Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Equity 7, Section 114 and Equity 7, Section 118 of the Fee Schedule, 66379-66384 [2020-23015]
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Federal Register / Vol. 85, No. 202 / Monday, October 19, 2020 / Notices
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90164; File No. SR–
NASDAQ–2020–067]
1. Purpose
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend
Equity 7, Section 114 and Equity 7,
Section 118 of the Fee Schedule
October 13, 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 October
1, 2020, 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 (i) amend
the Exchange’s additional rebate to
Qualified Market Maker (‘‘QMM’’) at
Equity 7, Section 114(e); (ii) remove a
rebate provided through the Nasdaq
Growth Program at Equity 7, Section
114(j); and (iii) establish and amend
certain credits and fees at Equity 7,
Section 118, as described further below.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/nasdaq/rules, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
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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.
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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The purpose of the proposed rule
change is to make modifications to the
Exchange’s pricing schedule in a further
attempt to improve the attractiveness of
the market to new and existing market
participants. Accordingly, the Exchange
proposes to amend its schedule of fees
and credits pursuant to Equity 7,
Section 114 and Section 118 in several
respects. The Exchange also proposes to
make certain non-substantive changes to
Equity 7, Section 118.
Changes to Section 114
Currently, the Exchange provides an
additional rebate of $0.00005 per share
executed when a QMM’s MPID meets
certain requirements in Section 114(e).
The Exchange is proposing to amend the
rebate to provide $0.000075 per share
executed in Tapes A and C, while
maintaining the current rebate amount
for Tape B in order to incentivize firms
to increase their liquidity providing
activity on the Exchange, thereby
encouraging market quality.
The Nasdaq Growth Program
discussed in Section 114(j), which was
established in 2016,3 presently provides
a member with credits of $0.0025 per
share executed and a $0.0027 per share
executed to qualified members. The
credit of $0.0027 per share executed was
introduced in 2017 to provide members
with additional flexibility in qualifying
for the Growth Program and incentive to
provide greater Consolidated Volume,
thereby furthering the Growth Program’s
goal of incentivizing participation on
the Exchange.4 The Exchange proposes
to eliminate the credit of $0.0027 per
share executed because the thresholds
for the pricing incentive is no longer
effective in incentivizing liquidity
adding activity.
Changes to Section 118(a)
The Exchange is also proposing to
amend the schedule of fees and credits
provided to member organizations,
pursuant to Equity 7, Section 118(a), in
several respects.
First, by way of background, when the
Exchange initially established the RTFY
order type,5 the Exchange explained
3 See Securities Exchange Act Release No. 78977
(September 29, 2016), 81 FR 69140 (October 5,
2016) (SR–NASDAQ–2016–132).
4 See Securities Exchange Act Release No. 80997
(June 22, 2017), 82 FR 29348 (June 28, 2017) (SR–
NASDAQ–2017–060).
5 RTFY is a routing option designed to enhance
execution quality and benefit retail investors by
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66379
that it would allow Designated Retail
Orders to post on the exchange or be
routed externally to seek price
improvement. The Exchange routes to
several destinations that are ineligible
for a protected quotation under
Regulation NMS when seeking price
improvement. Over time the Exchange
has seen more orders remove liquidity
on Nasdaq and route to other exchanges.
When introduced, the fees associated
with removing liquidity on Nasdaq and
routing away were covered by the
Exchange as a promotion to incentivize
usage of the order type. Since its
inception, RTFY has become more
widely used and the Exchange has
waived more fees for removing liquidity
on Nasdaq and incurred more fees for
routing to other exchanges. As a result,
the Exchange established a $0.0020 per
share executed fee in August 2020.6
Currently, the Exchange charges a fee
of $0.0020 per share executed to a
member entering RTFY orders that
remove liquidity from the Nasdaq
Market Center or that execute in a venue
other than the Nasdaq Market Center
and has less than a 75% ratio of its
RTFY liquidity adding activity to its
RTFY total volume. The fee is
applicable to Tape A, Tape B and Tape
C and only applies to orders submitted
with the RTFY routing option. The
Exchange continued to charge a $0.0000
per share executed fee to other members
entering a RTFY order that removes
liquidity on the Nasdaq Market Center
or executes in a venue other than the
Nasdaq Market Center.
The Exchange is proposing to increase
the fee to $0.0030 per share executed
and to amend the requirement by
charging a member for shares executed
above 4 million shares during the month
for RTFY orders that remove liquidity
from the Nasdaq Market Center or that
execute in a venue with a protected
quotation under Regulation NMS other
than the Nasdaq Market Center.
Although the Exchange will continue to
not charge a fee for RTFY orders in all
other instances, the Exchange is also
providing price improvement opportunities to retail
order flows. This routing strategy is available for an
order that qualifies as a Designated Retail Order
under which orders check the System for available
shares only if so instructed by the entering firm and
are thereafter routed to destinations on the System
routing table. If shares remain unexecuted after
routing, they are posted to the book. Once on the
book, should the order subsequently be locked or
crossed by another market center, the System will
not route the order to the locking or crossing market
center. RTFY is designed to allow orders to
participate in the opening, reopening and closing
process of the primary listing market for a security.
See Rule 4748(a)(1)(A)(v)(b).
6 See Securities Exchange Act Release No. 89781
(September 8, 2020), 85 FR 56663 (September 14,
2020) (SR–NASDAQ–2020–059).
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proposing to amend the descriptions of
its two RTFY fees of $0.0000 per share
executed, to reflect that members will
not incur a fee for shares up to 4
million, during the month, that remove
from the Exchange or a venue with a
protected quotation under Regulation
NMS, or if executed in a venue
ineligible for a protected quotation
under Regulation NMS.
Second, the Exchange currently
provides a $0.0029 per share credit to
members with shares of liquidity
provided in all securities through one or
more of its Nasdaq Market Center MPIDs
that represent more than 0.40% of
Consolidated Volume during the month,
including shares of liquidity provided
with respect to securities that are listed
on exchanges other than Nasdaq or
NYSE that represent more than 0.10% of
Consolidated Volume. The Exchange is
proposing to amend the threshold for
the $0.0029 per share executed credit to
apply to a member (i) 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, including
shares of liquidity provided with
respect to securities that are listed on
exchanges other than Nasdaq or NYSE
that represent more than 0.10% of
Consolidated Volume, and (ii) with a
ratio of at least 15% volume that sets the
NBBO provided through one or more of
its Nasdaq Market Center MPIDs to all
displayed volume that provides
liquidity through one or more of its
Nasdaq Market Center MPIDs during the
month. This change will apply to Tapes
A, B and C. The Exchange hopes that
this proposed amendment will
incentivize firms to increase their
liquidity providing activity on Nasdaq,
to set the NBBO, and will promote
tighter spreads and improve market
quality.
