[Federal Register Volume 89, Number 67 (Friday, April 5, 2024)]
[Notices]
[Pages 24070-24075]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-07227]



[[Page 24070]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99879; File No. SR-NASDAQ-2024-016]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Encourage Members To Contribute Liquidity to the Exchange by Offering 
Those That Maintain a Particular Minimum Trading Volume Lower Fees for 
Specified Market Data and Connectivity Products

April 1, 2024.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on March 22, 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 encourage members to contribute liquidity 
to the Exchange by offering those that maintain a particular minimum 
trading volume lower fees for specified market data and connectivity 
products.
    While these amendments are effective upon filing, the Exchange has 
designated the proposed amendments to be operative on September 1, 
2024.
    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 reward firms that 
meet a minimum average daily displayed volume with lower fees for Non-
Display Usage and the Exchange's 40Gb and 10Gb Ultra high-speed 
connection to the Exchange.\3\
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    \3\ This proposal was initially filed on March 6, 2024, as SR-
Nasdaq-2024-011. On March 20, 2024, that filing was withdrawn and 
replaced with SR-Nasdaq-2024-015. On March 22, 2024, SR-Nasdaq-2024-
015 was withdrawn and replaced with the instant filing due to a 
technical error.
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Non-Display Usage
    Non-Display Usage is any method of accessing Nasdaq U.S. 
information that involves access or use by a machine or automated 
device without access or use of a display by a natural person. Examples 
of Non-Display Usage include, but are not limited to:
     Automated trading;
     Automated order/quote generation and/or order/quote 
pegging;
     Price referencing for use in algorithmic trading;
     Price referencing for use in smart order routing;
     Program trading and high frequency trading;
     Order verification;
     Automated surveillance programs;
     Risk management;
     Automatic order cancellation, or automatic error 
discovery;
     Clearing and settlement activities;
     Account maintenance (e.g., controlling margin for a 
customer account); and
     ``Hot'' disaster recovery.
    Although either top-of-book or depth-of-book data can be used for 
Non-Display Usage, the proposal modifies fees for depth-of-book data 
only.\4\
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    \4\ See Equity 7, Section 123 (Nasdaq Depth-of-Book data).
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    Non-Display fees are currently assessed on a per-subscriber \5\ or 
per-firm basis. Monthly fees are $375 per Subscriber for 1-39 
subscribers; $15,000 per firm for 40-99 subscribers; $30,000 per firm 
for 100-249 subscribers; and $75,000 per firm for 250 or more 
subscribers.
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    \5\ ``Subscriber'' is defined as a device or computer terminal 
or an automated service which is entitled to receive information.
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    Under the proposed rule change, a member firm that meets the 
minimum ADV threshold discussed below would continue to pay those fees.
    Firms that do not meet the minimum ADV threshold, however, as well 
as non-member firms, would pay the new monthly fees of $500 per 
subscriber for 1-39 subscribers; $20,000 per firm for 40-99 
subscribers; $40,000 per firm for 100-249 subscribers; and $100,000 per 
firm for 250 or more subscribers.
Fiber Connections to the Exchange (40Gb and 10Gb Ultra)
    Nasdaq offers customers the opportunity to co-locate their servers 
and equipment within the Nasdaq Data Center,\6\ allowing participants 
an opportunity to reduce latency and network complexity. Nasdaq offers 
a variety of connectivity options to fit a firm's specific networking 
needs, including the high-speed 40Gb and 10Gb Ultra networks.
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    \6\ See Nasdaq Co-Location (CoLo) Services, available at https://www.nasdaqtrader.com/trader.aspx?id=colo; Stock Exchange Data 
Center & Trading, available at https://www.nasdaq.com/solutions/nasdaq-co-location.
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    All of Nasdaq's colocation and connectivity options offer customers 
access to any or all Nasdaq exchanges through a single connection.\7\ 
For example, a firm that is a member of all six Nasdaq exchanges that 
purchases services in the Nasdaq Data Center such as a 40G fiber 
connection, cabinet space, cooling fans, and patch cables only 
purchases these products or services once to use them for all six 
Nasdaq exchanges.
