Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its Schedule of Credits at Equity 7, Section 118(a), 67690-67693 [2024-18704]
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67690
Federal Register / Vol. 89, No. 162 / Wednesday, August 21, 2024 / Notices
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in, securities, to
remove impediments to and perfect the
mechanisms of a free and open market
and a national market system and, in
general, to protect investors and the
public interest.
The Exchange believes the proposed
changes promote just and equitable
principles of trade and remove
impediments to and perfect the
mechanism of a free and open market
and a national market system because
the proposed change makes a clarifying
edit to the Fee Schedule. The Exchange
believes that the proposed change will
provide greater clarity to Members and
the public regarding the Exchange’s Fee
Schedule and that it is in the public
interest for the Fee Schedule to be
accurate and clear so as to eliminate the
potential for confusion.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will result in
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed rule change is not a
competitive filing but rather is designed
to provide added clarity to the Fee
Schedule in order to avoid potential
confusion on the part of market
participants. In addition, the Exchange
does not believe the proposal will
impose any burden on inter-market
competition as the proposal does not
address any competitive issues and is
intended to protect investors by
providing further transparency
regarding the Exchange’s Fee Schedule.
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor 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.9
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
9 15
U.S.C. 78s(b)(3)(A)(ii).
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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.
submissions should refer to file number
SR–EMERALD–2024–18 and should be
submitted on or before September 11,
2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.10
Sherry R. Haywood,
Assistant Secretary.
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:
[FR Doc. 2024–18705 Filed 8–20–24; 8:45 am]
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–
EMERALD–2024–18 on the subject line.
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend Its
Schedule of Credits at Equity 7,
Section 118(a)
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–EMERALD–2024–18. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on August 1,
2024, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II
and III, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
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BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100739; File No. SR–
NASDAQ–2024–044]
August 15, 2024.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
Exchange’s schedule of credits at Equity
7, Section 118(a), as described further
below.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/nasdaq/rules, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
10 17
CFR 200.30–3(a)(12), (59).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 89, No. 162 / Wednesday, August 21, 2024 / Notices
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.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to amend the Exchange’s
schedule of credits, at Equity 7, Section
118(a). Specifically, with respect to its
schedule of credits for non-displayed
midpoint orders (other than
Supplemental Orders) that provide
liquidity, the Exchange proposes to (i)
add a new credit in Tapes A, B, and C,
(ii) cap the maximum credit per share
executed that a member organization
can receive when certain requirements
are met within Section 118(a)(1), and
(iii) reorder the schedule of credits.
The Exchange proposes to provide a
new credit of $0.0028 for midpoint
orders (excluding buy (sell) orders with
Midpoint pegging that receive an
execution price that is lower (higher)
than the midpoint of the NBBO) if the
member provides midpoint liquidity
that represents at least 0.30% or more of
Consolidated Volume during the month.
This change will apply to Tapes A, B,
and C. The purpose of the new credit is
to incentivize liquidity adding activity
and provide incentive to members that
provide non-displayed liquidity to the
Exchange to do so through midpoint
orders. The Exchange believes that if
such incentive is effective, then any
ensuing increase in liquidity to the
Exchange will improve market quality,
to the benefit of all participants.
The Exchange currently provides a
supplemental credit for midpoint orders
(excluding buy (sell) orders with
Midpoint pegging that receive an
execution price that is lower (higher)
than the midpoint of the NBBO), in
addition to the other credits provided
for non-displayed orders that provide
liquidity, if the member executes a
requisite ADV of shares through M–
ELO, as follows: (a) $0.0001 per share
executed for midpoint orders (excluding
buy (sell) orders with Midpoint pegging
that receive an execution price that is
lower (higher) than the midpoint of the
NBBO) if the member executes an ADV
of at least 2.5 million up to, but not
including 4 million shares through M–
ELO; or (b) $0.0002 per share executed
for midpoint orders (excluding buy
(sell) orders with Midpoint pegging that
receive an execution price that is lower
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(higher) than the midpoint of the NBBO)
if the member executes an ADV of 4
million or more shares through M–ELO.