Third, the Exchange proposes to add
a new supplemental credit for displayed
quotes/orders (other than Supplemental
Orders 7 or Designated Retail Orders)
that provide liquidity. The proposed
credit would provide $0.000025 per
share executed to a member with (i)
shares of liquidity provided in Tape A
securities during the month
representing at least 1.40% of
Consolidated Volume during the month,
and (ii) shares of liquidity provided in
Tape C representing at least 1.40% of
Consolidated Volume during the month.
7 A Supplemental Order is an Order Type with a
Non-Display Order Attribute that is held on the
Nasdaq Book in order to provide liquidity at the
NBBO through a special execution process
described in Rule 4757(a)(1)(D). See Rule
4702(b)(6).
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This supplemental credit only applies to
Tapes A and C securities because the
Exchange hopes to incentivize firms to
increase their display liquidity added in
Tapes A and C securities.
Fourth, the Exchange proposes in
Section 118(a) to add two new credits
across Tapes A, B and C for certain nondisplayed orders (other than
Supplemental Orders) that provide
liquidity. The Exchange proposes to
adopt a credit for such non-displayed
orders if the member, during the month
(i) provides 0.30% or more of
Consolidated Volume through nondisplayed orders (including midpoint
orders) and through M–ELO orders; and
(ii) increases providing liquidity
through non-displayed orders
(including midpoint orders) and
through M–ELO orders by 0.06% or
more relative to the member’s August
2020 Consolidated Volume provided
through non-displayed orders
(including midpoint orders) and
through M–ELO (‘‘credit 1’’).
Additionally, the Exchange proposes to
adopt a credit for such non-displayed
orders if the member, during the month
(i) provides 0.30% or more of
Consolidated Volume through nondisplayed orders (including midpoint
orders) and through M–ELO orders; and
(ii) increases providing liquidity
through non-displayed orders
(including midpoint orders) and
through M–ELO orders by 0.10% or
more relative to the member’s August
2020 Consolidated Volume provided
through non-displayed orders
(including midpoint orders) and
through M–ELO (‘‘credit 2’’). The
Exchange will provide a credit of
$0.00075 per share executed to Tape C
and a credit of $0.0010 per share
executed to Tapes A and B for credit 1.
The Exchange will provide a credit of
$0.0010 per share executed to Tape C
and a credit of $0.00125 per share
executed to Tapes A and B for credit 2.
The Exchange hopes that by proposing
these new credits it will incentive firms
to increase their non-display volume on
the Exchange.
Lastly, the Exchange is making certain
non-conforming changes to remove the
duplicative words ‘‘during the month’’
from the $0.0027 per share executed
credit to members for displayed quotes/
orders (other than Supplemental Orders
or Designated Retail Orders) that
provide liquidity in Tape A.
Additionally, the Exchange is adding
the word ‘‘and’’ to the $0.0025 per share
executed credit for non-displayed orders
(other than Supplemental Orders) that
provide liquidity in Tape B.
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2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,8 in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5)
of the Act,9 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 fees and credits are
reasonable in several respects. As a
threshold matter, the Exchange is
subject to significant competitive forces
in the market for equity securities
transaction services that constrain its
pricing determinations in that market.
The fact that this market is competitive
has long been recognized by the courts.
In NetCoalition v. Securities and
Exchange Commission, the D.C. Circuit
stated as follows: ‘‘[n]o one disputes
that competition for order flow is
‘fierce.’ . . . As the SEC explained, ‘[i]n
the U.S. national market system, buyers
and sellers of securities, and the brokerdealers 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’. . .’’ 10
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
8 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
10 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)).
9 15
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broader forms that are most important to
investors and listed companies.’’ 11
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.12
Within this environment, market
participants can freely and often do shift
their order flow among the Exchange
and competing venues in response to
changes in their respective pricing
schedules. As such, the proposal
represents a reasonable attempt by the
Exchange to increase its liquidity and
market share relative to its competitors.
The Exchange has designed its
proposed schedule of credits and
charges to provide increased overall
incentives to members to increase their
liquidity removal and adding activity on
the Exchange. An increase in liquidity
removal and adding activity on the
Exchange will, in turn, improve the
quality of the Nasdaq market and
increase its attractiveness to existing
and prospective participants. Generally,
the proposed new credits and charges
will be comparable to, if not favorable
to, those that its competitors provide.13
Moreover, the Exchange believes that it
is reasonable to modify certain fees and
credits within its fee schedule as a
means of incentivizing market
participants to increase their
contributions to the improvement of the
quality of the Exchange.
In particular, the Exchange believes
that it is reasonable to increase the
additional QMM credit of $0.00005 per
share executed to $0.000075 per share
executed for Tapes A and C in Section
114(e) because with the launch of new
exchanges this month, the Exchange
hopes to incentivize participants to
maintain or increase their liquidity
adding activity and quoting at the NBBO
in Tapes A and C. To the extent that this
proposal results in an increase in
liquidity adding and quoting activity on
the Exchange, this will improve the
11 Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(‘‘Regulation NMS Adopting Release’’).
12 As an example, CBOE EDGX provides a
standard rebate for liquidity adders of $0.00170 per
share executed (or between $0.0020 and $0.0029
per share executed) if a member qualifies for a
volume tier.
13 See n. 12, supra.
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quality of the Nasdaq market and
increase its attractiveness to existing
and prospective participants.
Additionally, the Exchange believes it
is reasonable to remove the credit of
$0.0027 per share executed for the
Nasdaq Growth Program in Section
114(j) because the credit did not
accomplish the growth in activity as
originally intended because the
thresholds for the pricing incentive is
no longer effective in incentivizing
liquidity adding activity.14 It is
reasonable to evaluate and update the
Exchange’s fee schedule to reflect the
fees and rebates that are effective for the
Exchange and market participants.
The Exchange also believes it is
reasonable to adjust the fee and the
qualifications for RTFY orders. Until
August 2020,15 there had been no charge
to participants entering RTFY orders
because there were no fees charged to
participants for removing liquidity from
the Exchange and fees charged by other
venues with a protected quotation under
Regulation NMS for RTFY orders that
are routed away to other venues were
covered by the Exchange as a promotion
to incentivize usage of the order type.
Given that RTFY orders have become
more widely used and as a result, the
Exchange has waived more fees for
removing liquidity from the Exchange
and incurred more costs for covering the
fees for routing to other venues with a
protected quotation under Regulation
NMS, the Exchange believes that it is
reasonable to amend its RTFY fees to
cap the number of executed RTFY
shares that members receive for free
when such orders remove liquidity from
the Nasdaq Market Center or execute in
a venue with a protected quotation
under Regulation NMS. Similarly, the
Exchange believes that it is reasonable
to amend the RTFY fee qualifications for
the $0.0000 per share executed to align
with the qualifications for the proposed
$0.0030 per share executed fee. The
Exchange hopes to continue to
encourage market participants to
increase their RTFY usage while
allowing the Exchange to mitigate the
costs it incurs by capping the number of
shares that members receive for free
when such orders remove liquidity from
the Nasdaq Market Center or execute in
a venue with a protected quotation
under Regulation NMS.