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    \7\ See Securities Exchange Act Release No. 84571 (November 9, 
2018), 83 FR 57758 (November 16, 2018) (SR-Nasdaq-2018-086).
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    Nasdaq currently charges members an ongoing monthly fee of $21,100 
for the 40Gb fiber connection and $15,825 for the 10Gb Ultra connection 
to the Nasdaq exchanges. Under the proposed rule change, a firm that 
meets the minimum ADV threshold would continue to pay those fees.
    Member firms that do not meet the minimum ADV threshold discussed 
below, as well as non-member firms, would pay the new monthly fee of 
$23,700 for the 40Gb fiber connection and $17,800 for the 10Gb Ultra 
connection.
Minimum ADV
    The proposal introduces the new term ``Minimum ADV,'' which will 
mean the introduction by a member of at least one million shares of 
added executed displayed liquidity on average per trading day in all 
securities through one or more of the member's market participant 
identifiers (``MPIDs'') on the Nasdaq Market Center. Average daily 
volume is calculated as the total volume of shares executed for all 
added

[[Page 24071]]

displayed orders in all securities during the trading month divided by 
the number of trading days in that month, averaged over the six-month 
period preceding the billing month, or the date the firm became a 
member, whichever is shorter. New members will be deemed to meet the 
Minimum ADV for the first month of operation. Minimum ADV excludes 
sponsored access by a member on behalf of a third party. The minimum 
ADV threshold was designed to be accessible to all members to promote 
wide engagement with the Exchange.
    Nasdaq does not expect any member to be disadvantaged by the 
proposal. Nasdaq is a maker-taker platform and, as such, offers rebates 
to members that offer displayed liquidity. With these rebates, no 
member should have any difficulty posting and executing sufficient 
displayed liquidity to meet the ADV threshold. The threshold is, 
moreover, set at a level that Nasdaq believes any member--even smaller 
members--should be able to meet without significant effort. Because the 
threshold applies to displayed liquidity only, the proposal should not 
impact the Best Execution obligations of any member. If all members 
were to meet this threshold, the proposal would add an incremental 60-
80 million shares to Nasdaq's accessible liquidity.
    Non-members that, by definition, do not post displayed liquidity to 
the market would pay the higher fees. This is because the non-members 
do not directly contribute order flow to the Exchange, but nevertheless 
benefit from that order flow through tighter spreads, better prices, 
and the other advantages of a more liquid platform, as discussed in 
further detail under Statutory Basis.
The Proposal Will Promote Competition Among Trading Venues
    Exchanges, like all trading venues, compete as platforms. All 
elements of the platform--trade executions, market data, connectivity, 
membership, and listings--operate in concert. Trade executions increase 
the value of market data; market data functions as an advertisement for 
on-exchange trading; listings increase the value of trade executions 
and market data; and greater liquidity on the exchange enhances the 
value of ports and colocation services.
    As discussed under Statutory Basis, we have attached a data-based 
analysis demonstrating how platform competition works entitled ``How 
Exchanges Compete: An Economic Analysis of Platform Competition'' as 
Exhibit 3. The paper explains that exchanges are multi-sided platforms, 
whose value is dependent on attracting users to multiple sides of the 
platform. Issuers need investors, and every trade requires two sides to 
trade. To make its platform attractive to multiple constituencies, an 
exchange must consider inter-side externalities, meaning demand for one 
set of platform services depends on the demand for other services. This 
proposal is designed to promote competition by providing an incentive 
for members to provide liquidity (therefore attracting investors and 
increasing the overall value of the platform) through charging lower 
fees for other platform services (i.e., market data and connectivity). 
This will lead to more displayed liquidity on the Exchange, enhancing 
and enriching the market data distributed to the industry, which then 
increases the amount of interest in the platform. This will also enable 
the Exchange to offer investors a more robust, lower cost-trading 
experience through tighter spreads and more efficient trading as 
discussed in Exhibit 3, placing it in a better competitive position 
relative to other exchanges and trading venues.\8\
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    \8\ To the degree that the additional liquidity is moved from 
off-exchange venues to on-exchange platforms, overall market 
transparency will improve as well.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\9\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\10\ 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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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4) and (5).