The Exchange proposes that a member
receiving this supplemental credit may
receive combined credits (regular and
supplemental) of up to a maximum of
$0.0028 per share executed.
The Exchange notes that it proposes
to cap combined regular and
supplemental credits at $0.0028 per
share executed to manage the costs to
the Exchange of providing these
incentives. The Exchange has only
limited resources available to it for
incentive programs, and it must ensure
that it allocates such resources
appropriately to optimize their intended
impacts.
Lastly, for clarifying purposes, the
Exchange proposes to reorder the
schedule of credits for non-displayed
orders (other than Supplemental Orders)
that provide liquidity by moving the
aforementioned supplemental credit
further down in the rebate schedule to
immediately precede the other
supplemental credits offered.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,3 in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5)
of the Act,4 in particular, in that it
provides for the equitable allocation of
reasonable dues, fees and other charges
among members and issuers and other
persons using any facility, and is not
designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.
The Proposals Are Reasonable
The Exchange’s proposed changes to
its schedule of credits are reasonable in
several respects. As a threshold matter,
the Exchange is subject to significant
competitive forces in the market for
equity securities transaction services
that constrain its pricing determinations
in that market. The fact that this market
is competitive has long been recognized
by the courts. In NetCoalition v.
Securities and Exchange Commission,
the D.C. Circuit stated as follows: ‘‘[n]o
one disputes that competition for order
flow is ‘fierce.’ . . . As the SEC
explained, ‘[i]n the U.S. national market
system, buyers and sellers of securities,
and the broker-dealers that act as their
order-routing agents, have a wide range
of choices of where to route orders for
execution’; [and] ‘no exchange can
afford to take its market share
percentages for granted’ because ‘no
3 15
4 15
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U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
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67691
exchange possesses a monopoly,
regulatory or otherwise, in the execution
of order flow from broker
dealers’. . . .’’ 5
The Commission and the courts have
repeatedly expressed their preference
for competition over regulatory
intervention in determining prices,
products, and services in the securities
markets. In Regulation NMS, while
adopting a series of steps to improve the
current market model, the Commission
highlighted the importance of market
forces in determining prices and SRO
revenues and, also, recognized that
current regulation of the market system
‘‘has been remarkably successful in
promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ 6
Numerous indicia demonstrate the
competitive nature of this market. For
example, clear substitutes to the
Exchange exist in the market for equity
security transaction services. The
Exchange is only one of several equity
venues to which market participants
may direct their order flow. Competing
equity exchanges offer similar tiered
pricing structures to that of the
Exchange, including schedules of
rebates and fees that apply based upon
members achieving certain volume
thresholds.
Within this environment, market
participants can freely and often do shift
their order flow among the Exchange
and competing venues in response to
changes in their respective pricing
schedules. As such, the proposal
represents a reasonable attempt by the
Exchange to increase its liquidity and
market share relative to its competitors.
The Exchange believes that it is
reasonable to establish a new credit of
$0.0028 for midpoint orders (excluding
buy (sell) orders with Midpoint pegging
that receive an execution price that is
lower (higher) than the midpoint of the
NBBO) if the member provides
midpoint liquidity that represents at
least 0.30% or more of Consolidated
Volume during the month for Tapes A,
B, and C. This proposal is reasonable
because it will incentivize liquidity
adding activity and provide incentive to
members that provide non-displayed
liquidity to the Exchange to do so
through midpoint orders. The Exchange
believes that if such incentive is
effective, then any ensuring increase in
liquidity to the Exchange will improve
5 NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir.
2010) (quoting Securities Exchange Act Release No.
59039 (December 2, 2008), 73 FR 74770, 74782–83
(December 9, 2008) (SR–NYSEArca–2006–21)).
6 Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(‘‘Regulation NMS Adopting Release’’).