The Exchange also believes that it is
reasonable to adjust the qualifications
for the $0.0029 per share executed
credit in Section 118(a) provided to
members for displayed quotes/orders
(other than Supplemental Order or
14 See
15 See
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n. 6, supra.
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66381
Designated Retail Orders 16) that provide
liquidity. The proposed change is
intended to incentivize members to
increase liquidity and set the NBBO,
which will further improve overall
market quality.
Additionally, the Exchange believes it
is reasonable to add three new credits to
Section 118(a). The Exchange believes
that the availability of the new
$0.000025 per share executed
supplemental credit for displayed
quotes/orders (other than Supplemental
Orders or Designated Retail Orders) that
provide liquidity, as well as the two
new credits for certain non-displayed
orders (other than Supplemental Orders)
that provide liquidity will incentivize
members to increase their liquidity
adding activity on the Exchange in order
to qualify for the new credits. An
increase in liquidity adding activity on
the Exchange would help to improve the
quality of the market for all participants.
Moreover, the Exchange believes that it
is reasonable to apply the supplemental
credit only to Tapes A and C because
the Exchange’s goal is to promote
increased liquidity in Tapes A and C
and hopes to incentivize market
participants to increase their liquidity
adding activity by providing these
additional credits. Similarly, the
Exchange believes that it is reasonable
to provide a higher credit certain for
non-displayed orders (other than
Supplemental Orders) that provide
liquidity in Tapes A and B due to the
Exchange’s goal to specifically promote
increased non-displayed order liquidity
in securities in these Tapes because the
Exchange is not seeing the level of
liquidity that it expected in Tapes A and
B.
16 Pursuant to Rule Section 118, a ‘‘Designated
Retail Order’’ is an agency or riskless principal
order that meets the criteria of FINRA Rule 5320.03
and that originates from a natural person and is
submitted to Nasdaq by a member that designates
it pursuant to this section, provided that no change
is made to the terms of the order with respect to
price or side of market and the order does not
originate from a trading algorithm or any other
computerized methodology. An order from a
‘‘natural person’’ can include orders on behalf of
accounts that are held in a corporate legal form—
such as an Individual Retirement Account,
Corporation, or a Limited Liability Company—that
has been established for the benefit of an individual
or group of related family members, provided that
the order is submitted by an individual. Members
must submit a signed written attestation, in a form
prescribed by Nasdaq, that they have implemented
policies and procedures that are reasonably
designed to ensure that substantially all orders
designated by the member as ‘‘Designated Retail
Orders’’ comply with these requirements. Orders
may be designated on an order by-order basis, or by
designating all orders on a particular order entry
port as Designated Retail Orders.
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The Proposal Is an Equitable Allocation
of Fees and Credits
The Exchange believes its proposal
will allocate its credits and fees fairly
among its market participants.
In particular, it is equitable to
increase the additional credit in Section
114(e) for QMMs in securities in Tapes
A and C in order to incentivize members
to increase their liquidity adding
activity in those Tapes because the
Exchange is not seeing the volume that
it had hoped to see in Tapes A and C.
Moreover, the fees will be applied
uniformly to all QMMs.
The Exchange also believes that it is
equitable to increase certain fees and
qualifications for RTFY orders in
Section 118(a) because the Exchange
must balance providing a variety of
order types, including order types that
allow market participants to remove
liquidity and route orders out of the
Exchange, while ensuring that the
Exchange is not incurring significant
costs as a result of providing a
discounted fee. Additionally, the
Exchange is assessed various fees for the
execution of such orders at away venues
and the proposed fee is reflective of the
value provided by the Exchange in
providing this functionality and the
overall fees assessed by such venues.
Moreover, the fee and qualifications will
apply uniformly to all participants that
enter RTFY orders.
Moreover, it is equitable for the
Exchange to remove the $0.0027 per
share executed credit from the Growth
Program in Section 114(j) because,
discussed above, the credit did not
accomplish the growth in activity as
originally intended. When the fees and
credits of the Exchange are not meeting
their expected goals, it is reasonable for
the Exchange to re-evaluate them, and
equitable for the Exchange to amend its
fees and credits for all members.
Furthermore, it is equitable for the
Exchange to adjust the qualifications for
the $0.0029 per share executed credit
for displayed quotes/orders (other than
Supplemental Orders and Designated
Retail Orders). The Exchange provides
credits with varying qualifications to
provide its members with various ways
for obtaining the credit. The Exchange
believes that it is equitable to adjust the
qualifications for a credit in order to
incentivize an increase in liquidity
adding activity and setting the NBBO on
the Exchange. As discussed above,
greater liquidity on the Exchange will
further improve overall market quality.
The Exchange also believes that it is
equitable to establish new credits in
Section 118(a). In particular, the
Exchange believes it is equitable to
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establish a new supplemental credit for
members that provide liquidity for
displayed quotes/orders (other than
Supplemental Orders or Designated
Retail Orders). Additionally, the
Exchange believes that it is equitable for
the Exchange to establish two new
credits for members that provide
liquidity for certain non-displayed
orders (other than Supplemental
Orders). The Exchange hopes that these
credits will increase the incentive for
participants to add liquidity. An
increase in overall liquidity adding
activity on the Exchange will improve
the quality of the Nasdaq market and
increase its attractiveness to existing
and prospective participants. Moreover,
the Exchange believes it is equitable to
apply the $0.000025 per share executed
credit to Tapes A and C for members
that provide liquidity for displayed
quotes/orders (other than Supplemental
Orders or Designated Retail Orders)
because it is the Exchange’s goal to
specifically promote increased liquidity
in securities in Tapes A and C for
displayed quotes/orders (other than
Supplemental Orders or Designated
Retail Orders). Additionally, the
Exchange believes that it is equitable to
provide a higher credit to members with
certain non-displayed orders (other than
Supplemental Orders) in securities in
Tape A and B due to the Exchange’s
goal to specifically promote increased
non-displayed order liquidity in
securities in these tapes. An increase in
overall liquidity adding activity on the
Exchange will improve the quality of
the Nasdaq market and increase its
attractiveness to existing and
prospective participants.
The Proposed Amended Fees and
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.
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The Exchange intends for its proposal
to improve market quality for all
members on the Exchange and by
extension attract more liquidity to the
market, improving market wide quality
and price discovery. Net adders of
liquidity to the Exchange stand to
benefit directly from the proposed
changes. Moreover, to the extent that the
proposed changes increase liquidity
adding and removing activity on the
Exchange, this will improve market
quality and the attractiveness of the
Nasdaq market, to the benefit of all
existing and prospective participants.
