[Federal Register Volume 88, Number 243 (Wednesday, December 20, 2023)]
[Notices]
[Pages 88184-88186]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-27918]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99176; File No. SR-NASDAQ-2023-053]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Equity 7, Section 114(f)

December 14, 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 December 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 rebates 
at Equity 7, Section 114(f) as described further below. The text of the 
proposed rule change is available on the Exchange's website at https://istingcenter.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 amend the Exchange's 
schedule of credits at Equity 7, Section

[[Page 88185]]

114(f) applicable to the Designated Liquidity Provider (``DLP'') \3\ 
Program. Specifically, the Exchange proposes to amend the Additional 
Tape C ETP Incentives at Equity 7, Section 114(f).
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    \3\ Equity 7, Section 114(f)(2) defines a ``Designated Liquidity 
Provider'' or ``DLP'' as a registered Nasdaq market maker for a 
Qualified Security that has committed to maintain minimum 
performance standards. A DLP shall be selected by Nasdaq based on 
factors including, but not limited to, experience with making 
markets in exchange-traded products, adequacy of capital, 
willingness to promote Nasdaq as a marketplace, issuer preference, 
operational capacity, support personnel, and history of adherence to 
Nasdaq rules and securities laws. Nasdaq may limit the number of 
DLPs in a security, or modify a previously established limit, upon 
prior written notice to members.
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    Currently, the Additional Tape C ETP Incentives in Equity 7, 
Section 114(f)(5)(B) are provided to an eligible member for each 
displayed share that adds liquidity in a Tape C ETP that meets the 
criteria of Equity 7, Section 114(f)(1)(A) and only apply to the MPID 
where a member is a DLP. In addition, Equity 7, Section 114(f)(4) 
provides monthly performance criteria related to Additional Tape C ETP 
Incentives, which requires that the average time the DLP is at the NBBO 
for each assigned ETP averages at least 20%, and the average liquidity 
provided by the DLP for each assigned ETP average at least 5% of the 
liquidity provided on the Exchange in the respective ETP.
    As set forth in in Equity 7, Section 114(f)(5)(B), the Exchange 
provides an Incremental Tape C ETP Rebate for Tier 1 (applicable to 
members with a minimum monthly average of 10 assigned ETPs as a DLP) of 
$0.0002 per executed share. The Exchange provides an Incremental Tape C 
ETP Rebate for Tier 2 (applicable to members with a minimum monthly 
average of 25 assigned ETPs as a DLP) of $0.0003 per executed share. 
The Exchange provides an Incremental Tape C ETP Rebate for Tier 3 
(applicable to members with a minimum monthly average of 50 assigned 
ETPs as a DLP) of $0.0004 per executed share. Finally, the Exchange 
provides an Incremental Tape C ETP Rebate for Tier 4 (applicable to 
members with a minimum monthly average of 100 assigned ETPs as a DLP) 
of $0.0005 per executed share.
    The Exchange proposes to limit the category of DLPs that may 
qualify for the Additional Tape C ETP Incentives to Primary DLPs. Under 
the proposed rule change, Secondary DLPs \4\ would not be eligible for 
Additional Tape C ETP Incentives.
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    \4\ Equity 7, Section 114(f)(4) provides that, if there are two 
DLP assignments for a Nasdaq-listed ETP, the Secondary DLP will be 
determined by using the factors in Section 114(f)(2). Such factors 
include experience with making markets in exchange-traded products, 
adequacy of capital, willingness to promote Nasdaq as a marketplace, 
issuer preference, operational capacity, support personnel, and 
history of adherence to Nasdaq rules and securities laws.
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    In order to effectuate this proposed modification, the Exchange 
proposes to modify Equity 7, Section 114(f)(4) to indicate that the 
Additional Tape C ETP Incentives are for Primary DLPs and relatedly, 
update the performance criteria related to such rebates by adding 
``Primary'' where DLP is referenced. In addition, the Exchange proposes 
to modify Equity 7, Section 114(f)(5) to specify, in both the 
introductory language as well as in Section 114(f)(5)(B), that the DLP 
must be a Primary DLP to qualify for the Additional Tape C ETP 
Incentives.
    The Exchange believes it is appropriate to update the Tape C ETP 
Incentives to apply solely to Primary DLPs because Primary DLPs bear 
the majority of the responsibility for providing high quality markets 
in the ETPs, whereas Secondary DLPs provide additional support. In 
return for serving as Primary DLPs, the Exchange believes it is 
appropriate to compensate Primary DLPs with incentives reserved for 
Primary DLPs. 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, including by maximizing the net impact of 
such incentives on the Exchange, market quality, and participants.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\5\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\6\ 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 Exchange also notes that its ETP 
listing business operates in a highly competitive market in which 
market participants, which include both DLPs and ETP issuers, can 
readily transfer their listings or opt not to participate, 
respectively, if they deem fee levels, liquidity incentive programs, or 
any other factor at a particular venue to be insufficient or excessive. 
The DLP Program, including the proposed rule change, reflects a 
competitive pricing structure designed to incentivize issuers to list 
new products and transfer existing products to the Exchange and market 
participants to enroll and participate as DLPs on the Exchange.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes it is reasonable, equitable, and not unfairly 
discriminatory to limit the category of DLPs that may qualify for the 
Additional Tape C ETP Incentives to Primary DLPs. The Exchange believes 
it is appropriate to update the Tape C ETP Incentives to apply solely 
to Primary DLPs because Primary DLPs bear the majority of the 
responsibility for providing high quality markets in the ETPs, whereas 
the Secondary DLPs provide additional support. 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. In return 
for serving as Primary DLPs, the Exchange believes it is appropriate to 
compensate Primary DLPs with incentives reserved exclusively for 
Primary DLPs. The Exchange believes that the proposed revisions to the 
Additional Tape C ETP Incentives are an equitable allocation and are 
not unfairly discriminatory because the Exchange will apply the same 
criteria for the Additional Tape C ETP Incentives to all Primary DLPs. 
The Exchange also believes that amending the DLP Program as proposed is 
an equitable allocation of rebates and is not unfairly discriminatory 
because it will allocate its rebates fairly among its market 
participants (i.e., the Exchange will offer more rebates to Primary 
DLPs that are responsible for providing high quality markets in the 
ETPs).

