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), 939-942 [2020-00060]

Download as PDF Federal Register / Vol. 85, No. 5 / Wednesday, January 8, 2020 / Notices jbell on DSKJLSW7X2PROD with NOTICES delivery service upon depositing the document with the provider of the service. A presiding officer, having granted an exemption request from using E-Filing, may require a participant or party to use E-Filing if the presiding officer subsequently determines that the reason for granting the exemption from use of E-Filing no longer exists. Documents submitted in adjudicatory proceedings will appear in the NRC’s electronic hearing docket which is available to the public at https:// adams.nrc.gov/ehd, unless excluded pursuant to an order of the Commission or the presiding officer. 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For further details with respect to this action, see the licensee’s application dated December 26, 2019 (ADAMS Accession No. ML19360A155). Attorney for licensee: Michael G. Green, Associate General Counsel, Pinnacle West Capital Corporation, P.O. Box 52034, Mail Station 7602, Phoenix, AZ 85072–2034. NRC Branch Chief: Jennifer DixonHerrity. Dated at Rockville, Maryland, this 2nd day of January, 2020. For the Nuclear Regulatory Commission. Margaret W. O’Banion, Project Manager, Plant Licensing Branch IV, Division of Operating Reactor Licensing, Office of Nuclear Reactor Regulation. [FR Doc. 2020–00054 Filed 1–7–20; 8:45 am] BILLING CODE 7590–01–P SECURITIES AND EXCHANGE COMMISSION the most significant aspects of such statements. [Release No. 34–87882; File No. SR– NASDAQ–2019–101] A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 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. 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 https://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 1 15 2 17 VerDate Sep<11>2014 17:18 Jan 07, 2020 Jkt 250001 939 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00067 Fmt 4703 Sfmt 4703 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. • 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, 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. E:\FR\FM\08JAN1.SGM 08JAN1 jbell on DSKJLSW7X2PROD with NOTICES 940 Federal Register / Vol. 85, No. 5 / Wednesday, January 8, 2020 / Notices 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) VerDate Sep<11>2014 17:18 Jan 07, 2020 Jkt 250001 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. 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 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 Numerous indicia demonstrate the competitive nature of this market. For example, clear substitutes to the 4 15 U.S.C. 78f(b). U.S.C. 78f(b)(4) and (5). 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)). 7 Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) (‘‘Regulation NMS Adopting Release’’). 5 15 PO 00000 Frm 00068 Fmt 4703 Sfmt 4703 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 E:\FR\FM\08JAN1.SGM 08JAN1 jbell on DSKJLSW7X2PROD with NOTICES Federal Register / Vol. 85, No. 5 / Wednesday, January 8, 2020 / Notices 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. 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. 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 volumebased 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 cobranded 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 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 marketimproving 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. VerDate Sep<11>2014 17:18 Jan 07, 2020 Jkt 250001 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 PO 00000 Frm 00069 Fmt 4703 Sfmt 4703 941 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. E:\FR\FM\08JAN1.SGM 08JAN1 942 Federal Register / Vol. 85, No. 5 / Wednesday, January 8, 2020 / Notices 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 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: jbell on DSKJLSW7X2PROD with NOTICES Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. 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 (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. 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 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–00060 Filed 1–7–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–87883; File No. SR–CBOE– 2019–126] Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rules Regarding Complex Orders 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 19, 2019, Cboe Exchange, Inc. (‘‘Exchange’’ or ‘‘Cboe Options’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have 9 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 8 15 U.S.C. 78s(b)(3)(A)(ii). VerDate Sep<11>2014 17:18 Jan 07, 2020 Jkt 250001 PO 00000 Frm 00070 Fmt 4703 Sfmt 4703 been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend its Rules to adopt a new complex order instruction, Index Combo orders, to further facilitate delta neutral transactions for investors that use complex orders to trade index options. The text of the proposed rule change is also available on the Exchange’s website (https://www.cboe.com/ AboutCBOE/CBOELegalRegulatory Home.aspx), at the Exchange’s Office of the Secretary, 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 its Rules to adopt a new complex order instruction, Index Combo orders, to further facilitate delta neutral transactions for investors that use complex orders to trade index options. Under the Exchange’s current Rules, a ‘‘complex order’’ is an order involving the concurrent execution of two or more different series in the same class (the ‘‘legs’’ or ‘‘components’’ of the complex order), for the same account, occurring at or near the same time and for the purpose of executing a particular investment strategy with no more than the applicable number of legs (which number the Exchange determines on a class-by-class basis). For purposes of Rules 5.33 (regarding electronic processing of complex orders) and 5.85(b)(1) (regarding priority of complex orders with respect to open outcry trading), the term ‘‘complex order’’ means a complex order with any ratio E:\FR\FM\08JAN1.SGM 08JAN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 85, Number 5 (Wednesday, January 8, 2020)]
[Notices]
[Pages 939-942]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[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.
---------------------------------------------------------------------------

    \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 https://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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

     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,

[[Page 940]]

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

[[Page 941]]

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.

[[Page 942]]

    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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. 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 (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. 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

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