[Federal Register Volume 89, Number 162 (Wednesday, August 21, 2024)]
[Notices]
[Pages 67690-67693]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-18704]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100739; File No. SR-NASDAQ-2024-044]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Its Schedule of Credits at Equity 7, Section 118(a)

August 15, 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 August 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 schedule of credits 
at Equity 7, Section 118(a), as described further below.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, at 
the principal office of the Exchange, and at the Commission's Public 
Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these

[[Page 67691]]

statements may be examined at the places specified in Item IV below. 
The Exchange has prepared summaries, set forth in sections A, B, and C 
below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend the Exchange's 
schedule of credits, at Equity 7, Section 118(a). Specifically, with 
respect to its schedule of credits for non-displayed midpoint orders 
(other than Supplemental Orders) that provide liquidity, the Exchange 
proposes to (i) add a new credit in Tapes A, B, and C, (ii) cap the 
maximum credit per share executed that a member organization can 
receive when certain requirements are met within Section 118(a)(1), and 
(iii) reorder the schedule of credits.
    The Exchange proposes to provide a new credit of $0.0028 for 
midpoint orders (excluding buy (sell) orders with Midpoint pegging that 
receive an execution price that is lower (higher) than the midpoint of 
the NBBO) if the member provides midpoint liquidity that represents at 
least 0.30% or more of Consolidated Volume during the month. This 
change will apply to Tapes A, B, and C. The purpose of the new credit 
is to incentivize liquidity adding activity and provide incentive to 
members that provide non-displayed liquidity to the Exchange to do so 
through midpoint orders. The Exchange believes that if such incentive 
is effective, then any ensuing increase in liquidity to the Exchange 
will improve market quality, to the benefit of all participants.
    The Exchange currently provides a supplemental credit for midpoint 
orders (excluding buy (sell) orders with Midpoint pegging that receive 
an execution price that is lower (higher) than the midpoint of the 
NBBO), in addition to the other credits provided for non-displayed 
orders that provide liquidity, if the member executes a requisite ADV 
of shares through M-ELO, as follows: (a) $0.0001 per share executed for 
midpoint orders (excluding buy (sell) orders with Midpoint pegging that 
receive an execution price that is lower (higher) than the midpoint of 
the NBBO) if the member executes an ADV of at least 2.5 million up to, 
but not including 4 million shares through M-ELO; or (b) $0.0002 per 
share executed for midpoint orders (excluding buy (sell) orders with 
Midpoint pegging that receive an execution price that is lower (higher) 
than the midpoint of the NBBO) if the member executes an ADV of 4 
million or more shares through M-ELO. The Exchange proposes that a 
member receiving this supplemental credit may receive combined credits 
(regular and supplemental) of up to a maximum of $0.0028 per share 
executed.
    The Exchange notes that it proposes to cap combined regular and 
supplemental credits at $0.0028 per share executed to manage the costs 
to the Exchange of providing these incentives. The Exchange has only 
limited resources available to it for incentive programs, and it must 
ensure that it allocates such resources appropriately to optimize their 
intended impacts.
    Lastly, for clarifying purposes, the Exchange proposes to reorder 
the schedule of credits for non-displayed orders (other than 
Supplemental Orders) that provide liquidity by moving the 
aforementioned supplemental credit further down in the rebate schedule 
to immediately precede the other supplemental credits offered.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\3\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\4\ 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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    \3\ 15 U.S.C. 78f(b).
    \4\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposals Are Reasonable
    The Exchange's proposed changes to its schedule of 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'. . . .'' \5\
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    \5\ 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.'' \6\
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    \6\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    Numerous indicia demonstrate the competitive nature of this market. 
For example, clear substitutes to the Exchange exist in the market for 
equity security transaction services. The Exchange is only one of 
several equity venues to which market participants may direct their 
order flow. Competing equity exchanges offer similar tiered pricing 
structures to that of the Exchange, including schedules of rebates and 
fees that apply based upon members achieving certain volume thresholds.
    Within this environment, market participants can freely and often 
do shift their order flow among the Exchange and competing venues in 
response to changes in their respective pricing schedules. As such, the 
proposal represents a reasonable attempt by the Exchange to increase 
its liquidity and market share relative to its competitors.
    The Exchange believes that it is reasonable to establish a new 
credit of $0.0028 for midpoint orders (excluding buy (sell) orders with 
Midpoint pegging that receive an execution price that is lower (higher) 
than the midpoint of the NBBO) if the member provides midpoint 
liquidity that represents at least 0.30% or more of Consolidated Volume 
during the month for Tapes A, B, and C. This proposal is reasonable 
because it will incentivize liquidity adding activity and provide 
incentive to members that provide non-displayed liquidity to the 
Exchange to do so through midpoint orders. The Exchange believes that 
if such incentive is effective, then any ensuring increase in liquidity 
to the Exchange will improve

