[Federal Register Volume 85, Number 5 (Wednesday, January 8, 2020)]
[Notices]
[Pages 939-942]
[FR Doc No: 2020-00060]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87882; File No. SR-NASDAQ-2019-101]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend the Exchange's Transaction Fees at Equity 7, Section 118(a)

January 2, 2020.
    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 December 23, 2019, 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 transaction fees at
Equity 7, Section 118(a) to amend the Exchange's transaction fees at
Equity 7, Section 118(a) to raise the qualifying thresholds for several
of the Exchange's credits for displayed orders/quotes that provide
liquidity to the Exchange and to eliminate one such credit, as
described further below.
    While these amendments are effective upon filing, the Exchange has
designated the proposed amendments to be operative on January 2, 2020.
    The text of the proposed rule change is available on the Exchange's
website at http://nasdaq.cchwallstreet.com/, 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 Exchange proposes to amend the schedule of credits it provides
to members, pursuant to Equity 7, Section 118(a), in several respects.
    First, the Exchange proposes to amend its schedule of credits by
raising the volume thresholds to qualify for four of the credits it
provides to its members for displayed quotes/orders (other than
Supplemental Orders or Designated Retail Orders) that provide liquidity
to the Exchange, as follows:
     For Orders in securities in each of Tapes A, B, and C, the
Exchange presently provides a $0.0029 per share executed credit to a
member with shares of liquidity provided in all securities through one
or more of its Nasdaq Market Center MPIDs that represent more than
0.60% of Consolidated Volume \3\ during the month. The Exchange
proposes to raise the qualifying volume threshold for this credit from
0.60% to 0.70% of Consolidated Volume.
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    \3\ As used in Equity 7, Section 118(a), the term ``Consolidated
Volume'' means the total consolidated volume reported to all
consolidated transaction reporting plans by all exchanges and trade
reporting facilities during a month in equity securities, excluding
executed orders with a size of less than one round lot.
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     For Orders in securities in each of Tapes A, B, and C, the
Exchange presently provides a $0.0029 per share executed credit to a
member (i) with shares of liquidity accessed in all securities through
one or more of its Nasdaq Market Center MPIDs that represent more than
0.70% of Consolidated Volume during the month and (ii) with shares of
liquidity provided in all securities through one or more of its Nasdaq
Market Center MPIDs that represent more than 0.50% of Consolidated
Volume during the month. The Exchange proposes to raise the first of
these qualifying volume thresholds for this credit from 0.70% to 0.80%
of Consolidated Volume and the second threshold from 0.50% to 0.60% of
Consolidated Volume.
     For Orders in securities in each of Tapes A, B, and C, the
Exchange presently provides a $0.0028 per share executed credit to a
member (i) with shares of liquidity accessed in all securities through
one or more of its Nasdaq Market Center MPIDs that represent more than
0.60% of Consolidated Volume during the month,

and (ii) with shares of liquidity provided in all securities through
one or more of its Nasdaq Market Center MPIDs that represent more than
0.225% of Consolidated Volume during the month. The Exchange proposes
to raise the first of these qualifying volume thresholds for this
credit from 0.60% to 0.75% of Consolidated Volume and the second
threshold from 0.225% to 0.35% of Consolidated Volume.
     For Orders in securities in each of Tapes A, B, and C, the
Exchange presently provides a $0.0027 per share executed credit to a
member (i) with shares of liquidity accessed in all securities through
one or more of its Nasdaq Market Center MPIDs that represent more than
0.50% of Consolidated Volume during the month, and (ii) with shares of
liquidity provided in all securities through one or more of its Nasdaq
Market Center MPIDs that represent more than 0.175% of Consolidated
Volume during the month. The Exchange proposes to raise the first of
these qualifying volume thresholds for this credit from 0.50% to 0.60%
of Consolidated Volume and the second threshold from 0.175% to 0.25% of
Consolidated Volume.
    For each of the foregoing credits, the Exchange intends to raise
qualifying volumes to incentivize members to increase the extent of
their liquidity adding activity to qualify for and to continue to
qualify for these credits.
    Second, the Exchange proposes to eliminate its $0.0026 per share
executed credit that it presently provides to a member (i) with shares
of liquidity provided in securities that are listed on exchanges other
than Nasdaq or NYSE through one or more of its Nasdaq Market Center
MPIDs that represents at least 800,000 shares a day on average during
the month and (ii) doubles the daily average share volume provided in
securities that are listed on exchanges other than Nasdaq or NYSE
through one or more of its Nasdaq Market Center MPIDs during the month
versus the member's daily average share volume provided in securities
that are listed on exchanges other than Nasdaq or NYSE in January 2017.
The Exchange has observed that historically, few members have received
this credit, with little associated volume, and it has not served to
meaningfully increase activity on the Exchange or improve the quality
of the market. The Exchange therefore proposes to eliminate it.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\4\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\5\ in particular, in that it provides
for the equitable allocation of reasonable dues, fees and other charges
among members and issuers and other persons using any facility, and is
not designed to permit unfair discrimination between customers,
issuers, brokers, or dealers. The proposal is also consistent with
Section 11A of the Act relating to the establishment of the national
market system for securities.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposal Is 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'. . .'' \6\
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    \6\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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    The Commission and the courts have repeatedly expressed their
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. In Regulation
NMS, while adopting a series of steps to improve the current market
model, the Commission highlighted the importance of market forces in
determining prices and SRO revenues and, also, recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \7\
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    \7\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
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    Numerous indicia demonstrate the competitive nature of this market.
For example, clear substitutes to the Exchange exist in the market for
equity security transaction services. The 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.
    In particular, the Exchange proposes to raise the volume thresholds
to qualify for two of its $0.0029 per share executed credits and its
$0.0028 and $0.0027 per share executed credits because as Nasdaq has
grown over time, the activity of members that currently qualify for
these credits has also grown, such that an increase in credit
qualifying criteria is now needed to ensure that this credit remains
relevant to current levels of liquidity providing activity on the
Exchange. To the extent that this proposal results in an increase in
liquidity adding activity on the Exchange, this will improve the
quality of the Nasdaq market and increase its attractiveness to
existing and prospective participants.
    Nasdaq also believes that it is reasonable to eliminate its $0.0026
per share executed credit because few members historically have
received the credit (and only one member currently receives it),
related volume is low, and it has not served to meaningfully increase
volume or market quality.
    The Exchange notes that those participants that are dissatisfied
with the proposed amended credits are free to shift their order flow to
competing venues.
The Proposal Is an Equitable Allocation of Charges
    The Exchange believes its proposal will allocate its charges fairly
among its market participants. It is equitable for the Exchange to
raise the qualification requirement for the two $0.0029 per share
executed credits and the $0.0028 and $0.0027 per share executed credits
because as Nasdaq has grown, the activity of members that currently
qualify for these credits has also grown, such that an increase in
credit qualifying criteria is now needed to ensure this credit remains
relevant to current levels of liquidity providing

