[Federal Register Volume 86, Number 122 (Tuesday, June 29, 2021)]
[Notices]
[Pages 34286-34288]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-13785]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92242; File No. SR-NASDAQ-2021-051]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend General 9, Section 18, Payments for Market Making

June 23, 2021.
    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 14, 2021, 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 and II 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 General 9, Section 18, Payments for 
Market Making. 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
    The Exchange proposes to amend General 9, Section 18, Payments for 
Market Making to align General 9, Section 18 with FINRA Rule 5250, 
Payments for Market Making. Specifically, the Exchange proposes to 
replace General 9, Section 18 with rule text incorporating FINRA Rule 
5250 by reference.\3\ The Exchange also proposes to incorporate by 
reference the definition ``affiliate'' and the related definitions 
within FINRA Rule 5121 for purposes of FINRA Rule 5250.
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    \3\ The Exchange will separately request an exemption from the 
rule filing requirements of Section 19(b) of the Act in requesting 
to incorporate FINRA Rule 5250 and the definition of ``affiliate'' 
and the related definitions within FINRA Rule 5121 to the extent 
General 9, Section 18 is affected solely by virtue of a change to 
FINRA Rule 5250 or to such definitions within FINRA Rule 5121. The 
Exchange's proposed rule change will not become operative unless and 
until the Commission grants this exemption request.
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    By way of background, General 9, Section 18 and FINRA Rule 5250 
explicitly prohibit any payment by issuers or issuers' affiliates and 
promoters, directly or indirectly, to a member or person associated 
with a member for publishing a quotation, acting as a market maker, or 
submitting an application in connection therewith. The respective rules 
are intended, among other things, to prohibit members from receiving 
compensation or other payments from an issuer for quoting or making a 
market in the issuer's securities and to assure that members act in an 
independent capacity when publishing a quotation or making a market in 
an issuer's securities.
    Today, there are several differences between current General 9, 
Section 18 and FINRA Rule 5250. The Exchange's proposal to replace 
General 9, Section 18 with an incorporation by reference to FINRA Rule 
5250 will align Nasdaq's rule to FINRA's rule. The Exchange explains 
the differences below.
    First, by incorporating FINRA Rule 5250, the Exchange would 
incorporate FINRA's rule which states that members are not precluded 
from accepting ``any payment expressly provided for under the rules of 
a national securities exchange that are effective after being filed 
with, or filed with and approved by, the SEC pursuant to the 
requirements of the Exchange Act.'' General 9, Section 18 currently 
does not include this exception. FINRA previously amended Rule 5250 \4\ 
to account for cases where a market maker payment is provided for under 
the rules of an exchange that are effective after being filed with, or 
filed with and approved by, the Commission pursuant to the requirements 
of the Act. FINRA noted in its 2013 Rule Change that comity should be 
afforded to such exchange rulemaking and the payment should not be 
prohibited under Rule 5250.\5\ The 2013 Rule Change cited to Nasdaq's 
Market Quality Program as an example of such exchange rulemaking.\6\ 
Incorporating this exception from

[[Page 34287]]

FINRA's rule would ensure consistent regulation of joint members of the 
Exchange and FINRA.
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    \4\ See Securities Exchange Act Release No. 69398 (April 18, 
2013), 78 FR 24261 (April 24, 2013) (SR-FINRA-2013-020) (Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to FINRA Rule 5250 (Payments for Market Making) (``2013 
Rule Change'').
    \5\ Id.
    \6\ See 2013 Rule Change (citing to Securities Exchange Act 
Release No. 69195). See also Securities Exchange Act Release No. 
69195 (March 20, 2013), 78 FR 18393 (March 26, 2013) (SR-NASDAQ-
2012-137) (Order Granting Approval of a Proposed Rule Change, as 
Modified by Amendment Nos. 1 and 3 Thereto, To Establish the Market 
Quality Program).
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    Second, by incorporating FINRA Rule 5250, the Exchange would also 
incorporate the defined term ``affiliate,'' and the related definitions 
within FINRA Rule 5121(f),\7\ which differ from the definition of 
``affiliate'' under current General 9, Section 18(c)(1). FINRA Rule 
5250 incorporates the definition of ``affiliate'' within FINRA Rule 
5121(f)(1) which provides, ``The term ``affiliate'' means an entity 
that controls, is controlled by or is under common control with a 
member.'' The term affiliate refers to ``entity'' which is defined 
within FINRA Rule 5121(f)(7) which provides,
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    \7\ FINRA Rule 5250 refers to FINRA Rule 5121 for the definition 
of ``affiliate.'' FINRA defines the term ``affiliate'' and the terms 
used with the definition ``affiliate''.

    For purposes of the definitions of affiliate, conflict of 
interest and control under this Rule, the term ``entity'': (A) 
Includes a company, corporation, partnership, trust, sole 
proprietorship, association or organized group of persons; and (B) 
excludes the following: (i) An investment company registered under 
the Investment Company Act; (ii) a ``separate account'' as defined 
in Section 2(a)(37) of the Investment Company Act; (iii) a ``real 
estate investment trust'' as defined in Section 856 of the Internal 
Revenue Code; or (iv) a ``direct participation program'' as defined 
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in Rule 2310.