More particularly, to the extent that
Section 114(e) of the Exchange’s
proposal to allow a QMM to qualify for
a credit of $0.000075 per share executed
in Tapes A and C will result in an
increase in liquidity on the Exchange, it
will improve market-wide quality and
price discovery to the benefit of all
participants. Moreover, to the extent
that the proposal causes members to
increase the extent of their liquidity
adding and quoting activity on the
Exchange, the Exchange market quality
will improve, and all market
participants will benefit. Moreover, any
market participant that does not wish to
receive the higher credit is free to shift
its order flow to a competing venue.
Additionally, the proposal to remove
the Growth Program $0.0027 per share
executed credit in Section 114(j) is not
unfairly discriminatory because the
credit will be removed for all market
participants given that it did not
accomplish the growth in activity as
originally intended.
Additionally, the Exchange does not
believe that the proposed RTFY fee
increase in Section 118(a) is unfairly
discriminatory because all members
sending Designated Retail Orders to
Nasdaq for execution are eligible to use
RTFY. Each member may elect to use
the RTFY routing strategy and to
execute as many shares as the member
sees fit. Furthermore, given that the
Exchange only incurs a fee for RTFY
orders that route and execute at venues
with a protected quotation under
Regulation NMS, the Exchange does not
believe that it is unfairly discriminatory
to not charge a fee for RTFY orders that
route and execute at venues without a
protected quotation under Regulation
NMS because the Exchange is not
charged a fee for those RTFY orders.
Moreover, assessing different rates when
a member elects to use a routing strategy
but executes on the venue where the
order was originally entered is not
novel. For example, the Exchange
charges fees ranging from $0.0030 per
share executed to no charge to a member
E:\FR\FM\19OCN1.SGM
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jbell on DSKJLSW7X2PROD with NOTICES
entering an MIDP Order.17 The fees vary
based on whether the MIDP Order
routes and executes at venues with a
protected quotation under Regulation
NMS other than BX or Nasdaq, or
whether the MIDP Order routes and
executes at venues ineligible for a
protected quotation under Regulation
NMS.18 The charge for MIDP Orders that
route and execute at venues with a
protected quotation under Regulation
NMS, other than BX or Nasdaq, is the
same as the proposed charge for RTFY
orders that route and execute at venues
with a protected quotation under
Regulation NMS. Therefore, the
Exchange is not seeking to charge RTFY
orders a greater amount than MIDP
Orders; rather, the fees are comparable.
Moreover, the Exchange does not
believe that it is unfairly discriminatory
to add new credits or to amend the
qualifications for a member to obtain a
current credit in Section 118(a) because
to the extent that the proposal increases
liquidity adding activity on the
Exchange, this will result in improved
market quality, which will benefit all
existing and prospective participants.
Furthermore, the Exchange does not
believe it is unfairly discriminatory for
the Exchange to propose a supplemental
credit for members that provide
liquidity for displayed quotes/orders
(other than Supplemental Orders or
Designated Retail Orders) in Tapes A
and C because the Exchange seeks to
promote increased liquidity adding
activity specifically in securities in
Tapes A and C. Similarly, the Exchange
does not believe that it is unfairly
discriminatory to provide a higher
credit to QMMs who provide liquidity
adding activity in Tapes A and C
because the Exchange seeks to
encourage liquidity adding activity and
quoting at the NBBO by QMMs in Tapes
A and C. Likewise, the Exchange does
not believe that it is unfairly
discriminatory to provide a higher
credit for certain non-displayed orders
(other than Supplemental Orders) that
provide liquidity in Tapes A and B than
it proposes for participants with orders
in Tape C because the Exchange seeks
to promote increased liquidity adding
activity for certain non-displayed orders
(other than Supplemental Orders)
specifically in securities in Tapes A and
B.
Finally, any participant that is
dissatisfied with the proposed amended
17 The MIDP routing option allows Nasdaq
members to seek midpoint liquidity on Nasdaq and
other markets on the Nasdaq system routing table.
18 See Rule Equity 7, Section 118(a). See also
Securities Exchange Act Release No. 87186 (October
1, 2019), 84 FR 53504 (October 7, 2019) (SR–
Nasdaq–2019–080).
VerDate Sep<11>2014
18:05 Oct 16, 2020
Jkt 253001
fees or credits is free to shift their order
flow to competing venues that provide
more favorable pricing or less stringent
qualifying criteria.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act.
Intramarket Competition
The Exchange does not believe that its
proposals will place any category of
Exchange participant at a competitive
disadvantage. To the contrary, the
proposed changes will provide
opportunities for members to receive
new and amended credits based on their
market-improving behavior. Any
member may elect to provide the levels
of market activity required in order to
receive the new or amended credits.
Furthermore, all members of the
Exchange will benefit from any increase
in market activity that the proposals
effectuates. Additionally, As discussed
above, the $0.0027 per share executed
Growth Program credit removal is
applicable to all members and does not
place anyone at a competitive
disadvantage because the thresholds for
the pricing incentive is no longer
effective in incentivizing liquidity
adding activity.
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 14 live
exchanges (soon to be 16) and from offexchange venues, which include 34
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
PO 00000
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66383
available at other venues to be more
favorable. In such an environment, the
Exchange must continually adjust its
fees and 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 fee and credit changes
in this market may impose any burden
on competition is extremely limited.
The proposed amended fees and
credits are reflective of this competition
because, even as one of the largest U.S.
equities exchanges by volume, the
Exchange has less than 18% 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 44% of
industry volume for the month of
August 2020.
The Exchange’s proposals are procompetitive 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.
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
Pursuant to Section 19(b)(3)(A)(ii) of
the Act,19 the Exchange has designated
this proposal as establishing or changing
a due, fee, or other charge imposed by
the self-regulatory organization on any
person, whether or not the person is a
19 15
E:\FR\FM\19OCN1.SGM
U.S.C. 78s(b)(3)(A)(ii).
19OCN1
66384
Federal Register / Vol. 85, No. 202 / Monday, October 19, 2020 / Notices
member of the self-regulatory
organization, which renders the
proposed rule change effective upon
filing.
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–2020–067 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–2020–067. 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
VerDate Sep<11>2014
18:05 Oct 16, 2020
Jkt 253001
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–2020–067 and
should be submitted on or before
November 9, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–23015 Filed 10–16–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90156; File No. SR–
NYSECHX–2020–29]
Self-Regulatory Organizations; NYSE
Chicago, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Extend the Current
Pilot Program Related to Rule 7.10
October 13, 2020.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on October
2, 2020, the NYSE Chicago, Inc. (‘‘NYSE
Chicago’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. 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 extend the
current pilot program related to Rule
7.10 (Clearly Erroneous Executions) to
the close of business on April 20, 2021.
The proposed rule change is available
on the Exchange’s website at
www.nyse.com, at the principal office of
the Exchange, and at the Commission’s
Public Reference Room.
