[Federal Register Volume 89, Number 138 (Thursday, July 18, 2024)]
[Notices]
[Pages 58432-58436]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-15766]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100517; File No. SR-NASDAQ-2024-035]


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

July 12, 2024.
    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 July 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 114(h), 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

[[Page 58433]]

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 provide an additional 
calculation for purposes of determining whether a member qualifies for 
fees that pertain to accessing liquidity set forth in Section 114(e) 
and rebates that pertain to providing liquidity set forth in Section 
114(g).
    Presently, the Exchange provides its members with several market 
quality incentive programs in Equity 7, Section 114. One of these 
programs is the Qualified Market Maker (``QMM'') Program, which 
provides supplemental incentives to members that meet certain quality 
standards in acting as market makers for securities on the Exchange. 
Pursuant to Equity 7, Section 114(e), a member that qualifies as a QMM 
is entitled to receive a rebate per share executed with respect to all 
displayed orders (other than Designated Retail Orders, as defined in 
Equity 7, Section 118) in securities priced at $1 or more per share 
that provide liquidity in each of Tapes A, B, and C. Such a rebate is 
in addition to any rebate payable under Equity 7, Section 118(a). 
Specifically, the Exchange offers two tiers of rebates to QMMs (``Tier 
1'' and ``Tier 2'').
    Among other incentives, the QMM Program also provides for fee 
incentives in Equity 7, Section 114(e). Specifically, Nasdaq will 
charge a QMM a fee of $0.0030 per share executed for orders in Nasdaq-
listed securities priced at $1 or more per share that access liquidity 
on the Nasdaq Market Center, and charge a QMM a fee of $0.00295 per 
share executed for orders in securities listed on exchanges other than 
Nasdaq priced at $1 or more per share that access liquidity on the 
Nasdaq Market Center; provided, however, that the QMM's volume of 
liquidity added through one or more of its Nasdaq Market Center MPIDs 
during the month (as a percentage of Consolidated Volume) is not less 
than 1.00%. Nasdaq will charge a QMM that meets the criteria of Tier 2 
a fee of $0.0029 per share executed for orders in securities listed on 
exchanges other than Nasdaq priced at $1 or more per share that access 
liquidity on the Nasdaq Market Center if the QMM has a combined 
Consolidated Volume (adding and removing liquidity) of at least 3.70%, 
MOC/LOC volume greater than 0.35% of Consolidated Volume, and provides 
0.15% or more of Consolidated Volume through midpoint orders.
    Another market quality incentive program provided by the Exchange 
is the NBBO Program, in Equity 7, Section 114(g). Under the NBBO 
Program, Nasdaq provides a rebate per share executed with respect to 
all other displayed orders (other than Designated Retail Orders, as 
defined in Equity 7, Section 118) in securities priced at $1 or more 
per share that provide liquidity, establish the NBBO, and displayed a 
quantity of at least one round lot at the time of execution. The rebate 
is in addition to any rebate or credit payable under Equity 7, Section 
118(a) and other programs under Equity 7, Section 114. This rebate is 
provided to executions from orders originating on ports meeting the 
following requirements. To qualify for the $0.0004 per share executed 
NBBO Program rebate in NYSE-listed securities and in securities listed 
on exchanges other than Nasdaq and NYSE, a member must execute shares 
of liquidity provided in all securities through one or more of its 
Nasdaq Market Center MPIDs that represents 1.0% or more of Consolidated 
Volume during the month and the order must have been entered on a port 
that has a ratio of at least 25% NBBO liquidity provided \3\ to 
liquidity provided by displayed quotes/orders (other than Supplemental 
Orders or Designated Retail Orders) during the month.
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    \3\ NBBO liquidity provided means liquidity provided from orders 
(other than Designated Retail Orders, as defined in Equity 7, 
Section 118), that establish the NBBO, and displayed a quantity of 
at least one round lot at the time of execution.
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    Members may qualify for QMM Program and NBBO Program incentives 
described above based, in part, upon their volume on the Exchange as a 
percentage of total ``Consolidated Volume.'' Pursuant to Equity 7, 
Section 114(h)(5), the term ``Consolidated Volume'' shares the meaning 
of that term set forth in Equity 7, Section 118(a). Equity 7, Section 
118(a) defines ``Consolidated Volume'' to mean 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 shall be 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.
    Equity 7, Section 114(h)(5) also provides that, for purposes of 
calculating a member's qualifications for Tiers 1 and 2 of the QMM 
Program credits set forth in paragraph (e) of Section 114, 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 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 
applying distinct qualifying volume thresholds to each Tier, as set 
forth in paragraph (e). The Exchange will then assess which of these 
two calculations would qualify the member for the most advantageous 
credits for the month and then it will apply those credits to the 
member.
    The Exchange proposes to make clarifying and formatting changes to 
Equity 7, Section 114(h)(5). First, the Exchange proposes to clarify 
that the statement that ``Consolidated Volume'' shall have the same 
meaning as the term has under Equity 7, Section 118(a) is subject to 
certain qualifications that follow. In addition, the Exchange proposes 
to add subsection (A) before the existing language regarding the 
calculations for a member's qualifications for Tiers 1 and 2 of the QMM 
Program credits and remove existing parentheses surrounding such 
language.
    In Equity 7, Section 114(h)(5)(B), the Exchange proposes to provide 
an additional calculation for purposes of determining whether a member 
qualifies for fees that pertain to accessing liquidity set forth in 
Section 114(e) and rebates that pertain to providing liquidity set 
forth in Section 114(g). Specifically, the Exchange proposes to provide 
that, for purposes of calculating a member's qualifications for fees 
that pertain to accessing liquidity set forth in Section 114(e) and 
rebates that pertain to providing liquidity set forth in Section 
114(g), 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