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Federal Register / Vol. 89, No. 162 / Wednesday, August 21, 2024 / Notices
market quality, to the benefit of all
participants.
The Exchange believes that it is
reasonable to cap the amount of
combined regular and supplemental
credits it proposes to offer members
who add liquidity through midpoint
orders to $0.0028 per share executed.
This cap will allow the Exchange to
manage its costs of providing these
incentives. The Exchange has only
limited resources available to it for
incentive programs, and it must ensure
that it allocates such resources
appropriately to optimize their intended
impacts.
The Exchange also believes that it is
reasonable to reorder the schedule of
credits for non-displayed orders (other
than Supplemental Orders) that provide
liquidity to increase clarity in the Rules,
consistent with the public interest and
protection of investors.
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The Proposals Are Equitable Allocations
of Credits
The Exchange believes that it is
equitable to establish a new transaction
credit and otherwise increase the
amount of credit a member may receive
for providing non-displayed liquidity
through midpoint orders. To the extent
that the Exchange succeeds in
increasing the levels of liquidity and
activity on the Exchange, the Exchange
will experience improvements in its
market quality, which stands to benefit
all market participants. The Exchange
also believes that the proposed
clarifying changes (i.e., reordering the
schedule of credits) and the proposal to
cap rebates at $0.0028 for members
receiving certain supplemental credits is
equitable because the changes and the
cap will be applied uniformly to all
members.
Any participant that is dissatisfied
with the proposals is free to shift their
order flow to competing venues that
provide more generous pricing or less
stringent qualifying criteria.
The Proposals Are Not Unfairly
Discriminatory
The Exchange believes that its
proposals are not unfairly
discriminatory. As an initial matter, the
Exchange believes that nothing about its
volume-based tiered pricing model is
inherently unfair; instead, it is a rational
pricing model that is well-established
and ubiquitous in today’s economy
among firms in various industries—from
co-branded credit cards to grocery stores
to cellular telephone data plans—that
use it to reward the loyalty of their best
customers that provide high levels of
business activity and incent other
customers to increase the extent of their
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business activity. It is also a pricing
model that the Exchange and its
competitors have long employed with
the assent of the Commission. It is fair
because it enhances price discovery and
improves the overall quality of the
equity markets.
The Exchange believes that its
proposals to adopt a new credit for
providing non-displayed liquidity
through midpoint orders, impose a cap
on the amount of combined regular and
supplemental credits it proposes to offer
members receiving certain supplemental
credits, and make clarifying changes, as
described above, are not unfairly
discriminatory because the changes are
not intended to advantage any particular
member and will be applied uniformly
to all members. Moreover, the proposals
stand to improve the overall market
quality of the Exchange, to the benefit
of all market participants, by
incentivizing members to increase the
extent of their liquidity adding activity
in midpoint orders on the Exchange.
Any participant that is dissatisfied
with the proposals is free to shift their
order flow to competing venues that
provide more generous pricing or less
stringent qualifying criteria.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act.
Intramarket Competition
The Exchange does not believe that its
proposals will place any category of
Exchange participant at a competitive
disadvantage.
As noted above, the Exchange’s
proposals to add a new transaction
credit, impose a cap on the maximum
rebate offered to members receiving
certain supplemental credits, and make
clarifying changes are intended to have
market-improving effects, to the benefit
of all members. Any member may elect
to achieve the level of liquidity in
midpoint orders required to qualify for
the new credit. The other proposed
changes also apply equally and will be
applied uniformly to all members.
The Exchange notes that its members
are free to trade on other venues to the
extent they believe that the Exchange’s
fee schedule is not attractive. As one
can observe by looking at any market
share chart, price competition between
exchanges is fierce, with liquidity and
market share moving freely between
exchanges in reaction to fee and credit
changes.