20 17
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
PO 00000
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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
self-regulatory organization 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 those 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 parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to extend the current pilot
program related to Rule 7.10 (Clearly
Erroneous Executions) to the close of
business on April 20, 2021. The pilot
program is currently due to expire on
October 20, 2020.
On September 10, 2010, the
Commission approved, on a pilot basis,
changes to Article 20, Rule 10 that,
among other things: (i) Provided for
uniform treatment of clearly
erroneous execution reviews in multistock events involving twenty or more
securities; and (ii) reduced the ability of
the Exchange to deviate from the
objective standards set forth in the rule.4
In 2013, the Exchange adopted a
provision designed to address the
operation of the Plan.5 Finally, in 2014,
the Exchange adopted two additional
provisions providing that: (i) A series of
transactions in a particular security on
one or more trading days may be viewed
as one event if all such transactions
were effected based on the same
fundamentally incorrect or grossly
misinterpreted issuance information
resulting in a severe valuation error for
all such transactions; and (ii) in the
event of any disruption or malfunction
in the operation of the electronic
communications and trading facilities of
an Exchange, another SRO, or
responsible single plan processor in
connection with the transmittal or
receipt of a trading halt, an Officer,
acting on his or her own motion, shall
nullify any transaction that occurs after
a trading halt has been declared by the
4 See Securities Exchange Act Release No. 62886
(Sept. 10, 2010), 75 FR 56613 (Sept. 16, 2010) (SR–
CHX–2010–13).
5 See Securities Exchange Act Release No. 68802
(Feb. 1, 2013), 78 FR 9092 (Feb. 7, 2013) (SR–CHX–
2013–04).
E:\FR\FM\19OCN1.SGM
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]]>Agencies
[Federal Register Volume 85, Number 202 (Monday, October 19, 2020)]
[Notices]
[Pages 66379-66384]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-23015]
[[Page 66379]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90164; File No. SR-NASDAQ-2020-067]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Equity 7, Section 114 and Equity 7, Section 118 of the Fee
Schedule
October 13, 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 October 1, 2020, 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.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to (i) amend the Exchange's additional rebate
to Qualified Market Maker (``QMM'') at Equity 7, Section 114(e); (ii)
remove a rebate provided through the Nasdaq Growth Program at Equity 7,
Section 114(j); and (iii) establish and amend certain credits and fees
at Equity 7, Section 118, as described further below.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, at
the principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of 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 make modifications to
the Exchange's pricing schedule in a further attempt to improve the
attractiveness of the market to new and existing market participants.
Accordingly, the Exchange proposes to amend its schedule of fees and
credits pursuant to Equity 7, Section 114 and Section 118 in several
respects. The Exchange also proposes to make certain non-substantive
changes to Equity 7, Section 118.
Changes to Section 114
Currently, the Exchange provides an additional rebate of $0.00005
per share executed when a QMM's MPID meets certain requirements in
Section 114(e). The Exchange is proposing to amend the rebate to
provide $0.000075 per share executed in Tapes A and C, while
maintaining the current rebate amount for Tape B in order to
incentivize firms to increase their liquidity providing activity on the
Exchange, thereby encouraging market quality.
The Nasdaq Growth Program discussed in Section 114(j), which was
established in 2016,\3\ presently provides a member with credits of
$0.0025 per share executed and a $0.0027 per share executed to
qualified members. The credit of $0.0027 per share executed was
introduced in 2017 to provide members with additional flexibility in
qualifying for the Growth Program and incentive to provide greater
Consolidated Volume, thereby furthering the Growth Program's goal of
incentivizing participation on the Exchange.\4\ The Exchange proposes
to eliminate the credit of $0.0027 per share executed because the
thresholds for the pricing incentive is no longer effective in
incentivizing liquidity adding activity.
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 78977 (September 29,
2016), 81 FR 69140 (October 5, 2016) (SR-NASDAQ-2016-132).
\4\ See Securities Exchange Act Release No. 80997 (June 22,
2017), 82 FR 29348 (June 28, 2017) (SR-NASDAQ-2017-060).
---------------------------------------------------------------------------
Changes to Section 118(a)
The Exchange is also proposing to amend the schedule of fees and
credits provided to member organizations, pursuant to Equity 7, Section
118(a), in several respects.
First, by way of background, when the Exchange initially
established the RTFY order type,\5\ the Exchange explained that it
would allow Designated Retail Orders to post on the exchange or be
routed externally to seek price improvement. The Exchange routes to
several destinations that are ineligible for a protected quotation
under Regulation NMS when seeking price improvement. Over time the
Exchange has seen more orders remove liquidity on Nasdaq and route to
other exchanges. When introduced, the fees associated with removing
liquidity on Nasdaq and routing away were covered by the Exchange as a
promotion to incentivize usage of the order type. Since its inception,
RTFY has become more widely used and the Exchange has waived more fees
for removing liquidity on Nasdaq and incurred more fees for routing to
other exchanges. As a result, the Exchange established a $0.0020 per
share executed fee in August 2020.\6\
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\5\ RTFY is a routing option designed to enhance execution
quality and benefit retail investors by providing price improvement
opportunities to retail order flows. This routing strategy is
available for an order that qualifies as a Designated Retail Order
under which orders check the System for available shares only if so
instructed by the entering firm and are thereafter routed to
destinations on the System routing table. If shares remain
unexecuted after routing, they are posted to the book. Once on the
book, should the order subsequently be locked or crossed by another
market center, the System will not route the order to the locking or
crossing market center. RTFY is designed to allow orders to
participate in the opening, reopening and closing process of the
primary listing market for a security. See Rule 4748(a)(1)(A)(v)(b).
\6\ See Securities Exchange Act Release No. 89781 (September 8,
2020), 85 FR 56663 (September 14, 2020) (SR-NASDAQ-2020-059).
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Currently, the Exchange charges a fee of $0.0020 per share executed
to a member entering RTFY orders that remove liquidity from the Nasdaq
Market Center or that execute in a venue other than the Nasdaq Market
Center and has less than a 75% ratio of its RTFY liquidity adding
activity to its RTFY total volume. The fee is applicable to Tape A,
Tape B and Tape C and only applies to orders submitted with the RTFY
routing option. The Exchange continued to charge a $0.0000 per share
executed fee to other members entering a RTFY order that removes
liquidity on the Nasdaq Market Center or executes in a venue other than
the Nasdaq Market Center.
The Exchange is proposing to increase the fee to $0.0030 per share
executed and to amend the requirement by charging a member for shares
executed above 4 million shares during the month for RTFY orders that
remove liquidity from the Nasdaq Market Center or that execute in a
venue with a protected quotation under Regulation NMS other than the
Nasdaq Market Center. Although the Exchange will continue to not charge
a fee for RTFY orders in all other instances, the Exchange is also
[[Page 66380]]
proposing to amend the descriptions of its two RTFY fees of $0.0000 per
share executed, to reflect that members will not incur a fee for shares
up to 4 million, during the month, that remove from the Exchange or a
venue with a protected quotation under Regulation NMS, or if executed
in a venue ineligible for a protected quotation under Regulation NMS.