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Fees Produced in a Competitive Environment Are an Equitable Allocation 
of Reasonable Dues, Fees, and Other Charges
    Reliance on competitive solutions is fundamental to the Act. Where 
significant competitive forces constrain fees, fee levels meet the 
Act's standard for the ``equitable allocation of reasonable dues, fees, 
and other charges among members and issuers and other persons using its 
facilities,'' \11\ unless there is a substantial countervailing basis 
to find that a fee does not meet some other requirement of the Act.\12\ 
Evidence of platform competition demonstrates that each exchange 
product is sold in a competitive environment, and its fees will be an 
equitable allocation of reasonable dues, fees, and other charges, 
provided that nothing about the product or its fee structure impairs 
competition.\13\
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    \11\ See 15 U.S.C. 78f(b)(4).
    \12\ See U.S. Securities and Exchange Commission, ``Staff 
Guidance on SRO Rule filings Relating to Fees'' (May 21, 2019), 
available at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees (``Fee Guidance'') (``If significant competitive forces 
constrain the fee at issue, fee levels will be presumed to be fair 
and reasonable, and the inquiry is whether there is a substantial 
countervailing basis to find that the fee terms nevertheless fail to 
meet an applicable requirement of the Exchange Act (e.g., that fees 
are equitably allocated, not unfairly discriminatory, and not an 
undue burden on competition).'').
    \13\ Nothing in the Act requires proof of product-by-product 
competition.
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    Congress directed the Commission to ``rely on `competition, 
whenever possible, in meeting its regulatory responsibilities for 
overseeing the SROs and the national market system.' '' \14\ Following 
this mandate, the Commission and the courts have repeatedly expressed 
their preference for competition over regulatory intervention to 
determine prices, products, and services in the securities markets.
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    \14\ NetCoalition v. SEC, 715 F.3d 342, 534-35 (D.C. Cir. 2013); 
see also H.R. Rep. No. 94-229 at 92 (1975) (``[I]t is the intent of 
the conferees that the national market system evolve through the 
interplay of competitive forces as unnecessary regulatory 
restrictions are removed.'').
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    In Regulation NMS, the Commission highlighted the importance of 
market forces in determining prices and SRO revenues and recognized 
that regulation of the national market system ``has been remarkably 
successful in promoting market competition in its broader forms that 
are most important to investors and listed companies.'' \15\
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    \15\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    As a result, the Commission has long relied on competitive forces 
to determine whether a fee proposal is equitable, fair, reasonable, and 
not unreasonably or unfairly discriminatory. In 2008, the Commission 
explained that ``[i]f competitive forces are operative, the self-
interest of the exchanges themselves will work powerfully to constrain 
unreasonable or unfair behavior.'' \16\ In 2019, Commission Staff 
reaffirmed that ``[i]f significant competitive forces constrain the fee 
at issue, fee levels will be presumed to be fair and reasonable . . . 
.'' \17\
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    \16\ See Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21).
    \17\ See Fee Guidance, supra n.10.
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    Accordingly, ``the existence of significant competition provides a 
substantial basis for finding that the terms of an exchange's fee 
proposal are equitable, fair, reasonable, and not

[[Page 24072]]

unreasonably or unfairly discriminatory.'' \18\ Consistent with the 
Commission's longstanding focus on competition, Commission Staff have 
indicated that they would only look at factors outside of the 
competitive market if a ``proposal lacks persuasive evidence that the 
proposed fee is constrained by significant competitive forces.'' \19\
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    \18\ See id.
    \19\ See id. In the Fee Guidance, the Staff indicated that 
``[w]hen reviewing rule filing proposals . . . [it] is mindful of 
recent opinions by the D.C. Circuit,'' including Susquehanna 
International Group, LLP v. SEC, 866 F.3d 442 (D.C. Cir. 2017). 
