[Federal Register Volume 89, Number 35 (Wednesday, February 21, 2024)]
[Notices]
[Pages 13125-13128]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-03451]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99535; File No. SR-NASDAQ-2024-005]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Equity 7, Section 118

    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 February 1, 2024, 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 pricing schedule at 
Equity 7, Section 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
    The purpose of the proposed rule change is to (i) provide an 
additional calculation for purposes of determining whether a member 
qualifies for credits set forth in Equity 7, Section 118(a) that 
pertain to providing liquidity; and (ii) amend certain fees assessed 
for transactions in the Nasdaq Closing Cross and Nasdaq Opening Cross 
under Equity 7, Section 118(d)(1) and Equity 7, Section 118(e)(1) 
respectively.
Proposed Changes to Equity 7, Section 118(a)
    Presently, the Exchange provides its members with various credits 
for executing orders that add liquidity to the Exchange and charges 
them various fees for executing orders that remove liquidity from the 
Exchange, as set forth in Equity 7, Section 118(a) of the Exchange's 
Rules. The charges and credits in Equity 7, Section 118(a) apply to the 
use of the order execution and routing services of the Nasdaq Market 
Center by members for all securities priced at $1 or more that it 
trades. Members may qualify for tiers of discounted fees and premium 
credits based, in part, upon the volume of their activities 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 following are excluded from both total Consolidated 
Volume and the member's trading activity: (1) the date of the annual 
reconstitution of the Russell Investments Indexes; (2) the dates on 
which stock options, stock index options, and stock index futures 
expire (i.e., the third Friday of March, June, September, and 
December); (3) the dates of the rebalance of the MSCI Equities Indexes 
(i.e., on a quarterly basis); (4) the dates of the rebalance of the S&P 
400, S&P 500, and S&P 600 Indexes (i.e., on a quarterly basis); and (5) 
the date of the annual reconstitution of the Nasdaq-100 and Nasdaq 
Biotechnology Indexes. For the purposes of calculating the extent of a 
member's trading activity during the month on Nasdaq and determining 
the charges and credits applicable to such member's activity, all M-ELO 
Orders that a member executes on Nasdaq during the month count as 
liquidity-adding activity on Nasdaq. In addition, volume from ETC 
Eligible LOC Orders and ETC Orders is not utilized to determine 
eligibility for any pricing tiers set forth in Section 118(a) to the 
extent that such eligibility is based upon MOC or LOC volume.
    Generally, the ratio of consolidated volumes in securities priced 
at or above $1 (``dollar plus volume'') relative to consolidated 
volumes inclusive of securities priced below a dollar is usually stable 
from month to month, such that ``Consolidated Volume'' has been a 
reasonable baseline for determining tiered incentives for members that 
execute dollar plus volume on the Exchange. However, there have been a 
few months where volumes in securities priced below a dollar (``sub-
dollar volume'') have been elevated, thereby impacting the ratio 
mentioned above.
    Anomalous rises in sub-dollar volume stand to have a material 
adverse impact on members' qualifications for pricing tiers/incentives 
because such qualifications depend members upon achieving threshold 
percentages of volumes as a percentage of Consolidated Volume, and an 
extraordinary rise in sub-dollar volume stands to elevate Consolidated 
Volume. As a result, members may find it more difficult, if not 
practically impossible, to qualify for or to continue to qualify for 
their existing incentives during months where there are such rises in 
sub-dollar volumes, even if their dollar plus volumes have not 
diminished relative to prior months.
    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 incentives for such volumes due to 
anomalous behavior that is extraneous to them. Therefore, the

[[Page 13126]]