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Intermarket Competition
In terms of inter-market competition,
the Exchange notes that it operates in a
highly competitive market in which
market participants can readily favor
competing venues if they deem fee
levels at a particular venue to be
excessive, or rebate opportunities
available at other venues to be more
favorable. In such an environment, the
Exchange must continually adjust its
credits and fees to remain competitive
with other exchanges and with
alternative trading systems that have
been exempted from compliance with
the statutory standards applicable to
exchanges. Because competitors are free
to modify their credit and own fees in
response, and because market
participants may readily adjust their
order routing practices, the Exchange
believes that the degree to which credit
or fee changes in this market may
impose any burden on competition is
extremely limited.
The proposed new and amended
credits are reflective of this competition
because, as a threshold issue, even as
one of the largest U.S. equities
exchanges by volume, the Exchange has
less than 20% market share, which in
most markets could hardly be
categorized as having enough market
power to burden competition. Moreover,
price competition between exchanges is
fierce, with liquidity and market share
moving freely between exchanges in
reaction to credit and fee changes. This
is an addition to free flow of order flow
to and among off-exchange venues
which comprises more than 40% of
industry volume in recent months.
The Exchange’s proposal to add a new
transaction credit is pro-competitive in
that the Exchange intends for the credit
to increase liquidity addition activity in
midpoint orders on the Exchange,
thereby rendering the Exchange more
attractive and vibrant to participants.
In sum, if the changes proposed
herein are unattractive to market
participants, it is likely that the
Exchange will lose market share as a
result. Accordingly, the Exchange does
not believe that the proposed changes
will impair the ability of members or
competing order execution venues to
maintain their competitive standing in
the financial markets.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
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III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act.7
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 rule-comments@
sec.gov. Please include file number SR–
NASDAQ–2024–044 on the subject line.
lotter on DSK11XQN23PROD with NOTICES1
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to file
number SR–NASDAQ–2024–044. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–NASDAQ–2024–044 and should be
submitted on or before September 11,
2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.8
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–18704 Filed 8–20–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100732; File No. SR–
SAPPHIRE–2024–07]
Self-Regulatory Organizations; MIAX
Sapphire, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Describe the Access
Methods to the Exchange’s Testing
Systems Environment and Discontinue
One Access Method
August 15, 2024.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on August 5,
2024, MIAX Sapphire, LLC (‘‘MIAX
Sapphire’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
as described in Items I and II 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 is filing a proposal to
describe the three methods to access the
Exchange’s optional testing systems
environment and the timeline and
process by which one of the three access
methods would be discontinued. The
text of the proposed rule change is
8 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
7 15
U.S.C. 78s(b)(3)(A)(ii).
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available on the Exchange’s website at
https://www.miaxglobal.com/markets/
us-options/all-options-exchanges/rulefilings, at MIAX Sapphire’s principal
office, 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
On July 15, 2024, the Securities and
Exchange Commission (‘‘Commission’’)
approved the Exchange’s Form 1
application to register as a national
securities exchange under Section 6 of
the Exchange Act.3 As previously
announced, the Exchange anticipates
that it will begin electronic operations
on August 12, 2024.4
In anticipation of the launch of
electronic equity options trading, the
Exchange submits this filing to describe
the three methods to access the
Exchange’s optional testing systems
environment and the timeline and
process by which the 1 Gigabit (‘‘Gb’’)
or 10Gb ultra-low latency (‘‘ULL’’)
connection access method described
below would be discontinued.
The testing systems environment is a
virtual trading system environment for
Members 5 and non-Members to test (i)
upcoming Exchange software and code
releases, (ii) product enhancements, and
(iii) firm-developed software, prior to
3 See Securities Exchange Act Release No. 100539
(July 15, 2024) (File No. 10–240) (In the Matter of
the Application of MIAX Sapphire, LLC for
Registration as a National Securities Exchange) (the
‘‘Approval Order’’).
4 See MIAX Sapphire Options Alert, dated March
6, 2024, available at https://www.miaxglobal.com/
alert/2024/03/06/miax-sapphire-options-exchangerescheduled-launch-date-august-12-2024.