Second, the Exchange currently provides a $0.0029 per share credit
to members with shares of liquidity provided in all securities through
one or more of its Nasdaq Market Center MPIDs that represent more than
0.40% of Consolidated Volume during the month, including shares of
liquidity provided with respect to securities that are listed on
exchanges other than Nasdaq or NYSE that represent more than 0.10% of
Consolidated Volume. The Exchange is proposing to amend the threshold
for the $0.0029 per share executed credit to apply to a member (i) 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, including shares of liquidity
provided with respect to securities that are listed on exchanges other
than Nasdaq or NYSE that represent more than 0.10% of Consolidated
Volume, and (ii) with a ratio of at least 15% volume that sets the NBBO
provided through one or more of its Nasdaq Market Center MPIDs to all
displayed volume that provides liquidity through one or more of its
Nasdaq Market Center MPIDs during the month. This change will apply to
Tapes A, B and C. The Exchange hopes that this proposed amendment will
incentivize firms to increase their liquidity providing activity on
Nasdaq, to set the NBBO, and will promote tighter spreads and improve
market quality.
Third, the Exchange proposes to add a new supplemental credit for
displayed quotes/orders (other than Supplemental Orders \7\ or
Designated Retail Orders) that provide liquidity. The proposed credit
would provide $0.000025 per share executed to a member with (i) shares
of liquidity provided in Tape A securities during the month
representing at least 1.40% of Consolidated Volume during the month,
and (ii) shares of liquidity provided in Tape C representing at least
1.40% of Consolidated Volume during the month. This supplemental credit
only applies to Tapes A and C securities because the Exchange hopes to
incentivize firms to increase their display liquidity added in Tapes A
and C securities.
---------------------------------------------------------------------------
\7\ A Supplemental Order is an Order Type with a Non-Display
Order Attribute that is held on the Nasdaq Book in order to provide
liquidity at the NBBO through a special execution process described
in Rule 4757(a)(1)(D). See Rule 4702(b)(6).
---------------------------------------------------------------------------
Fourth, the Exchange proposes in Section 118(a) to add two new
credits across Tapes A, B and C for certain non-displayed orders (other
than Supplemental Orders) that provide liquidity. The Exchange proposes
to adopt a credit for such non-displayed orders if the member, during
the month (i) provides 0.30% or more of Consolidated Volume through
non-displayed orders (including midpoint orders) and through M-ELO
orders; and (ii) increases providing liquidity through non-displayed
orders (including midpoint orders) and through M-ELO orders by 0.06% or
more relative to the member's August 2020 Consolidated Volume provided
through non-displayed orders (including midpoint orders) and through M-
ELO (``credit 1''). Additionally, the Exchange proposes to adopt a
credit for such non-displayed orders if the member, during the month
(i) provides 0.30% or more of Consolidated Volume through non-displayed
orders (including midpoint orders) and through M-ELO orders; and (ii)
increases providing liquidity through non-displayed orders (including
midpoint orders) and through M-ELO orders by 0.10% or more relative to
the member's August 2020 Consolidated Volume provided through non-
displayed orders (including midpoint orders) and through M-ELO
(``credit 2''). The Exchange will provide a credit of $0.00075 per
share executed to Tape C and a credit of $0.0010 per share executed to
Tapes A and B for credit 1. The Exchange will provide a credit of
$0.0010 per share executed to Tape C and a credit of $0.00125 per share
executed to Tapes A and B for credit 2. The Exchange hopes that by
proposing these new credits it will incentive firms to increase their
non-display volume on the Exchange.
Lastly, the Exchange is making certain non-conforming changes to
remove the duplicative words ``during the month'' from the $0.0027 per
share executed credit to members for displayed quotes/orders (other
than Supplemental Orders or Designated Retail Orders) that provide
liquidity in Tape A. Additionally, the Exchange is adding the word
``and'' to the $0.0025 per share executed credit for non-displayed
orders (other than Supplemental Orders) that provide liquidity in Tape
B.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\8\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\9\ 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.
---------------------------------------------------------------------------
\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
The Proposal Is Reasonable
The Exchange's proposed changes to its schedule of fees and credits
are reasonable in several respects. As a threshold matter, the Exchange
is subject to significant competitive forces in the market for equity
securities transaction services that constrain its pricing
determinations in that market. The fact that this market is competitive
has long been recognized by the courts. In NetCoalition v. Securities
and Exchange Commission, the D.C. Circuit stated as follows: ``[n]o one
disputes that competition for order flow is `fierce.' . . . As the SEC
explained, `[i]n the U.S. national market system, buyers and sellers of
securities, and the broker-dealers that act as their order-routing
agents, have a wide range of choices of where to route orders for
execution'; [and] `no exchange can afford to take its market share
percentages for granted' because `no exchange possesses a monopoly,
regulatory or otherwise, in the execution of order flow from broker
dealers'. . .'' \10\
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\10\ 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)).
---------------------------------------------------------------------------
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
[[Page 66381]]
broader forms that are most important to investors and listed
companies.'' \11\
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\11\ 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.\12\
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\12\ As an example, CBOE EDGX provides a standard rebate for
liquidity adders of $0.00170 per share executed (or between $0.0020
and $0.0029 per share executed) if a member qualifies for a volume
tier.
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Within this environment, market participants can freely and often
do shift their order flow among the Exchange and competing venues in
response to changes in their respective pricing schedules. As such, the
proposal represents a reasonable attempt by the Exchange to increase
its liquidity and market share relative to its competitors.
The Exchange has designed its proposed schedule of credits and
charges to provide increased overall incentives to members to increase
their liquidity removal and adding activity on the Exchange. An
increase in liquidity removal and adding activity on the Exchange will,
in turn, improve the quality of the Nasdaq market and increase its
attractiveness to existing and prospective participants. Generally, the
proposed new credits and charges will be comparable to, if not
favorable to, those that its competitors provide.\13\ Moreover, the
Exchange believes that it is reasonable to modify certain fees and
credits within its fee schedule as a means of incentivizing market
participants to increase their contributions to the improvement of the
quality of the Exchange.
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\13\ See n. 12, supra.
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In particular, the Exchange believes that it is reasonable to
increase the additional QMM credit of $0.00005 per share executed to
$0.000075 per share executed for Tapes A and C in Section 114(e)
because with the launch of new exchanges this month, the Exchange hopes
to incentivize participants to maintain or increase their liquidity
adding activity and quoting at the NBBO in Tapes A and C. To the extent
that this proposal results in an increase in liquidity adding and
quoting activity on the Exchange, this will improve the quality of the
Nasdaq market and increase its attractiveness to existing and
prospective participants.