Exchange wishes to amend its Rules to help avoid extraordinary spikes 
in sub-dollar volumes from adversely affecting a member's qualification 
of incentives for their dollar plus stock executions.
    Accordingly, the Exchange proposes to amend its pricing schedule at 
Equity 7, Section 118(a) to state that, for purposes of calculating a 
member's qualifications for credits that pertain to providing liquidity 
set forth in Section 118(a), the Exchange will calculate a member's 
volume and total Consolidated Volume twice. First, the Exchange will 
calculate a member's volume and total Consolidated Volume as presently 
set forth in Equity 7, Section 118(a) (i.e., inclusive of volume that 
consists of executions in securities priced less than $1). Second, the 
Exchange will calculate a member's volume and total Consolidated Volume 
exclusive of volume that consists of executions in securities priced 
less than $1, while also increasing the distinct qualifying volume 
percentage thresholds, as set forth in Section 118(a), by 10%. 
Thereafter, the Exchange proposes to assess which of these two 
calculations would qualify the member for the most advantageous credits 
for the month and then it will apply those to the member.
    Although the Exchange wishes to avoid extraordinary spikes in sub-
dollar volumes from adversely affecting a member's qualification of 
incentives for their dollar plus stock executions, the Exchange 
proposes to include certain limits on the proposal to efficiently 
allocate the Exchange's limited resources for incentives. Specifically, 
as noted above, the Exchange proposes to limit the application of the 
proposed calculation excluding sub-dollar volumes to those incentives 
in Section 118(a) that pertain to providing liquidity. In addition, as 
noted above, the Exchange proposes to increase the distinct qualifying 
volume percentage thresholds set forth in Section 118(a) by 10% for 
purposes of the proposed calculation excluding sub-dollar volumes.\3\ 
The Exchange wishes to impose such limitations in order to limit the 
cost impact on the Exchange, while still providing some relief to 
members in months with extraordinary spikes in sub-dollar volumes. 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\ For example, the Exchange provides a credit of $0.00305 per 
share executed for displayed orders (other than Supplemental Orders 
or Designated Retail Orders) 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 1.50% of Consolidated Volume. 
See Equity 7, Section 118(a). Under the proposal, in addition to 
calculating the member's volume and total Consolidated Volume 
exclusive of volume that consists of executions in securities priced 
less than $1, the distinct qualifying volume percentage threshold 
would be increased by 10%. Therefore, for purposes of this example, 
in order to qualify for the credit using volumes excluding sub-
dollar activity, the member would need to demonstrate shares of 
liquidity provided in all securities through one or more of its 
Nasdaq Market Center MPIDs that represent more than 1.65% of 
Consolidated Volume (i.e., 1.5% + (10%)(1.5%)).
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Proposed Changes to Equity 7, Section 118(d)(1) and (e)(1)
    Equity 7, Section 118(d)(2) provides pricing tiers applicable to 
Market-on-Close and Limit-on-Close orders executed in the Nasdaq 
Closing Cross and ETC Eligible Limit-on-Close and ETC Orders executed 
in the Extended Trading Close, ranging from $0.0008 to $0.0016 per 
share executed. Equity 7, Section 118(d)(1) provides that the fee for 
all other quotes and orders executed in the Nasdaq Closing Cross is 
$0.00085 per share executed. The Exchange proposes to increase the fee 
assessed members for all quotes and orders executed in the Nasdaq 
Closing Cross (other than Market-on-Close and Limit-on-Close orders 
executed in the Nasdaq Closing Cross and ETC Eligible Limit-on-Close 
and ETC Orders executed in the Extended Trading Close) from $0.00085 to 
$0.0011 per share executed. Increasing this fee to $0.0011 per share 
executed would bring the fee more in line with other pricing in the 
Nasdaq Closing Cross, which ranges from $0.0008 to $0.0016 per share 
executed.
    Equity 7, Section 118(e)(1) provides that Market-on-Open, Limit-on-
Open, Good-till-Cancelled, and Immediate-or-Cancel orders executed in 
the Nasdaq Opening Cross are assessed a fee of $0.0015 per share 
executed. Equity 7, Section 118(e)(1) provides that the fee for all 
other quotes and orders executed in the Nasdaq Opening Cross is 
$0.00085 per share executed. The Exchange proposes to increase the fee 
assessed members for all quotes and orders (other than Market-on-Open, 
Limit-on-Open, Good-till-Cancelled, and Immediate-or-Cancel orders) 
executed in the Nasdaq Opening Cross from $0.00085 to $0.0011 per share 
executed. Increasing this fee to $0.0011 per share executed would bring 
the fee more in line with other pricing in the Nasdaq Opening Cross, 
which is set at $0.0015 per share executed.
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

[[Page 13127]]

