[Federal Register Volume 85, Number 248 (Monday, December 28, 2020)]
[Notices]
[Pages 84437-84439]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28513]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90719; File No. SR-NASDAQ-2020-087]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the Exchange's Transaction Credits and Charges at Equity 7, 
Sections 114 and 118

December 18, 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 7, 2020, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``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 credits 
[sic] at Equity 7, Sections 114 and 118, as described further below.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, 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
    Presently, the Exchange provides its members with various credits 
for executing orders in securities priced at or above $1 that add 
liquidity to the Exchange and charges them various fees for executing 
orders, also in securities priced at or above $1 that remove liquidity 
from the Exchange, as set forth in Equity 7, Section 118(a) of the 
Exchange's Rules. Members may qualify for tiers of discounted fees and 
premium credits based, in part, upon the volume of their activities in 
securities priced at or above $1 on the Exchange as a percentage of 
total ``Consolidated Volume.''
    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.
    Similarly, in Equity 7, Section 114, the Exchange offers several 
special pricing programs that are based, in part, upon members' 
activities in securities priced at or more than $1 relative to total 
Consolidated Volume. These programs provide credits to Qualified Market 
Makers, to members that establish the National Best Bid or Offer, and 
to members that grow their activity on the Exchange to a specified 
extent.
    Generally, the ratio of consolidated volumes in securities priced 
at or above $1 (``dollar plus volume'') relative to securities priced 
below a dollar (``sub-dollar volume'') has been stable from month to 
month, such that ``Consolidated Volume'' has been a reasonable baseline 
for determining tiered and special pricing for members that execute 
dollar plus volume on the Exchange.
    In December 2020, however, sub-dollar volume has increased 
dramatically and unusually relative to dollar plus volume due to 
activity concentrated in a handful of non-institutional firms, trading 
mostly one particular sub-dollar stock. Additionally, this volume spike 
may have been exacerbated by changes to other exchanges' pricing 
schemes,

[[Page 84438]]