However, the D.C. Circuit's decision in Susquehanna is irrelevant to 
the Commission's review of immediately effective SRO fee filings. 
Susquehanna involved the Commission's approval of a rule proposed 
under Section 19(b)(2) of the Act, not its evaluation of whether to 
temporarily suspend an SRO's immediately effective fee filing under 
Section 19(b)(3). A comparison of Sections 19(b)(2) and 19(b)(3) of 
the Act makes clear that the Commission is not required to undertake 
the same independent review, and make the same findings and 
determinations, for Section 19(b)(3) filings that it must for 
Section 19(b)(2) filings. In particular, Section 19(b)(2) requires 
the Commission to ``find[ ] that [a] proposed rule change is 
consistent with the'' Act before approving the rule. 15 U.S.C. 
78s(b)(2)(C)(i). Section 19(b)(3), by contrast, imbues the 
Commission with discretion, stating that it ``may temporarily 
suspend'' an immediately effective rule filing where ``it appears to 
the Commission that such action is necessary or appropriate.'' As 
the Supreme Court has explained, statutes stating that an agency 
``may''--but need not--take certain action are ``written in the 
language of permission and discretion.'' S. Ry. Co. v. Seaboard 
Allied Milling, 442 U.S. 444, 455 (1979); see also Crooker v. SEC, 
161 F.2d 944, 949 (1st Cir. 1947) (per curiam). The ``contrast'' 
between Sections 19(b)(2) and 19(b)(3), the Commission itself has 
explained, ``reflects the fundamental difference in the way Congress 
intended for different types of rules to be treated.'' Brief of 
Respondent SEC, NetCoalition v. SEC, 715 F.3d 342 (D.C. Cir. 2013) 
(Nos. 10-1421 et al.); see also id. at 42-43 (``[W]hile the 
Commission's authority to suspend a fee under Subsection (3)(C) is 
permissive, its duties under Subsection (2) are stated in mandatory 
terms.''). Thus, neither Susquehanna, nor Section 19(b)(3) of the 
Act, requires the Commission to make independent findings that an 
immediately effective SRO fee filing such as this one is consistent 
with the Act. To the degree that the Susquehanna decision is 
applicable to any Commission action, however, the court held that 
the Commission is required to ``itself find or determine'' that a 
proposal meets statutory requirements, explaining that the 
Commission is ``obligated to make an independent review'' of an 
SRO's proposal, and not rely solely on the work of the SRO. See 866 
F.3d at 446.
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Nothing in the Act Requires an Examination of Fees in Isolation
    The Act mandates the ``equitable allocation of reasonable dues, 
fees, and other charges among members and issuers and other persons 
using its facilities.'' \20\ This provision refers generally to 
``reasonable dues, fees, and other charges'' as a whole, not individual 
fees. Nothing in the Act requires the individual examination of 
specific product fees in isolation. Provided that a proposed rule 
change does not in and of itself undermine competition, evidence of 
platform competition is sufficient to show that the product operates in 
a competitive environment.
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    \20\ See 15 U.S.C. 78f(b)(4).
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    A determination of whether a proposal permits unfair discrimination 
between customers, issuers, brokers, or dealers remains a separate 
product-specific inquiry.
The Commission Has Recognized That Exchanges Are Subject to Significant 
Competitive Forces in the Market for Order Flow
    The fact that the market for order flow is competitive has long 
been recognized by the courts. In NetCoalition v. Securities and 
Exchange Commission, the D.C. Circuit stated, ``[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.' '' \21\
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    \21\ See NetCoalition, 615 F.3d at 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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All Exchange Products Are Subject to Competition--Not Just Those 
Directly Related to Order Flow
    As discussed more fully in our analysis, ``How Exchanges Compete: 
An Economic Analysis of Platform Competition'' (Exhibit 3), competition 
is not limited to order flow. Data shows that the combination of 
explicit all-in costs to trade and other implicit costs has largely 
equalized the cost to trade across venues.\22\ This is a function of 
the fact that, if the all-in cost to the user of interacting with an 
exchange exceeds market price, customers can and do shift their 
purchases and trading activity to other exchanges, and therefore the 
exchange must adjust one or more of its fees to attract customers.
