchange to add additional incentives for members to receive a credit
when their orders add liquidity to the Exchange as a means of
incentivizing increased liquidity adding activity. An increase in
overall liquidity on the Exchange will improve the quality of the
Exchange's market and increase its attractiveness to existing and
prospective participants. Furthermore, it is equitable for the Exchange
to propose credit for participants with orders in securities in Tapes A
due to the Exchange's goal to specifically promote increased liquidity
in securities in Tape A. An increase in overall liquidity adding
activity on the Exchange will improve the quality of the Nasdaq market
and increase its attractiveness to existing and prospective
participants. Similarly, incentivizing members to add liquidity at the
NBBO in securities in Tape A under Tier 3 of the QMM program will
increase the overall liquidity and robustness of the Exchange's order
book and increase its attractiveness to existing and prospective
participants.
Any participant that is dissatisfied with the proposed new credits
is free to shift their order flow to competing venues that provide more
favorable pricing or less stringent qualifying criteria.
The Proposal Is 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.
The Exchange intends for the proposal to improve market quality for
all members on the Exchange and by extension attract more liquidity to
the market, thereby improving market wide quality and price discovery.
Although a member's orders in securities in Tape A will benefit most
from the proposed supplemental credit, this result is fair insofar as
an uptick in liquidity adding activity will help to improve market
quality and the attractiveness of the Exchange's equity market to all
existing and prospective participants. Additionally, pricing by tape is
not uncommon as competing exchanges offer similar pricing
structures.\10\
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\10\ See New York Stock Exchange Price List 2020, available at
https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Price_List.pdf; NYSE Arca Equities Fees and Charges, available
at https://www.nyse.com/publicdocs/nyse/markets/nyse-arca/NYSE_Arca_Marketplace_Fees.pdf; CBOE BZX U.S. Equities Fee Schedule,
available at https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/; CBOE EDGX U.S. Equities Fee Schedule, available
at https://markets.cboe.com/us/equities/membership/fee_schedule/edgx/.
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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.
[[Page 38417]]
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that its proposals will place any
category of Exchange participant at a competitive disadvantage. The
Exchange's proposal to modify its QMM program will not burden
intramarket competition because the QMM program, as modified, will
continue to provide all members with an opportunity to obtain credits
for transactions if they improve the market by providing a minimum
percentage of volume per month and quoting a certain volume at the
NBBO, which the Exchange believes will improve market quality.
Additionally, the proposed credits for providing liquidity and setting
the NBBO will not place any burden on intramarket competition because
all members will have the opportunity to obtain the additional proposed
credits if the member increases liquidity and sets the NBBO, which will
further improve overall market quality. Similarly, the proposed
supplemental credit will not place any burden on intramarket
competition because all members will have the opportunity to obtain the
proposed supplemental credit, which will improve overall market
quality. Moreover, including QMMs that qualify for Tier 3 in the
$0.0029 per share executed fee charged to a QMM for orders in
securities listed on exchanges other than Nasdaq priced at $1 or more
per share that access liquidity on the Nasdaq Market Center will not
place any burden on intramarket competition because members are free to
trade on other venues to the extent they believe that fees imposed are
not attractive.
Furthermore, all members of the Exchange will benefit from an
increase in the addition of liquidity by those that choose to meet the
criteria for each of the proposed credits. Members may grow their
businesses so that they have the capacity to receive credits for
providing liquidity. Moreover, members are free to trade on other
venues to the extent they believe that the credits provided 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
Addressing whether the proposed credits could impose a burden on
competition on other SROs that is not necessary or appropriate, the
Exchange believes that its proposed modifications 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 34 alternative trading systems that trade
national market system stock. 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 credits 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 credits for adding liquidity 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 42% of industry volume for the month of May
2020.
The Exchange intends for the proposed changes, which add qualifying
credits for its QMMs and other members, to increase member incentives
to engage in the addition of liquidity on the Exchange. These changes
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.
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
Pursuant to Section 19(b)(3)(A)(ii) of the Act,\11\ the Exchange
has designated this proposal as establishing or changing a due, fee, or
other charge imposed by the self-regulatory organization on any person,
whether or not the person is a member of the self-regulatory
organization, which renders the proposed rule change effective upon
filing.
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\11\ 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-2020-030 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-2020-030. 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
[[Page 38418]]
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-2020-030 and should be submitted on or before July 17, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-13770 Filed 6-25-20; 8:45 am]
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