which have incentivized sub-dollar trading.
    Trading volume in just this one sub-dollar security comprised 9.68 
percent of daily volume on December 1, 2020, and thus far in December 
2020, sub-dollar volume comprises 15.75 percent of Consolidated Volume. 
By comparison, sub-dollar volume comprised only 8.69 percent of 
Consolidated Volume, on average, during the preceding 12 months.
    This anomalous rise in sub-dollar volume stands to have a material 
adverse impact on members' qualifications for dollar plus pricing tiers 
and special pricing programs because such qualifications depend members 
upon achieving threshold percentages of volumes as a percentage of 
Consolidated Volume, and the extraordinary rise in sub-dollar volume 
stands to dilute Consolidated Volume in December 2020. As a result, 
members may find it more difficult, if not practically impossible, to 
qualify for or to continue to qualify for their existing dollar plus 
pricing tiers and incentives programs, even if their dollar plus 
volumes have not diminished relative to prior months. The Exchange 
notes that its members mostly have not been responsible for the spike 
in sub-dollar volume, such that they are likely to experience these 
adverse effects fully.
    The Exchange believes that it would be unfair for its members that 
execute significant dollar plus volumes on the Exchange to fail to 
achieve or to lose their existing qualifications for tiered or special 
pricing for such volumes in December 2020 due to anomalous behavior 
which is entirely extraneous to them.
    The Exchange is presently assessing whether the current spike in 
sub-dollar volumes is an isolated event or whether instead it is likely 
to recur. If the latter, the Exchange may wish to propose adjustments 
to its pricing formulas going forward to avoid extraordinary spikes in 
sub-dollar volumes from adversely affecting the pricing of dollar plus 
stock executions. In the interim, however, the Exchange believes that 
it would be fair and appropriate to take action to avoid adverse 
impacts for December 2020 pricing.
    Accordingly, the Exchange proposes to amend its pricing schedule at 
Equity 7, Sections 114 and 118 to state that for purposes of 
determining which of the execution charges and credits listed therein a 
member qualifies for during the month of December 2020, the Exchange 
will calculate the member's volume and total Consolidated Volume twice. 
First, it will calculate the member's volume and Consolidated Volume as 
presently set forth in Equity 7, Section 118(a). Second, it will 
calculate the member's volume and Consolidated Volume by excluding 
volume and Consolidated Volume that consists of executed orders in 
securities priced less than $1. Therafter, the Exchange proposes to 
evaluate which of these two member volume and Consolidated Volume 
calculations would qualify members for the most advantageous credits 
and charges for the month of December 2020 and then it will apply those 
credits and charges to its members. Thus, if but for the sub-dollar 
anomaly, a member would qualify for a higher credit or a lower fee tier 
in December, then the Exchange will apply that higher credit or lower 
fee tier to the member's trading activity during the month.
Impact of the Changes
    As of December 4, 2020, the Exchange assesses that several members 
are at risk of failing to qualify for pricing tiers or for special 
inventive programs in the month of December due to sub-dollar activity. 
The proposal will ensure that no member suffers any such adverse 
impact. It will also ensure that members whose volumes in December 
would otherwise newly qualify them for better pricing tiers or special 
incentive programs will be able to achieve such qualifications.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\3\ in general, and further the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\4\ 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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    \3\ 15 U.S.C. 78f(b).
    \4\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the proposal is reasonable and equitable 
because in its absence, members may fail to qualify their existing 
pricing tiers and programs or fail to qualify for better pricing tiers 
or programs due to factors that are unrelated to the volumes they 
execute on the Exchange as well as the total consolidated volume of 
dollar plus securities executed on all trading venues. The Exchange 
does not wish to penalize members that execute significant volumes on 
the Exchange due to anomalous and extraneous trading activities of a 
small number of firms in sub-dollar securities. The proposed rule would 
seek to avoid such a penalty by determing whether calculating member 
volume and total Consolidated Volume for December to include or exclude 
sub-dollar volume would result in Exchange members qualifying for the 
most advantageous credits and charges, and then applying the 
calculations that would result in the pricing that is most advantageous 
to each member.
    The Exchange notes that other exchanges have taken similar steps to 
avoid penalizing their members for unusual occurrences that would 
otherwise cause members to fail to qualify for volume-based tiered 
pricing.\5\
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    \5\ See, e.g., Securities Exchange Act Release No. 34-90339 
(November 4, 2020), 85 FR 71689 (November 10, 2020) (SR-PHLX-2020-
50); Securities Exchange Act Release No. 34-85025 (Jan 1, 2019), 84 
FR 2611 (February 7, 2019) (SR-ISE-2018-102).
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    The Exchange believes that the proposed rule change is an equitable 
allocation and is not unfairly discriminatory because the Exchange 
intends for it to ensure that no member suffers adverse pricing impacts 
in December 2020 due to an anomalous spike in sub-dollar volumes. That 
is, the Exchange does not intend for the proposal to advantage any 
particular member; rather, it intends for the proposal to avoid 
disadvantaging any member.

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 and 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 and credits in 
response, and because market participants may readily adjust their 
order routing practices, the Exchange believes that the degree to which 
fee and credit changes in this

[[Page 84439]]

market may impose any burden on competition is extremely limited.
    In this instance, the proposal does not impose a burden on 
competition because the Exchange's execution services are completely 
voluntary and subject to extensive competition both from other 
exchanges and from off-exchange venues. If the changes proposed herein 
are unattractive to market participants, it is likely that the Exchange 
will lose market share as a result.
    The Exchange does not believe that the proposal will burden intra-
market competition. As noted above, the proposal will simply help to 
ensure that no member suffers a pricing disadvantage in December 2020 
due to an anomalous spike in sub-dollar volumes which dilutes 
Consolidated Volume. It is not intended to provide a competitive 
advantage to any particular member.

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.\6\
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    \6\ 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-2020-087 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-2020-087. 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-2020-087 and should be submitted 
on or before January 19, 2021.
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    \7\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-28513 Filed 12-23-20; 8:45 am]
BILLING CODE 8011-01-P