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    \22\ Competition across platforms constrains platform fees and 
results in ``all-in'' costs becoming equal across platforms. The 
Staff Guidance on SRO Rule Filings Relating to Fees, however, states 
that platform competition requires that the ``overall return of the 
platform, rather than the return of any particular fees charged to a 
type of customer, . . . be used to assess the competitiveness of the 
platform's market,'' and that ``[a]n SRO that wishes to rely on 
total platform theory must provide evidence demonstrating that 
competitive forces are sufficient to constrain the SRO's aggregate 
return across the platform.'' See Fee Guidance, supra n.10 (emphasis 
added). We do not know, and cannot determine, whether returns (as 
opposed to fees) are equalized across platforms, because we do not 
have detailed cost information from other exchanges. An analysis of 
returns, however, is unnecessary to show that competition constrains 
fees given that, as we demonstrate below, platform competition can 
be demonstrated solely by examining costs to users.
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    This conclusion is particularly striking given that different 
exchanges engage in a variety of business models and offer an array of 
pricing options to appeal to different customer types. The largest 
exchanges operate maker-taker platforms, offering rebates to attract 
trading liquidity, which allows them to maintain actionable quotes with 
high liquidity and offer high-quality market data. The negative price 
charged to liquidity providers through rebates is part of the platform 
because it serves to create features attractive to other participants, 
including oftentimes tight spreads, actionable and lit quotes, and more 
valuable market data.
    Inverted venues, in contrast, have the opposite price structure--
liquidity providers pay to add liquidity, while liquidity takers earn a 
rebate. These platforms offer less liquidity, but better queue 
priority, faster fills, and lower effective spreads for investors. 
There are a wide range of other pricing models and product offerings 
among the dozens of lit and unlit trading venues that compete in the 
marketplace in addition to these examples.
    The different strategies among exchanges also manifest in the 
pricing of other services, such as market data and connectivity. Some 
exchanges charge for such services, while others charge little or 
nothing (typically because the exchange is new or has little 
liquidity), just as some exchanges charge a fee per trade, while others 
pay rebates.
    In assessing competition for exchange services, we must consider 
not only explicit costs, such as fees for trading, market data, and 
connectivity, but also the implicit costs of trading on an exchange. 
The realized spread, or markout, captures the implicit cost to trade on 
a platform.
    The concept of markout was created by market makers trying to 
capture the spread while providing a two-sided (bid and offer) market. 
For market makers, being filled on the bid or the offer can cause a 
loss if the fill changes market prices. For example, a fill on a market 
maker's bid just as the stock price falls results in a ``virtual 
loss,'' because the market maker has a long position with a new bid 
lower than the fill.
    Negative markouts can be beneficial. For example, if an 
institutional investor is working a large buy order, negative markouts 
represent fills as the market

[[Page 24073]]

falls, allowing later orders to be placed sooner, and likely at a 
better price, reducing the opportunity costs as well as explicit cost 
of building the position.
    Data suggests that market participants employ sophisticated 
analytic tools to weigh the cost of immediate liquidity and lower 
opportunity costs against better spread capture (lower markouts) and 
explicit trading costs. As discussed in greater detail in Exhibit 3, 
the venues with the highest explicit costs--typically inverted and fee-
fee venues--have the lowest implicit costs from markouts and vice 
versa. Higher positive markouts mean more spread capture, but those 
venues also tend to have the highest explicit costs, and provide the 
least liquidity, and positive externalities, to the market.
    Considering both the explicit costs charged by exchanges for their 
various joint products and the implicit costs incurred by traders to 
trade on various exchanges, the data show that all-in trading costs 
across exchanges are largely equalized, regardless of different trading 
strategies offered by each platform for each individual service.