Additionally, the Exchange believes it is reasonable to remove the
credit of $0.0027 per share executed for the Nasdaq Growth Program in
Section 114(j) because the credit did not accomplish the growth in
activity as originally intended because the thresholds for the pricing
incentive is no longer effective in incentivizing liquidity adding
activity.\14\ It is reasonable to evaluate and update the Exchange's
fee schedule to reflect the fees and rebates that are effective for the
Exchange and market participants.
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\14\ See n. 4, supra.
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The Exchange also believes it is reasonable to adjust the fee and
the qualifications for RTFY orders. Until August 2020,\15\ there had
been no charge to participants entering RTFY orders because there were
no fees charged to participants for removing liquidity from the
Exchange and fees charged by other venues with a protected quotation
under Regulation NMS for RTFY orders that are routed away to other
venues were covered by the Exchange as a promotion to incentivize usage
of the order type. Given that RTFY orders have become more widely used
and as a result, the Exchange has waived more fees for removing
liquidity from the Exchange and incurred more costs for covering the
fees for routing to other venues with a protected quotation under
Regulation NMS, the Exchange believes that it is reasonable to amend
its RTFY fees to cap the number of executed RTFY shares that members
receive for free when such orders remove liquidity from the Nasdaq
Market Center or execute in a venue with a protected quotation under
Regulation NMS. Similarly, the Exchange believes that it is reasonable
to amend the RTFY fee qualifications for the $0.0000 per share executed
to align with the qualifications for the proposed $0.0030 per share
executed fee. The Exchange hopes to continue to encourage market
participants to increase their RTFY usage while allowing the Exchange
to mitigate the costs it incurs by capping the number of shares that
members receive for free when such orders remove liquidity from the
Nasdaq Market Center or execute in a venue with a protected quotation
under Regulation NMS.
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\15\ See n. 6, supra.
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The Exchange also believes that it is reasonable to adjust the
qualifications for the $0.0029 per share executed credit in Section
118(a) provided to members for displayed quotes/orders (other than
Supplemental Order or Designated Retail Orders \16\) that provide
liquidity. The proposed change is intended to incentivize members to
increase liquidity and set the NBBO, which will further improve overall
market quality.
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\16\ Pursuant to Rule Section 118, a ``Designated Retail Order''
is an agency or riskless principal order that meets the criteria of
FINRA Rule 5320.03 and that originates from a natural person and is
submitted to Nasdaq by a member that designates it pursuant to this
section, provided that no change is made to the terms of the order
with respect to price or side of market and the order does not
originate from a trading algorithm or any other computerized
methodology. An order from a ``natural person'' can include orders
on behalf of accounts that are held in a corporate legal form--such
as an Individual Retirement Account, Corporation, or a Limited
Liability Company--that has been established for the benefit of an
individual or group of related family members, provided that the
order is submitted by an individual. Members must submit a signed
written attestation, in a form prescribed by Nasdaq, that they have
implemented policies and procedures that are reasonably designed to
ensure that substantially all orders designated by the member as
``Designated Retail Orders'' comply with these requirements. Orders
may be designated on an order by-order basis, or by designating all
orders on a particular order entry port as Designated Retail Orders.
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Additionally, the Exchange believes it is reasonable to add three
new credits to Section 118(a). The Exchange believes that the
availability of the new $0.000025 per share executed supplemental
credit for displayed quotes/orders (other than Supplemental Orders or
Designated Retail Orders) that provide liquidity, as well as the two
new credits for certain non-displayed orders (other than Supplemental
Orders) that provide liquidity will incentivize members to increase
their liquidity adding activity on the Exchange in order to qualify for
the new credits. An increase in liquidity adding activity on the
Exchange would help to improve the quality of the market for all
participants. Moreover, the Exchange believes that it is reasonable to
apply the supplemental credit only to Tapes A and C because the
Exchange's goal is to promote increased liquidity in Tapes A and C and
hopes to incentivize market participants to increase their liquidity
adding activity by providing these additional credits. Similarly, the
Exchange believes that it is reasonable to provide a higher credit
certain for non-displayed orders (other than Supplemental Orders) that
provide liquidity in Tapes A and B due to the Exchange's goal to
specifically promote increased non-displayed order liquidity in
securities in these Tapes because the Exchange is not seeing the level
of liquidity that it expected in Tapes A and B.
[[Page 66382]]
The Proposal Is an Equitable Allocation of Fees and Credits
The Exchange believes its proposal will allocate its credits and
fees fairly among its market participants.
In particular, it is equitable to increase the additional credit in
Section 114(e) for QMMs in securities in Tapes A and C in order to
incentivize members to increase their liquidity adding activity in
those Tapes because the Exchange is not seeing the volume that it had
hoped to see in Tapes A and C. Moreover, the fees will be applied
uniformly to all QMMs.
The Exchange also believes that it is equitable to increase certain
fees and qualifications for RTFY orders in Section 118(a) because the
Exchange must balance providing a variety of order types, including
order types that allow market participants to remove liquidity and
route orders out of the Exchange, while ensuring that the Exchange is
not incurring significant costs as a result of providing a discounted
fee. Additionally, the Exchange is assessed various fees for the
execution of such orders at away venues and the proposed fee is
reflective of the value provided by the Exchange in providing this
functionality and the overall fees assessed by such venues. Moreover,
the fee and qualifications will apply uniformly to all participants
that enter RTFY orders.
Moreover, it is equitable for the Exchange to remove the $0.0027
per share executed credit from the Growth Program in Section 114(j)
because, discussed above, the credit did not accomplish the growth in
activity as originally intended. When the fees and credits of the
Exchange are not meeting their expected goals, it is reasonable for the
Exchange to re-evaluate them, and equitable for the Exchange to amend
its fees and credits for all members.
Furthermore, it is equitable for the Exchange to adjust the
qualifications for the $0.0029 per share executed credit for displayed
quotes/orders (other than Supplemental Orders and Designated Retail
Orders). The Exchange provides credits with varying qualifications to
provide its members with various ways for obtaining the credit. The
Exchange believes that it is equitable to adjust the qualifications for
a credit in order to incentivize an increase in liquidity adding
activity and setting the NBBO on the Exchange. As discussed above,
greater liquidity on the Exchange will further improve overall market
quality.
The Exchange also believes that it is equitable to establish new
credits in Section 118(a). In particular, the Exchange believes it is
equitable to establish a new supplemental credit for members that
provide liquidity for displayed quotes/orders (other than Supplemental
Orders or Designated Retail Orders). Additionally, the Exchange
believes that it is equitable for the Exchange to establish two new
credits for members that provide liquidity for certain non-displayed
orders (other than Supplemental Orders). The Exchange hopes that these
credits will increase the incentive for participants to add liquidity.