[[Page 67692]]

market quality, to the benefit of all participants.
    The Exchange believes that it is reasonable to cap the amount of 
combined regular and supplemental credits it proposes to offer members 
who add liquidity through midpoint orders to $0.0028 per share 
executed. This cap will allow the Exchange to manage its costs of 
providing these incentives. The Exchange has only limited resources 
available to it for incentive programs, and it must ensure that it 
allocates such resources appropriately to optimize their intended 
impacts.
    The Exchange also believes that it is reasonable to reorder the 
schedule of credits for non-displayed orders (other than Supplemental 
Orders) that provide liquidity to increase clarity in the Rules, 
consistent with the public interest and protection of investors.
The Proposals Are Equitable Allocations of Credits
    The Exchange believes that it is equitable to establish a new 
transaction credit and otherwise increase the amount of credit a member 
may receive for providing non-displayed liquidity through midpoint 
orders. To the extent that the Exchange succeeds in increasing the 
levels of liquidity and activity on the Exchange, the Exchange will 
experience improvements in its market quality, which stands to benefit 
all market participants. The Exchange also believes that the proposed 
clarifying changes (i.e., reordering the schedule of credits) and the 
proposal to cap rebates at $0.0028 for members receiving certain 
supplemental credits is equitable because the changes and the cap will 
be applied uniformly to all members.
    Any participant that is dissatisfied with the proposals is free to 
shift their order flow to competing venues that provide more generous 
pricing or less stringent qualifying criteria.
The Proposals Are Not Unfairly Discriminatory
    The Exchange believes that its proposals are not unfairly 
discriminatory. As an initial matter, the Exchange believes that 
nothing about its volume-based tiered pricing model is inherently 
unfair; instead, it is a rational pricing model that is well-
established and ubiquitous in today's economy among firms in various 
industries--from co-branded credit cards to grocery stores to cellular 
telephone data plans--that use it to reward the loyalty of their best 
customers that provide high levels of business activity and incent 
other customers to increase the extent of their business activity. It 
is also a pricing model that the Exchange and its competitors have long 
employed with the assent of the Commission. It is fair because it 
enhances price discovery and improves the overall quality of the equity 
markets.
    The Exchange believes that its proposals to adopt a new credit for 
providing non-displayed liquidity through midpoint orders, impose a cap 
on the amount of combined regular and supplemental credits it proposes 
to offer members receiving certain supplemental credits, and make 
clarifying changes, as described above, are not unfairly discriminatory 
because the changes are not intended to advantage any particular member 
and will be applied uniformly to all members. Moreover, the proposals 
stand to improve the overall market quality of the Exchange, to the 
benefit of all market participants, by incentivizing members to 
increase the extent of their liquidity adding activity in midpoint 
orders on the Exchange.
    Any participant that is dissatisfied with the proposals is free to 
shift their order flow to competing venues that provide more generous 
pricing or less stringent qualifying criteria.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
Intramarket Competition
    The Exchange does not believe that its proposals will place any 
category of Exchange participant at a competitive disadvantage.
    As noted above, the Exchange's proposals to add a new transaction 
credit, impose a cap on the maximum rebate offered to members receiving 
certain supplemental credits, and make clarifying changes are intended 
to have market-improving effects, to the benefit of all members. Any 
member may elect to achieve the level of liquidity in midpoint orders 
required to qualify for the new credit. The other proposed changes also 
apply equally and will be applied uniformly to all members.
    The Exchange notes that its members are free to trade on other 
venues to the extent they believe that the Exchange's fee schedule 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 credit and own 
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 proposed new and amended credits are reflective of this 
competition because, as a threshold issue, 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, price 
competition between exchanges is fierce, with liquidity and market 
share moving freely between exchanges in reaction to credit and fee 
changes. This is an addition to free flow of order flow to and among 
off-exchange venues which comprises more than 40% of industry volume in 
recent months.
    The Exchange's proposal to add a new transaction credit is pro-
competitive in that the Exchange intends for the credit to increase 
liquidity addition activity in midpoint orders on the Exchange, thereby 
rendering the Exchange more attractive and vibrant to participants.
    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.

[[Page 67693]]

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\7\
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    \7\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-NASDAQ-2024-044 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-2024-044. 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-2024-044 and should 
be submitted on or before September 11, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-18704 Filed 8-20-24; 8:45 am]
BILLING CODE 8011-01-P