[Federal Register Volume 88, Number 221 (Friday, November 17, 2023)]
[Notices]
[Pages 80358-80360]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-25382]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98912; File No. SR-NASDAQ-2023-043]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Equity 7, Section 118
November 13, 2023.
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 November 1, 2023, 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 schedule of credits
and fees at Equity 7, Section 118(a) 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
The purpose of the proposed rule change is to (i) eliminate a
credit to members for displayed quotes/orders
[[Page 80359]]
(other than Supplemental Orders or Designated Retail Orders) that
provide liquidity and (ii) eliminate a fee for routing orders at Equity
7, Section 118(a).
The Exchange proposes to eliminate the $0.0026 per share executed
credit for securities in Tapes A, B, and C offered to a member that,
through one or more of its Nasdaq Market Center MPIDs: (i) provides
shares of liquidity in all securities that represent equal to or
greater than 0.15% of Consolidated Volume; (ii) increases the extent to
which it provides liquidity in all securities as a percentage of
Consolidated Volume by 20% or more during the month relative to the
month of May 2021; and (iii) has a ratio of at least 50% NBBO liquidity
provided (as defined in Equity 7, Section 114(g)) to liquidity provided
by displayed quotes/orders (other than Supplemental Orders or
Designated Retail Orders) during the month. The Exchange proposes to
eliminate this credit because it is not heavily utilized and includes a
baseline month of May 2021 for the growth element of the credit, which
is no longer a relevant benchmark. As such, this credit no longer
provides a growth incentive that is aligned with the Exchange's needs.
The Exchange also seeks to simplify its schedule of credits. The
Exchange has limited resources to allocate to incentives and it must,
from time to time, reallocate those resources to maximize their net
impact on the Exchange, market quality, and participants.
Additionally, the Exchange proposes to eliminate the $0.01 per
order charge for round lot or mixed lot DOTI Orders, incurred when,
during the month: (i) a market participant sends an average of more
than 10,000 DOTI Orders per day through one or more of its MPIDs; and
(ii) the ratio of DOTI Orders to executions exceeds 300 to 1.\3\ The
Exchange seeks to simplify its charges for routed orders by eliminating
such fee. The Exchange has limited resources to devote to incentive
programs, and it is appropriate for the Exchange to reallocate these
incentives periodically in a manner that best achieves the Exchange's
overall mix of objectives.
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\3\ The fee applies to each DOTI Order that exceeds the 300 to 1
ratio. In calculating daily average DOTI Orders, the Exchange
excludes the day with the highest ratio of DOTI Orders to
executions.
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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.
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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 Exchange's proposed changes to its schedule of credits and fees
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.
The Exchange believes it is reasonable, equitable, and not unfairly
discriminatory to eliminate the Exchange's $0.0026 per share executed
transaction credit and the Exchange's $0.01 fee for routing orders. The
Exchange seeks to simplify and streamline its schedule of credits by
eliminating the $0.0026 per share executed credit that is not heavily
utilized and is no longer based on a relevant benchmark, as described
above. The Exchange also seeks to eliminate the $0.01 charge for round
lot or mixed lot DOTI Orders described above in an effort to simplify
and streamline its fees for routing orders. Together, the proposed
changes are designed to better align with the Exchange's needs. The
Exchange has limited resources to devote to incentive programs, and it
is appropriate for the Exchange to reallocate these incentives
periodically in a manner that best achieves the Exchange's overall mix
of objectives.
Those participants that are dissatisfied with the eliminations from
the Exchange's schedule of credits and fees are free to shift their
order flow to competing venues that provide incentives or qualifying
criteria more in line with participants' objectives.
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 intends for the proposed changes to simplify its
credit and fee schedule, remove a credit with an outdated benchmark
month, preserve its limited resources for optimized effect, and better
align the schedule of credits and fees with the Exchange's overall mix
of objectives. The Exchange notes that its members are free to trade on
other venues to the extent they believe that these proposals are not
[[Page 80360]]
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.
Intermarket Competition
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 credits and fees 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 and
fees in response, and because market participants may readily adjust
their order routing practices, the Exchange believes that the degree to
which credit or fee changes in this market may impose any burden on
competition is extremely limited. The proposals are reflective of this
competition.
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 comprises upwards of 40% of industry volume.
In sum, if the change proposed herein is 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
change 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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-NASDAQ-2023-043 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-2023-043. 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 (https://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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-NASDAQ-2023-043 and should
be submitted on or before December 8, 2023.
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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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-25382 Filed 11-16-23; 8:45 am]
BILLING CODE 8011-01-P