[Federal Register Volume 90, Number 93 (Thursday, May 15, 2025)]
[Notices]
[Pages 20696-20699]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-08548]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103016; File No. SR-NASDAQ-2025-036]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
To Amend the Exchange's Fee Schedule To Provide for Two New Credits for
Members That Add More Than a Threshold Amount of Liquidity as Well as
Act as Designated Liquidity Providers for Exchange Traded Products for
a Threshold Number of Securities During a Month
May 9, 2025.
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 May 1, 2025, 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 its fee schedule to provide for two
new credits for members that add more than a threshold amount of
liquidity as well as act as designated liquidity providers (``DLPs'')
for exchange traded products (``ETPs'') for a threshold number of
securities during a month, 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/rulefilings, at the principal office of the Exchange, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to amend the Exchange's
fee schedule, at Equity 7, Section 118(a), to provide for two new
credits for members that add more than a threshold amount of liquidity
as well as act as DLPs for ETPs for a threshold number of securities
during a month.
Pursuant to Equity 7, Rule 114(f), the Exchange operates a DLP
program to promote trading in ETPs. The DLP
[[Page 20697]]
program provides fees and credits for execution of a Qualified Security
by one of its DLPs. Rule 114(f)(1) defines Qualified Security as an ETP
listed on Nasdaq Rules 5704, 5705, 5710, 5711, 5713, 5720, 5735, 5745,
5750, or 5760 and which has at least one DLP. As defined in Rule
114(f)(2), a DLP is a registered Exchange market maker for a Qualified
Security that has committed to maintain specified minimum performance
standards. The Rule provides that a DLP shall be selected by the
Exchange based on factors including, but not limited to, experience
with making markets in ETPs, adequacy of capital, willingness to
promote the Exchange as a marketplace, issuer preference, operational
capacity, support personnel, and history of adherence to Exchange rules
and securities laws. Moreover, the Rule permits the Exchange to limit
the number of DLPs in a security, or modify a previously established
limit, upon prior written notice to members. Specific monthly
performance criteria for DLPs are set forth in Rule 114(f)(4). As set
forth in Rule 114(f)(5), the Exchange provides rebates to DLPs that
meet the specified criteria. Different rebate tiers apply to DLPs that
qualify as ``Primary DLPs'' and ``Secondary DLPs.'' \3\
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\3\ As set forth in Equity 7, Rule 114(f)(4), Primary DLPs need
to meet 4 of 5 Standard Market Quality Metrics in an assigned ETP,
as measured by the Exchange, to qualify for a Standard Rebate, and
all 5 Enhanced Market Quality Metrics in an assigned ETP, as
measured by the Exchange, to qualify for an Enhanced Rebate.
Secondary DLPs need only meet two Enhanced Market Quality Metrics,
excluding an Auction Quality Requirements metric, to qualify for
rebates.
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The Exchange now proposes to introduce two new tiers of standard
transaction rebates in Equity 7, Section 118(a), that would apply to
members that act as DLPs. The new rebates would supplement DLP program
rebates set forth in Equity 7, Section 114(f). Both new rebate tiers
would apply credits to members for displayed quotes/orders (other than
Supplemental Orders or Designated Retail Orders) that provide liquidity
(per share executed) as follows: (i) adds greater than a certain
percentage of Consolidated Volume through one or more of its Nasdaq
Market Center MPIDs; and (ii) has at least a certain minimum number of
monthly average assigned ETPs in its capacity as a Primary DLP.
Specifically, the proposed rebate tiers are as follows:
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Tape A Tape B Tape C
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Member that: (i) adds greater than 0.10% $0.0020 $0.0025 $0.0022
of Consolidated Volume through one or
more of its Nasdaq Market Center MPIDs;
and (ii) has a minimum of 45 monthly
average assigned ETPs in its capacity as
a Primary DLP............................
Member that: (i) adds greater than 0.15% 0.0020 0.0027 0.0023
of Consolidated Volume through one or
more of its Nasdaq Market Center MPIDs;
and (ii) has a minimum of 50 monthly
average assigned ETPs in its capacity as
a Primary DLP............................