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.
    The Exchange believes that the proposal to amend Equity 7, Section 
118(a) is reasonable and equitable because, in its absence, members may 
experience material adverse impacts on their ability to qualify for 
certain incentives during a month with an anomalous rise in sub-dollar 
volumes. 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 provide a means for members that 
provide liquidity to avoid such a penalty by determining whether 
calculating member volume and total Consolidated Volume to include or 
exclude sub-dollar volume \8\ would result in Exchange members 
qualifying for the most advantageous credits, and then applying the 
calculations that would result in the incentives for providing 
liquidity that are most advantageous to each member. The Exchange 
believes it is reasonable to limit the proposal by applying the 
proposed calculation to incentives that pertain to providing liquidity 
and increasing the distinct qualifying volume percentage thresholds by 
10% when using the proposed calculation excluding sub-dollar volumes 
because 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. The Exchange believes that the proposed rule 
change is an equitable allocation and is not unfairly discriminatory 
because the Exchange does not intend for the proposal to advantage any 
particular member and the Exchange will apply the proposed calculation 
to all similarly situated members.
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    \8\ As noted above, in considering whether a member meets 
qualifying credit criteria using the proposed calculation excluding 
sub-dollar volumes, the distinct qualifying volume percentage 
thresholds would be increased by 10%.
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    The Exchange also believes it is reasonable, equitable, and not 
unfairly discriminatory for the Exchange to increase certain fees 
assessed for transactions in the Nasdaq Closing Cross and Nasdaq 
Opening Cross under Equity 7, Section 118(d)(1) and Equity 7, Section 
118(e)(1) respectively, as described above. 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. The 
proposed increase in fees would better align the fees with other 
pricing in the Opening and Closing Crosses. Specifically, the 
Exchange's proposal to increase the fee assessed members for all quotes 
and orders (other than Market-on-Close and Limit-on-Close orders 
executed in the Nasdaq Closing Cross and ETC Eligible Limit-on-Close 
and ETC Orders executed in the Extended Trading Close) executed in the 
Nasdaq Closing Cross to $0.0011 per share executed is reasonable 
because the proposed fee is comparable to other pricing in the Nasdaq 
Closing Cross, which ranges from $0.0008 to $0.0016 per share executed. 
Similarly, the Exchange's proposal to increase the fee assessed members 
for all quotes and orders (other than Market-on-Open, Limit-on-Open, 
Good-till-Cancelled, and Immediate-or-Cancel orders) executed in the 
Nasdaq Opening Cross to $0.0011 per share executed is reasonable 
because the proposed fee is comparable to other pricing in the Nasdaq 
Opening Cross, which is $0.0015 per share executed. The Exchange 
believes that proposal is an equitable allocation and is not unfairly 
discriminatory because the Exchange will apply the same fees to all 
similarly situated members.
    Those participants that are dissatisfied with the changes to the 
Exchange's schedule of credits and fees are free to shift their order 
flow to competing venues that provide more favorable fees or generous 
incentives.

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 proposal will place any 
category of Exchange participant at a competitive disadvantage.
    The Exchange intends for its proposed changes to its credits and 
fees to reallocate its limited resources more efficiently and to align 
them with the Exchange's overall mix of objectives. The Exchange 
intends for its proposed change in Equity 7, Section 118(a) to help 
avoid pricing disadvantages due to anomalous spikes in sub-dollar 
volumes and is not intended to provide a competitive advantage to any 
particular member. The Exchange intends for its proposed fee changes in 
Equity 7, Section 118(d)(1) and (e)(1) to bring such fees more in line 
with other fees for orders executed in the Nasdaq Opening and Closing 
Crosses, as described above. The Exchange notes that its members are 
free to trade on other venues to the extent they believe that the 
proposal is 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.
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 proposal is 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.

[[Page 13128]]

    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

    The foregoing rule change has become effective pursuant to section 
19(b)(3)(A)(ii) of the Act.\9\
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    \9\ 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-2024-005 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-2024-005. 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 
10:00 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. 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-2024-005, and 
should be submitted on or before March 13, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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    Dated: February 14, 2024.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-03451 Filed 2-20-24; 8:45 am]
BILLING CODE 8011-01-P