    As such, platform competition has resulted in a competitive 
environment in the market for exchange services, in which trading 
platforms are constrained by other platforms' offerings, taking into 
consideration the all-in cost of interacting with the platform. This 
constraint is a natural consequence of competition and demonstrates 
that no exchange platform can charge excessive fees and expect to 
remain competitive, thereby constraining fees on all products sold as 
part of the platform. The existence of platform-level competition also 
explains why some consumers route orders to the exchange with the 
highest explicit trading costs even though other exchanges offer free 
or a net rebate for trading.\23\
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    \23\ Empirical evidence also shows that market data is more 
valuable from exchanges with more liquidity. Many customers decide 
not to take data from smaller markets, even though they are free or 
much lower cost than larger markets.
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Exchanges Compete at Both the Platform and Product Level
    Exchange customers are differentiated in the value they place on 
the different products offered by exchanges and in their willingness to 
pay for those products. This occurs both on a firm-wide and a 
transaction basis; for example, individual customers ``multi-home'' on 
various platforms, and are thus able to route different trades to 
different platforms to take advantage of favorable economics offered on 
a trade-to-trade basis.
    Exchanges compete by offering differentiated packages of pricing 
and products to attract different categories of customer. As in any 
competitive market, consumers will ``vote with their feet,'' 
incentivizing platforms to supply an array of pricing and product 
offerings that suit diverse consumer needs far more effectively than a 
uniform, one-size-fits-some rigid product offering. If an exchange's 
pricing for a particular product gets out of line, such that its total 
return is boosted above competitive levels, market forces will 
discipline that approach because competing exchanges will quickly 
attract customer volume through more attractive all-in trading costs.
    In addition, if a particular package of pricing and products is not 
attractive to a sufficient volume of customers in a particular 
category, those customers may elect not to purchase the service. This 
is why exchanges compete at a product level, as well as based on all-in 
trading costs.
Exchanges Compete With Off-Exchange Trading Platforms in Addition to 
Other Exchanges
    As the SEC recently noted in its market infrastructure 
proposal,\24\ the number of transactions completed on non-exchange 
venues has been growing. Allowing exchanges to compete as platforms 
will help exchanges compete against non-exchange venues, and, to the 
degree order flow is shifted from non-exchange to exchange venues, 
overall market transparency will improve.\25\
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    \24\ See Regulation NMS: Minimum Pricing Increments, Access 
Fees, and Transparency of Better Price Orders, Securities Exchange 
Act Release No. 96494 (File No. S7-30-22), available at https://www.sec.gov/rules/proposed/2022/34-96494.pdf.
    \25\ Non-exchange venues rely on market data distributed by 
exchanges to set prices. Greater transparency allows both exchange 
and non-exchange venues to operate more effectively and efficiently.
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    Exchanges have a unique role to play in market transparency because 
they publish an array of pre- and post-trade data that non-exchange 
venues, almost entirely, do not. Greater transparency benefits non-
exchange venues by enabling them to provide more accurate pricing to 
their customers, and by helping such venues set their own prices, 
benchmark, analyze the total cost of ownership, and assess their own 
trading strategies.
    Allowing exchanges to compete effectively as platforms has other 
positive network effects. Larger trading platforms offer lower average 
trading costs. As trading platforms attract more liquidity, bid-ask 
spreads tighten, search costs fall (by limiting the number of venues 
that a customer needs to check to assess the market), and connection 
costs decrease, as customers have no need to connect to all venues.\26\ 
The whole is therefore greater (in the sense that it is more efficient) 
than the sum of the parts.
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    \26\ In addition, Nasdaq's experience shows that fewer customers 
connect with smaller trading venues than with larger venues.
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    This is not to say that smaller established trading platforms do 
not have a role to play. They provide specialized services that cater 
to individual customer needs. These specialized services help the 
smaller exchanges grow by driving liquidity to their platforms, and, if 
they are successful, achieve the economies of scale that benefit the 
larger enterprises. Because the total costs of interacting with an 
exchange are roughly equal, smaller exchanges offset higher trading 
costs with lower connectivity, market data, or other fees. While the 
mix of fees will change as exchanges grow, the all-in cost of 
interacting with the exchange remains roughly the same.