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The purpose of the two proposed rebate tiers is to provide further
incentives to members to serve as DLPs for a substantial number of ETPs
as well as to add liquidity to the Exchange. The proposals specifically
target DLPs that add liquidity in ETPs in Tapes B and C by providing
higher rebates for securities in those Tapes than it does for those in
Tape A. The proposals target ETPs in these Tapes B and C because the
Exchange specifically desires to improve its competitiveness in trading
ETPs in these two Tapes. The Exchange has limited resources to offer as
incentives and it is reasonable and fair for it to allocate those
limited resources to programs where they will serve the most valuable
purpose. Moreover, the Exchange provides a higher tier of rebates to
the extent that a acts as a DLP for a larger number of ETPs and adds
more liquidity to the Exchange relative to a DLP in the lower tier.\4\
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\4\ The Exchange notes that its competitors, including Cboe's
BZX exchange, also employ similar pricing programs to incent their
members to serve as lead market makers for large numbers of ETPs.
See Cboe BZX U.S. Equities Fee Schedule, at https://www.cboe.com/us/
equities/membership/fee_schedule/bzx/#:~:text=Tier%204,(%240.0028).
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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 proposals 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 to that of the Exchange, including schedules of rebates and
fees that apply based upon members achieving certain volume
[[Page 20698]]
thresholds. The Exchange is also subject to intense competition for
retail order flow with off-exchange competitors, including wholesale
market makers.
The Exchange's proposal to add these two new tiers of rebates is
reasonable and an equitable allocation of fees and dues because the
proposed tiers would incent activity that would improve the quality of
the Exchange's ETP market. In particular, the proposals would incent
members to act as DLPs for substantial numbers of ETPs listed on the
Exchange as well as to add a substantial amount of liquidity to the
Exchange. Incenting members act as DLPs for ETPs enhances market
quality for those ETPs by helping to ensure that market makers are
taking responsibility for quoting ETPs and for meeting market quality
standards when doing so. Adding liquidity to the Exchange also enhances
market quality by deepening the pool of liquidity available to market
participants that transact on the Exchange.
The proposals are not unfairly discriminatory, even though they
target incentives to DLPs and, in particular, for trading in ETPs in
Tapes B and C. As noted above, the Exchange has scarce resources to
apply to incentives, and it is fair for the Exchange to allocate those
scarce resources to programs where there is a perceived need for
increased or improved competitiveness or market activity. In this case,
the Exchange has identified a need to be more competitive relative to
other markets for trading ETPs in Tapes B and C. Moreover, the rebates
will incent activity that will improve the overall quality of the
Exchange's markets, to the benefit of all market participants. Thus,
the proposal is fair.
Those participants that are dissatisfied with the proposals are
free to shift their order flow to competing venues that provide more
generous incentives or less stringent qualifying criteria.
The Exchange notes that the two rebate tiers that the Exchange
proposes herein are voluntary. Moreover, nothing about the Exchange's
volume-based tiered pricing model, as set forth in Equity 7, 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.
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 intends for its proposed new rebate
tiers to reallocate its limited resources more efficiently and for an
optimized effect, which in this instance is to incent DLP activity for
ETPs in Tapes B and C. The Exchange notes that its members are free to
trade on other venues to the extent they believe that these proposals
are 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 proposals are reflective of this
competition.
Even as one of the largest U.S. equities exchanges by volume, the
Exchange has less than 20% market share, which in most markets could
hardly be categorized as having enough market power to burden
competition. Moreover, as noted above, price competition between
exchanges is fierce, with liquidity and market share moving freely
between exchanges in reaction to fee and credit changes. This is in
addition to free flow of order flow to and among off-exchange venues,
which comprises upwards of 45% of industry volume.
In sum, if the change proposed herein is 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
change will impair the ability of members or competing order execution
venues to maintain their competitive standing in the financial
markets.\9\
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\9\ As discussed above, the Exchange's competitors, including
Cboe's BZX exchange, also employ similar pricing programs to incent
their members to serve as lead market makers in substantial numbers
of ETPs. See Cboe BZX U.S. Equities Fee Schedule, at https://
www.cboe.com/us/equities/membership/fee_schedule/bzx/
#:~:text=Tier%204,(%240.0028).
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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-2025-036 on the subject line.
[[Page 20699]]
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-2025-036. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. Do
not include personal identifiable information in submissions; you
should submit only information that you wish to make available
publicly. We may redact in part or withhold entirely from publication
submitted material that is obscene or subject to copyright protection.
All submissions should refer to file number SR-NASDAQ-2025-036, and
should be submitted on or before June 5, 2025.
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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Stephanie J. Fouse,
Assistant Secretary.
[FR Doc. 2025-08548 Filed 5-14-25; 8:45 am]
BILLING CODE 8011-01-P