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 Exchange notes that it 
operates in a highly competitive market in which market participants 
can readily favor competing venues if they deem rebates or 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 rebates 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 rebates and fees in

[[Page 88186]]

response, and because market participants may readily adjust their 
order routing practices, the Exchange believes that the degree to which 
rebate and fee changes in this market may impose any burden on 
competition is extremely limited.
    In this instance, the Exchange is proposing to limit the category 
of DLPs that may qualify for the Additional Tape C ETP Incentives in 
the DLP Program to Primary DLPs in an effort to exclusively reward 
Primary DLPs with such incentives. The proposal is reflective of the 
greater responsibility borne by Primary DLPs.
    The Exchange uses incentives, such as the rebates of the DLP 
program, to incentivize market participants to improve the market. The 
Exchange must, from time to time, assess the effectiveness of 
incentives and adjust them when they are not as effective as the 
Exchange believes they could be. Moreover, the Exchange is ultimately 
limited in the amount of rebates it may offer. The proposal is 
reflective of such an analysis.
    The Exchange notes that participation in the DLP program is 
entirely voluntary and, to the extent that registered market makers 
determine that the rebates are not in line with the level of market-
improving behavior the Exchange requires, a DLP may elect to deregister 
as such with no penalty. The Exchange does not believe that the 
proposed change places an unnecessary burden on competition and, in 
sum, if the changes proposed herein are unattractive to market makers, 
it is likely that the Exchange will lose participation in the DLP 
program as a result. Thus, the Exchange does not believe that the 
proposal represents a burden on competition among Exchange members, or 
that the proposal 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.\7\
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    \7\ 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-2023-053 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-2023-053. 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-2023-053 and should 
be submitted on or before January 10, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-27918 Filed 12-19-23; 8:45 am]
BILLING CODE 8011-01-P