    Acknowledging that exchanges compete as platforms and approving 
fees expeditiously on that basis will improve the ability of exchanges 
to compete against non-exchange venues, and, to the degree order flow 
is shifted to exchanges, both transparency and efficiency will improve.
The Proposed Fees Are Equitable and Reasonable Because They Will Be 
Subject to Competition
    This proposal offers member firms an incentive to display liquidity 
through lower non-display and connectivity fees. The intent is to 
generate a ``virtuous cycle,'' in which the proposed fee structure will 
attract more liquidity to the Exchange, making it a more attractive 
trading venue, and thereby attracting more liquidity.
    Incentive programs have been widely adopted by exchanges, and are 
reasonable, equitable, and non-discriminatory because they are open on 
an equal basis to similarly situated members and provide additional 
benefits or discounts that are reasonably related to the value to an 
exchange's market quality and activity.\27\
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    \27\ See, e.g., Securities Exchange Act Release No. 92493 (July 
26, 2021), 86 FR 41129 (July 30, 2021) (SR-CboeEDGX-2021-034) 
(proposal to provide discount to new members that meet certain 
volume thresholds, noting that ``relative volume-based incentives 
and discounts have been widely adopted by exchanges . . . and are 
reasonable, equitable and non-discriminatory because they are open 
on an equal basis to similarly situated members and provide 
additional benefits or discounts that are reasonably related to (i) 
the value to an exchange's market quality and (ii) associated higher 
levels of market activity . . . .'') (not suspended by Commission); 
see also Securities Exchange Act Release No. 53790 (May 11, 2006), 
71 FR 28738 (May 17, 2006) (SR-Phlx-2006-04) (``The Commission 
recognizes that volume-based discounts of fees are not uncommon, and 
where the discount can be applied objectively, it is consistent with 
Rule 603. For the same reasons noted above, the Commission believes 
that the fee structure meets the standard in section 6(b)(4) of the 
Act in that the proposed rule change provides for the equitable 
allocation of reasonable dues, fees, and other charges among the 
Exchange's members and issuers and other persons using its 
facilities.'').

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[[Page 24074]]

    The proposal will contribute to market quality because it will help 
bring new order flow to the Exchange. Greater displayed liquidity on 
the Exchange offers investors deeper, more liquid markets and execution 
opportunities.
    Increased order flow benefits investors by deepening the Exchange's 
liquidity pool, potentially providing greater execution incentives and 
opportunities, offering additional flexibility for all investors to 
enjoy cost savings, supporting the quality of price discovery, 
promoting market transparency, and lowering spreads between bids and 
offers and thereby lowering investor costs. To the degree that 
liquidity is attracted from dark venues, that liquidity also increases 
transparency for the market overall, providing investors with more 
information about market trends.
    The proposal will help members that meet the minimum ADV threshold 
maintain lower costs and will benefit them through the many positive 
externalities associated with a more liquid exchange.
    The competition among exchanges as trading platforms, as well as 
the competition between exchanges and alternative trading venues, 
constrain exchanges from charging excessive fees for any exchange 
products, including trading, listings, ports, and market data. Indeed, 
the fees that arise from the competition among trading platforms may be 
too low because they fail to reflect the benefits to the market as a 
whole of exchange products and services, allowing other venues to free-
ride on these investments by the exchange platforms, increasing 
fragmentation and search costs.
    As long as total returns are constrained by competitive forces--as 
demonstrated in detail by the report provided as Exhibit 3--there is no 
regulatory basis to be concerned with pricing of particular elements 
offered on a platform. Indeed, regulatory constraints in this 
environment are likely to reduce consumer welfare by constraining 
certain exchanges from offering packages of pricing and products that 
would be attractive to certain sets of consumers, thus impeding 
competition with venues that are not subject to the same regulatory 
limitations and reducing the benefits of competition to customers.