5 The term ‘‘Member’’ means an individual or
organization that is registered with the Exchange
pursuant to Chapter II of the Exchange’s Rules for
purposes of trading on the Exchange as an
‘‘Electronic Exchange Member’’ or ‘‘Market Maker.’’
Members are deemed ‘‘members’’ under the
Exchange Act. See Exchange Rule 100.
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[Federal Register Volume 89, Number 162 (Wednesday, August 21, 2024)]
[Notices]
[Pages 67690-67693]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-18704]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100739; File No. SR-NASDAQ-2024-044]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Its Schedule of Credits at Equity 7, Section 118(a)
August 15, 2024.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on August 1, 2024, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II and III, below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the Exchange's schedule of credits
at Equity 7, Section 118(a), as described further below.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, at
the principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these
[[Page 67691]]
statements may be examined at the places specified in Item IV below.
The Exchange has prepared summaries, set forth in sections A, B, and C
below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to amend the Exchange's
schedule of credits, at Equity 7, Section 118(a). Specifically, with
respect to its schedule of credits for non-displayed midpoint orders
(other than Supplemental Orders) that provide liquidity, the Exchange
proposes to (i) add a new credit in Tapes A, B, and C, (ii) cap the
maximum credit per share executed that a member organization can
receive when certain requirements are met within Section 118(a)(1), and
(iii) reorder the schedule of credits.
The Exchange proposes to provide a new credit of $0.0028 for
midpoint orders (excluding buy (sell) orders with Midpoint pegging that
receive an execution price that is lower (higher) than the midpoint of
the NBBO) if the member provides midpoint liquidity that represents at
least 0.30% or more of Consolidated Volume during the month. This
change will apply to Tapes A, B, and C. The purpose of the new credit
is to incentivize liquidity adding activity and provide incentive to
members that provide non-displayed liquidity to the Exchange to do so
through midpoint orders. The Exchange believes that if such incentive
is effective, then any ensuing increase in liquidity to the Exchange
will improve market quality, to the benefit of all participants.
The Exchange currently provides a supplemental credit for midpoint
orders (excluding buy (sell) orders with Midpoint pegging that receive
an execution price that is lower (higher) than the midpoint of the
NBBO), in addition to the other credits provided for non-displayed
orders that provide liquidity, if the member executes a requisite ADV
of shares through M-ELO, as follows: (a) $0.0001 per share executed for
midpoint orders (excluding buy (sell) orders with Midpoint pegging that
receive an execution price that is lower (higher) than the midpoint of
the NBBO) if the member executes an ADV of at least 2.5 million up to,
but not including 4 million shares through M-ELO; or (b) $0.0002 per
share executed for midpoint orders (excluding buy (sell) orders with
Midpoint pegging that receive an execution price that is lower (higher)
than the midpoint of the NBBO) if the member executes an ADV of 4
million or more shares through M-ELO. The Exchange proposes that a
member receiving this supplemental credit may receive combined credits
(regular and supplemental) of up to a maximum of $0.0028 per share
executed.
The Exchange notes that it proposes to cap combined regular and
supplemental credits at $0.0028 per share executed to manage the costs
to the Exchange of providing these incentives. The Exchange has only
limited resources available to it for incentive programs, and it must
ensure that it allocates such resources appropriately to optimize their
intended impacts.
Lastly, for clarifying purposes, the Exchange proposes to reorder
the schedule of credits for non-displayed orders (other than
Supplemental Orders) that provide liquidity by moving the
aforementioned supplemental credit further down in the rebate schedule
to immediately precede the other supplemental credits offered.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\3\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\4\ in particular, in that it provides
for the equitable allocation of reasonable dues, fees and other charges
among members and issuers and other persons using any facility, and is
not designed to permit unfair discrimination between customers,
issuers, brokers, or dealers.
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\3\ 15 U.S.C. 78f(b).