activity on the Exchange. The Exchange anticipates that all members
that currently qualify for these credits will continue to do so under
the proposals. The Exchange notes that any increase in liquidity
providing activity on the Exchange that ensues from its proposals will
improve the quality of the Nasdaq market and increase its
attractiveness to existing and prospective participants.
    Likewise, the Exchange believes that it is equitable to eliminate
the $0.0026 per share executed credit because few members have received
this credit historically (only one receives it presently) and it has
not prompted a meaningful increase in volume or market quality. The one
member that would be affected by the elimination of the credit may seek
to qualify for other credits that the Exchange offers.
The Proposed Amended Credits Are Not Unfairly Discriminatory
    The Exchange believes that the proposal is 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
incentivizes customer activity that increases liquidity, enhances price
discovery, and improves the overall quality of the equity markets.
    Although the Exchange's proposal to raise the qualifying criteria
for its two $0.0029 per share executed credits and its $0.0028 and
$0.0027 per share executed credits will require members to add more
liquidity than is currently required to qualify for these credits, any
resulting increase in liquidity to the market will improve market-wide
quality and price discovery, to the benefit all market participants.
    Additionally, the Exchange believes that elimination of its $0.0026
per share executed credit is not unfairly discriminatory. Historically,
only a few members have received the credit, and only one member
presently qualifies for it and would be affected by its elimination.
Elimination of the credit for this member would not be unfair, however,
because the credit has not fulfilled its intended purpose of prompting
meaningful increases in volume or market quality. Moreover, elimination
of the credit from the rule book will allow the Exchange to consider
new, more effective incentives.
    Finally, the Exchange notes that any participant that does not find
the amended credits to be sufficiently attractive is free to shift its
order flow to a competing venue.

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.
    The Exchange's proposals to raise the qualification requirements
for two $0.0029 per share executed credits and the $0.0028 and $0.0027
per share executed credits will not disadvantage any category of member
because all members that currently qualify for these credits will
continue to do so under the proposed changes. Furthermore, all members
of the Exchange will benefit from any increase in market activity that
the proposals effectuates.
    The Exchange's proposal to eliminate the $0.0026 per share executed
credit will not place any undue burden on competition. Although
elimination of the credit would impact the one member that currently
receives it, that member may seek to mitigate the effects of the loss
of the credit by qualifying for other similar credits that the Exchange
offers. Any residual burden that the proposal imposes on this member is
outweighed by the fact that the credit has not served its intended
purpose of incentivizing a broader population of members to increase
their market-improving participation.
    Moreover, members are free to trade on other venues to the extent
they believe that the credits provided are too low or the qualification
criteria 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. The Exchange notes that the tier structure
is consistent with broker-dealer fee practices as well as the other
industries, as described above.
Intermarket Competition
    The Exchange believes that its proposed modification to its
schedule of credits will not impose a burden on competition because the
Exchange's execution services are completely voluntary and subject to
extensive competition both from the other 12 live exchanges and from
off-exchange venues, which include 32 alternative trading systems. 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 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 fees in
response, and because market participants may readily adjust their
order routing practices, the Exchange believes that the degree to which
credit changes in this market may impose any burden on competition is
extremely limited.
    The proposed amended credits are reflective of this competition
because, 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 comprised more than 38% of industry volume for the month of
November 2019.
    The Exchange's proposals to raise the qualification requirement for
its two $0.0029 per share executed credits and its $0.0028 and $0.0027
per share executed credits per share executed credit are pro-
competitive in that the Exchange intends for them to increase liquidity
on the Exchange and thereby render the Exchange a more attractive and
vibrant venue to market participants.
    As discussed above, the Exchange's proposal to eliminate its
$0.0026 per share executed credit will not meaningfully impact
intermarket competition. Only one member currently receives the credit.

    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.\8\
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    \8\ 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-NASDAQ-2019-101 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-2019-101. 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 (http://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. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NASDAQ-2019-101 and should be submitted
on or before January 29, 2020.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-00060 Filed 1-7-20; 8:45 am]
 BILLING CODE 8011-01-P