[[Page 58434]]

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 by 10%. The Exchange 
will then assess which of these two calculations would qualify the 
member for the most advantageous fees/rebates for the month and then it 
will apply those to the member. Currently, the Exchange uses these 
calculations for purposes of calculating a member's qualifications for 
credits that pertain to providing liquidity set forth in Equity 7, 
Section 118(a).
    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 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.
    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 fees that 
pertain to accessing liquidity set forth in Section 114(e) and rebates 
that pertain to providing liquidity set forth in Section 114(g). In 
addition, as noted above, the Exchange proposes to increase the 
distinct qualifying volume percentage thresholds by 10% for purposes of 
the proposed calculation excluding sub-dollar volumes.\4\ 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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    \4\ For example, the Exchange charges a QMM a fee of $0.00295 
per share executed for orders in securities listed on exchanges 
other than Nasdaq priced at $1 or more per share that access 
liquidity on the Nasdaq Market Center; provided, however, that the 
QMM's volume of liquidity added through one or more of its Nasdaq 
Market Center MPIDs during the month (as a percentage of 
Consolidated Volume) is not less than 1.00%. See Equity 7, Section 
114(e). 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 fee using volumes excluding sub-dollar activity, the member 
would need to provide 1.1% or more of total Consolidated Volume 
during the month (i.e., 1% + (10%)(1%)).
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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.
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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's proposed changes to its schedule of fees and credits 
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'. . . .'' \7\
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    \7\ 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.'' \8\
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    \8\ 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 and market quality incentive programs 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 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

[[Page 58435]]

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 to avoid such a penalty by determining whether 
calculating member volume and total Consolidated Volume to include or 
exclude sub-dollar volume \9\ would result in Exchange members 
qualifying for the most advantageous incentives, and then applying the 
calculations that would result in the incentives that are most 
advantageous to each member. The Exchange believes it is reasonable to 
limit the proposal by (1) applying the proposed calculation to 
incentives that pertain to accessing liquidity set forth in Section 
114(e) and rebates that pertain to providing liquidity set forth in 
Section 114(g), and (2) 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 also 
believes that it is appropriate to make the clarifying and formatting 
changes described above to increase clarity and transparency in the 
Rules, consistent with the public interest and the protection of 
investors. 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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    \9\ 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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    Those participants that are dissatisfied with the changes to the 
Exchange's schedule of fees and credits 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 proposal 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 also intends for its proposal to reallocate its limited 
resources more efficiently and to align them 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 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 the largest U.S. equities exchange by volume 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 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.\10\
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    \10\ 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-2024-035 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-2024-035. 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

[[Page 58436]]

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-2024-035 and should be submitted 
on or before August 8, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-15766 Filed 7-17-24; 8:45 am]
BILLING CODE 8011-01-P