An increase in overall liquidity adding activity on the Exchange will
improve the quality of the Nasdaq market and increase its
attractiveness to existing and prospective participants. Moreover, the
Exchange believes it is equitable to apply the $0.000025 per share
executed credit to Tapes A and C for members that provide liquidity for
displayed quotes/orders (other than Supplemental Orders or Designated
Retail Orders) because it is the Exchange's goal to specifically
promote increased liquidity in securities in Tapes A and C for
displayed quotes/orders (other than Supplemental Orders or Designated
Retail Orders). Additionally, the Exchange believes that it is
equitable to provide a higher credit to members with certain non-
displayed orders (other than Supplemental Orders) in securities in Tape
A and B due to the Exchange's goal to specifically promote increased
non-displayed order liquidity in securities in these tapes. An increase
in overall liquidity adding activity on the Exchange will improve the
quality of the Nasdaq market and increase its attractiveness to
existing and prospective participants.
The Proposed Amended Fees and 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.
The Exchange intends for its proposal to improve market quality for
all members on the Exchange and by extension attract more liquidity to
the market, improving market wide quality and price discovery. Net
adders of liquidity to the Exchange stand to benefit directly from the
proposed changes. Moreover, to the extent that the proposed changes
increase liquidity adding and removing activity on the Exchange, this
will improve market quality and the attractiveness of the Nasdaq
market, to the benefit of all existing and prospective participants.
More particularly, to the extent that Section 114(e) of the
Exchange's proposal to allow a QMM to qualify for a credit of $0.000075
per share executed in Tapes A and C will result in an increase in
liquidity on the Exchange, it will improve market-wide quality and
price discovery to the benefit of all participants. Moreover, to the
extent that the proposal causes members to increase the extent of their
liquidity adding and quoting activity on the Exchange, the Exchange
market quality will improve, and all market participants will benefit.
Moreover, any market participant that does not wish to receive the
higher credit is free to shift its order flow to a competing venue.
Additionally, the proposal to remove the Growth Program $0.0027 per
share executed credit in Section 114(j) is not unfairly discriminatory
because the credit will be removed for all market participants given
that it did not accomplish the growth in activity as originally
intended.
Additionally, the Exchange does not believe that the proposed RTFY
fee increase in Section 118(a) is unfairly discriminatory because all
members sending Designated Retail Orders to Nasdaq for execution are
eligible to use RTFY. Each member may elect to use the RTFY routing
strategy and to execute as many shares as the member sees fit.
Furthermore, given that the Exchange only incurs a fee for RTFY orders
that route and execute at venues with a protected quotation under
Regulation NMS, the Exchange does not believe that it is unfairly
discriminatory to not charge a fee for RTFY orders that route and
execute at venues without a protected quotation under Regulation NMS
because the Exchange is not charged a fee for those RTFY orders.
Moreover, assessing different rates when a member elects to use a
routing strategy but executes on the venue where the order was
originally entered is not novel. For example, the Exchange charges fees
ranging from $0.0030 per share executed to no charge to a member
[[Page 66383]]
entering an MIDP Order.\17\ The fees vary based on whether the MIDP
Order routes and executes at venues with a protected quotation under
Regulation NMS other than BX or Nasdaq, or whether the MIDP Order
routes and executes at venues ineligible for a protected quotation
under Regulation NMS.\18\ The charge for MIDP Orders that route and
execute at venues with a protected quotation under Regulation NMS,
other than BX or Nasdaq, is the same as the proposed charge for RTFY
orders that route and execute at venues with a protected quotation
under Regulation NMS. Therefore, the Exchange is not seeking to charge
RTFY orders a greater amount than MIDP Orders; rather, the fees are
comparable.
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\17\ The MIDP routing option allows Nasdaq members to seek
midpoint liquidity on Nasdaq and other markets on the Nasdaq system
routing table.
\18\ See Rule Equity 7, Section 118(a). See also Securities
Exchange Act Release No. 87186 (October 1, 2019), 84 FR 53504
(October 7, 2019) (SR-Nasdaq-2019-080).
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Moreover, the Exchange does not believe that it is unfairly
discriminatory to add new credits or to amend the qualifications for a
member to obtain a current credit in Section 118(a) because to the
extent that the proposal increases liquidity adding activity on the
Exchange, this will result in improved market quality, which will
benefit all existing and prospective participants.
Furthermore, the Exchange does not believe it is unfairly
discriminatory for the Exchange to propose a supplemental credit for
members that provide liquidity for displayed quotes/orders (other than
Supplemental Orders or Designated Retail Orders) in Tapes A and C
because the Exchange seeks to promote increased liquidity adding
activity specifically in securities in Tapes A and C. Similarly, the
Exchange does not believe that it is unfairly discriminatory to provide
a higher credit to QMMs who provide liquidity adding activity in Tapes
A and C because the Exchange seeks to encourage liquidity adding
activity and quoting at the NBBO by QMMs in Tapes A and C. Likewise,
the Exchange does not believe that it is unfairly discriminatory to
provide a higher credit for certain non-displayed orders (other than
Supplemental Orders) that provide liquidity in Tapes A and B than it
proposes for participants with orders in Tape C because the Exchange
seeks to promote increased liquidity adding activity for certain non-
displayed orders (other than Supplemental Orders) specifically in
securities in Tapes A and B.
Finally, any participant that is dissatisfied with the proposed
amended fees or credits is free to shift their order flow to competing
venues that provide more favorable pricing or less stringent qualifying
criteria.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
Intramarket Competition
The Exchange does not believe that its proposals will place any
category of Exchange participant at a competitive disadvantage. To the
contrary, the proposed changes will provide opportunities for members
to receive new and amended credits based on their market-improving
behavior. Any member may elect to provide the levels of market activity
required in order to receive the new or amended credits. Furthermore,
all members of the Exchange will benefit from any increase in market
activity that the proposals effectuates. Additionally, As discussed
above, the $0.0027 per share executed Growth Program credit removal is
applicable to all members and does not place anyone at a competitive
disadvantage because the thresholds for the pricing incentive is no
longer effective in incentivizing liquidity adding activity.
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 14 live exchanges (soon to be
16) and from off-exchange venues, which include 34 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 fees and
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 fee and credit changes in
this market may impose any burden on competition is extremely limited.
The proposed amended fees and credits are reflective of this
competition because, even as one of the largest U.S. equities exchanges
by volume, the Exchange has less than 18% 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 44% of industry volume for the month of
August 2020.
The Exchange's proposals 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.
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
Pursuant to Section 19(b)(3)(A)(ii) of the Act,\19\ the Exchange
has designated this proposal as establishing or changing a due, fee, or
other charge imposed by the self-regulatory organization on any person,
whether or not the person is a
[[Page 66384]]
member of the self-regulatory organization, which renders the proposed
rule change effective upon filing.
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\19\ 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-2020-067 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-2020-067. 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-2020-067 and should be submitted
on or before November 9, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-23015 Filed 10-16-20; 8:45 am]
BILLING CODE 8011-01-P