\4\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposals Are Reasonable
The Exchange's proposed changes to its schedule of credits are
reasonable in several respects. As a threshold matter, the Exchange is
subject to significant competitive forces in the market for equity
securities transaction services that constrain its pricing
determinations in that market. The fact that this market is competitive
has long been recognized by the courts. In NetCoalition v. Securities
and Exchange Commission, the D.C. Circuit stated as follows: ``[n]o one
disputes that competition for order flow is `fierce.' . . . As the SEC
explained, `[i]n the U.S. national market system, buyers and sellers of
securities, and the broker-dealers that act as their order-routing
agents, have a wide range of choices of where to route orders for
execution'; [and] `no exchange can afford to take its market share
percentages for granted' because `no exchange possesses a monopoly,
regulatory or otherwise, in the execution of order flow from broker
dealers'. . . .'' \5\
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\5\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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The Commission and the courts have repeatedly expressed their
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. In Regulation
NMS, while adopting a series of steps to improve the current market
model, the Commission highlighted the importance of market forces in
determining prices and SRO revenues and, also, recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \6\
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\6\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
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Numerous indicia demonstrate the competitive nature of this market.
For example, clear substitutes to the Exchange exist in the market for
equity security transaction services. The Exchange is only one of
several equity venues to which market participants may direct their
order flow. Competing equity exchanges offer similar tiered pricing
structures to that of the Exchange, including schedules of rebates and
fees that apply based upon members achieving certain volume thresholds.
Within this environment, market participants can freely and often
do shift their order flow among the Exchange and competing venues in
response to changes in their respective pricing schedules. As such, the
proposal represents a reasonable attempt by the Exchange to increase
its liquidity and market share relative to its competitors.
The Exchange believes that it is reasonable to establish a new
credit of $0.0028 for midpoint orders (excluding buy (sell) orders with
Midpoint pegging that receive an execution price that is lower (higher)
than the midpoint of the NBBO) if the member provides midpoint
liquidity that represents at least 0.30% or more of Consolidated Volume
during the month for Tapes A, B, and C. This proposal is reasonable
because it will incentivize liquidity adding activity and provide
incentive to members that provide non-displayed liquidity to the
Exchange to do so through midpoint orders. The Exchange believes that
if such incentive is effective, then any ensuring increase in liquidity
to the Exchange will improve
[[Page 67692]]
market quality, to the benefit of all participants.
The Exchange believes that it is reasonable to cap the amount of
combined regular and supplemental credits it proposes to offer members
who add liquidity through midpoint orders to $0.0028 per share
executed. This cap will allow the Exchange to manage its costs of
providing these incentives. The Exchange has only limited resources
available to it for incentive programs, and it must ensure that it
allocates such resources appropriately to optimize their intended
impacts.
The Exchange also believes that it is reasonable to reorder the
schedule of credits for non-displayed orders (other than Supplemental
Orders) that provide liquidity to increase clarity in the Rules,
consistent with the public interest and protection of investors.
The Proposals Are Equitable Allocations of Credits
The Exchange believes that it is equitable to establish a new
transaction credit and otherwise increase the amount of credit a member
may receive for providing non-displayed liquidity through midpoint
orders. To the extent that the Exchange succeeds in increasing the
levels of liquidity and activity on the Exchange, the Exchange will
experience improvements in its market quality, which stands to benefit
all market participants. The Exchange also believes that the proposed
clarifying changes (i.e., reordering the schedule of credits) and the
proposal to cap rebates at $0.0028 for members receiving certain
supplemental credits is equitable because the changes and the cap will
be applied uniformly to all members.
Any participant that is dissatisfied with the proposals is free to
shift their order flow to competing venues that provide more generous
pricing or less stringent qualifying criteria.