    Finally, the term affiliate refers to ``control'' which is defined 
within FINRA Rule 5121(f)(6) which provides,

    The term control means: (i) Beneficial ownership of 10 percent 
or more of the outstanding common equity of an entity, including any 
right to receive such securities within 60 days of the member's 
participation in the public offering; (ii) the right to 10 percent 
or more of the distributable profits or losses of an entity that is 
a partnership, including any right to receive an interest in such 
distributable profits or losses within 60 days of the member's 
participation in the public offering; (iii) beneficial ownership of 
10 percent or more of the outstanding preferred equity of an entity, 
including any right to receive such preferred equity within 60 days 
of the member's participation in the public offering; or (iv) the 
power to direct or cause the direction of the management or policies 
of an entity. (B) The term ``common control'' means the same natural 
person or entity controls two or more entities.

    In contrast, General 9, Section 18(c)(1) defines affiliate as 
follows,

    (A) The term ``affiliate'' shall mean a company which controls, 
is controlled by, or is under common control with a member; (B) The 
term affiliate is presumed to include, but is not limited to, the 
following for purposes of subparagraph (A), above: (i) A company 
will be presumed to control a member if the company beneficially 
owns 10 percent or more of the outstanding voting securities of a 
member which is a corporation, or beneficially owns a partnership 
interest in 10 percent or more of the distributable profits or 
losses of a member which is a partnership; (ii) a member will be 
presumed to control a company if the member and persons associated 
with the member beneficially own 10 percent or more of the 
outstanding voting securities of a company which is a corporation, 
or beneficially own a partnership interest in 10 percent or more of 
the distributable profits or losses of a company which is a 
partnership; (iii) a company will be presumed to be under common 
control with a member if: a. The same natural person or company 
controls both the member and company by beneficially owning 10 
percent or more of the outstanding voting securities of a member or 
company which is a corporation, or by beneficially owning a 
partnership interest in 10 percent or more of the distributable 
profits or losses of a member or company which is a partnership; or 
b. A person having the power to direct or cause the direction of the 
management or policies of the member or the company also has the 
power to direct or cause the direction of the management or policies 
of the other entity in question.

Incorporating FINRA's rule would ensure a consistent definition of 
``affiliate'' and, therefore, consistent regulation of joint members of 
the Exchange and FINRA.
    Third, by incorporating FINRA Rule 5250, the Exchange would remove 
General 9, Section 18(c)(1)(C). General 9, Section 18(c)(1)(C) 
provides,

    The provisions of subparagraphs (A) and (B) hereof 
notwithstanding, none of the following shall be presumed to be an 
affiliate of a member for purposes of this Rule: (i) An investment 
company registered with the Commission pursuant to the Investment 
Company Act of 1940, as amended; (ii) a ``separate account'' as 
defined in Section 2(a)(37) of the Investment Company Act of 1940, 
as amended; (iii) a ``real estate investment trust'' as defined in 
Section 856 of the Internal Revenue Code; (iv) a ``direct 
participation program'' as defined in Equity 10, Section 1; and (v) 
a corporation, trust, partnership or other entity issuing financing 
instrument-backed securities which are rated by a nationally 
recognized statistical rating organization in one of its four 
highest generic rating categories.

Unlike General 9, Section 18, FINRA Rule 5121(f)(7) does not by rule 
exclude a corporation, trust, partnership or other entity issuing 
financing instrument-backed securities which are rated by a nationally 
recognized statistical rating organization in one of its four highest 
generic rating categories from the definition of ``entity.'' 
Incorporating FINRA's rule, including the applicable definition in 
FINRA Rule 5121, would ensure consistent definition of ``affiliate'' 
and consistent regulation of joint members of the Exchange and FINRA.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\8\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\9\ in particular, in that it is designed to promote 
just and equitable principles of trade and to protect investors and the 
public interest. The Exchange's proposal to replace General 9, Section 
18 with rule text incorporating by reference FINRA Rule 5250, including 
the applicable provisions of FINRA Rule 5121 as referenced in FINRA 
Rule 5250, is consistent with the Act. The Exchange's proposal will 
align Nasdaq's rule to FINRA's rule and remove differences as between 
the two rules.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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    Aligning General 9, Section 18 to FINRA Rule 5250 would ensure 
consistent regulation of joint members of the Exchange and FINRA.

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. The proposed amendments do not 
impose an undue burden on competition as the proposal will align the 
Exchange's General 9, Section 18 to FINRA Rule 5250 and ensure 
consistent regulation of joint members of the Exchange and FINRA.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b-
4(f)(6) thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.

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[[Page 34288]]

    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 necessary or 
appropriate in the public interest, for the protection of investors, or 
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 change 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-2021-051 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-2021-051. 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-2021-051 and should be submitted 
on or before July 20, 2021.
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    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-13785 Filed 6-28-21; 8:45 am]
BILLING CODE 8011-01-P