The Proposal Is Not Unfairly Discriminatory
    The proposal is not unfairly discriminatory. Non-Display Usage and 
the Exchange's 40Gb and 10Gb Ultra high-speed connections will be 
offered to all members and non-members on like terms. It is also not 
unfair to charge more to firms that do not directly contribute order 
flow to the Exchange, but nevertheless benefit from that order flow 
through tighter spreads, better prices, and the other advantages of a 
more liquid platform.
    Specifically, the proposal is not unfairly discriminatory with 
respect to either members or non-members.
    With respect to members, all members that meet the ADV threshold 
will be charged lower fees. With respect to smaller members, Nasdaq 
offers rebates to members that offer displayed liquidity. With these 
rebates, any member--even smaller members--should have the ability to 
post sufficient displayed liquidity to meet the ADV threshold.
    The proposal is not unfairly discriminatory with respect to non-
members broker-dealers, which include brokers routing trades through 
members and off-exchange trading platforms that use exchange data to 
execute trades, because they have the option of becoming members to 
obtain lower fees under the proposal, and because they realize the 
benefits of higher liquidity--including tighter spreads and better 
prices--and it is not unfair discrimination to charge a higher fee for 
that benefit.
    The proposal is not unfairly discriminatory with respect to non-
member firms that are not broker-dealers, such as market data vendors 
and index providers, because they also benefit from the value that the 
additional liquidity generated by this proposal will provide to the 
trading platform. As noted above, incentivizing higher levels of 
liquidity enhances and enriches the market data distributed to the 
industry, and increases the overall value of platform. It is not unfair 
for such parties to pay a higher fee to reflect the greater value of 
the platform.
    Discounts for specific categories of market participants are well-
established; examples include non-professional fees, broker-dealer 
enterprise licenses, and a media enterprise license.\28\
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    \28\ See, e.g., The Nasdaq Stock Market, Price List--U.S. 
Equities, available at http://www.nasdaqtrader.com/Trader.aspx?id=DPUSData (providing discounts for Non-Professional 
subscribers for Nasdaq TotalView and other market data products, 
enterprise licenses for broker-dealers for multiple market data 
products, and a digital media enterprise license for Nasdaq Basic).
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    For all of the foregoing reasons, the Exchange believes that the 
proposal is consistent with the Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\29\ the Exchange 
believes that the proposed rule change will not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act.
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    \29\ 15 U.S.C. 78f(b)(8).
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    Rather, as discussed above, the Exchange believes that the proposed 
changes would increase competition by attracting additional liquidity 
to the Exchange, which the Exchange believes will enhance market 
quality, thereby promoting market depth, price discovery, and 
transparency and enhancing order execution opportunities for member 
organizations. As a result, the Exchange believes that the proposed 
change furthers the Commission's goal in adopting Regulation NMS of 
fostering integrated competition among orders, which promotes ``more 
efficient pricing of individual stocks for all types of orders, large 
and small.'' \30\
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    \30\ Securities Exchange Act Release No. 51808, 70 FR 37496, 
37498-99 (June 29, 2005) (Regulation NMS).
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    Intra-market Competition. Nothing in the proposal burdens intra-
market competition (the competition among consumers of exchange data) 
because the proposed fee structure would be available to all similarly 
situated market participants, and, as such, the proposed change would 
not impose a disparate burden on different market participants.
    Intermarket Competition. Nothing in the proposal burdens 
intermarket competition (the competition among self-regulatory 
organizations) because competitors are free to modify their own fees in 
response.
    As previously discussed, the Exchange operates in a highly 
competitive market. Members have numerous alternative venues that they 
may participate on and direct their order flow to, including other 
equities exchanges, off-exchange venues, and alternative trading 
systems. Participants can readily choose to send their orders to other 
exchange and off-exchange venues if they deem fee levels at those

[[Page 24075]]

other venues to be more favorable. In such an environment, the Exchange 
must continually adjust its fees and rebates to remain competitive with 
other exchanges and with off-exchange venues.

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.\31\
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    \31\ 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-2024-016 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-2024-016. 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-2024-016 and should 
be submitted on or before April 26, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
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    \32\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-07227 Filed 4-4-24; 8:45 am]
BILLING CODE 8011-01-P