The Proposals Are Not Unfairly Discriminatory
The Exchange believes that its proposals are not unfairly
discriminatory. As an initial matter, the Exchange believes that
nothing about its volume-based tiered pricing model is inherently
unfair; instead, it is a rational pricing model that is well-
established and ubiquitous in today's economy among firms in various
industries--from co-branded credit cards to grocery stores to cellular
telephone data plans--that use it to reward the loyalty of their best
customers that provide high levels of business activity and incent
other customers to increase the extent of their business activity. It
is also a pricing model that the Exchange and its competitors have long
employed with the assent of the Commission. It is fair because it
enhances price discovery and improves the overall quality of the equity
markets.
The Exchange believes that its proposals to adopt a new credit for
providing non-displayed liquidity through midpoint orders, impose a cap
on the amount of combined regular and supplemental credits it proposes
to offer members receiving certain supplemental credits, and make
clarifying changes, as described above, are not unfairly discriminatory
because the changes are not intended to advantage any particular member
and will be applied uniformly to all members. Moreover, the proposals
stand to improve the overall market quality of the Exchange, to the
benefit of all market participants, by incentivizing members to
increase the extent of their liquidity adding activity in midpoint
orders on the Exchange.
Any participant that is dissatisfied with the proposals is free to
shift their order flow to competing venues that provide more generous
pricing or less stringent qualifying criteria.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
Intramarket Competition
The Exchange does not believe that its proposals will place any
category of Exchange participant at a competitive disadvantage.
As noted above, the Exchange's proposals to add a new transaction
credit, impose a cap on the maximum rebate offered to members receiving
certain supplemental credits, and make clarifying changes are intended
to have market-improving effects, to the benefit of all members. Any
member may elect to achieve the level of liquidity in midpoint orders
required to qualify for the new credit. The other proposed changes also
apply equally and will be applied uniformly to all members.
The Exchange notes that its members are free to trade on other
venues to the extent they believe that the Exchange's fee schedule is
not attractive. As one can observe by looking at any market share
chart, price competition between exchanges is fierce, with liquidity
and market share moving freely between exchanges in reaction to fee and
credit changes.
Intermarket Competition
In terms of inter-market competition, the Exchange notes that it
operates in a highly competitive market in which market participants
can readily favor competing venues if they deem fee levels at a
particular venue to be excessive, or rebate opportunities available at
other venues to be more favorable. In such an environment, the Exchange
must continually adjust its credits and fees to remain competitive with
other exchanges and with alternative trading systems that have been
exempted from compliance with the statutory standards applicable to
exchanges. Because competitors are free to modify their credit and own
fees in response, and because market participants may readily adjust
their order routing practices, the Exchange believes that the degree to
which credit or fee changes in this market may impose any burden on
competition is extremely limited.
The proposed new and amended credits are reflective of this
competition because, as a threshold issue, even as one of the largest
U.S. equities exchanges by volume, the Exchange has less than 20%
market share, which in most markets could hardly be categorized as
having enough market power to burden competition. Moreover, price
competition between exchanges is fierce, with liquidity and market
share moving freely between exchanges in reaction to credit and fee
changes. This is an addition to free flow of order flow to and among
off-exchange venues which comprises more than 40% of industry volume in
recent months.
The Exchange's proposal to add a new transaction credit is pro-
competitive in that the Exchange intends for the credit to increase
liquidity addition activity in midpoint orders on the Exchange, thereby
rendering the Exchange more attractive and vibrant to participants.
In sum, if the changes proposed herein are unattractive to market
participants, it is likely that the Exchange will lose market share as
a result. Accordingly, the Exchange does not believe that the proposed
changes will impair the ability of members or competing order execution
venues to maintain their competitive standing in the financial markets.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
[[Page 67693]]
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act.\7\
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\7\ 15 U.S.C. 78s(b)(3)(A)(ii).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is: (i)
necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-NASDAQ-2024-044 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-NASDAQ-2024-044. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-NASDAQ-2024-044 and should
be submitted on or before September 11, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-18704 Filed 8-20-24; 8:45 am]
BILLING CODE 8011-01-P
