[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]


-----------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \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)).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \9\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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/.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \12\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-13770 Filed 6-25-20; 8:45 am]
BILLING CODE 8011-01-P