84 FR 26916 - Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Equity 7, Section 118(a)

[Federal Register Volume 84, Number 111 (Monday, June 10, 2019)]
[Notices]
[Pages 26916-26918]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2019-12090]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86026; File No. SR-NASDAQ-2019-045]


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

June 4, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 22, 2019, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``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 Equity 7, Section 118(a), as 
described further below.
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaq.cchwallstreet.com/, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to adopt pricing for the 
recently adopted SCAR routing strategy,\3\ which will be implemented on 
May 13, 2019.\4\ In sum, SCAR is a routing option under which orders 
check the System \5\ for available shares and simultaneously route to 
the other equity markets operated by Nasdaq, Inc., the Nasdaq BX 
Equities Market (``BX'') and Nasdaq PSX (``PSX'' and together with BX 
and the Exchange, the ``Nasdaq Affiliated Exchanges'').\6\
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    \3\ See Nasdaq Rule 4758(a)(1)(A)(xv). See also Securities 
Exchange Act Release No. 85372 (March 20, 2019), 84 FR 11357 (March 
26, 2019) (SR-NASDAQ-2019-013).
    \4\ See Equity Trader Alert #2019-29.
    \5\ The term ``System'' shall mean the automated system for 
order execution and trade reporting owned and operated by the 
Exchange. See Rule 4701(a).
    \6\ If shares remain unexecuted after routing, they are posted 
on the Exchange's book or cancelled. 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. See Rule 4758(a)(1)(A)(xv).
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    The Exchange initially filed the proposed pricing changes on May 
13, 2019 (SR-NASDAQ-2019-038). On May 22, 2019, the Exchange withdrew 
that filing and submitted this filing.
    The Exchange now proposes to adopt the following pricing for SCAR 
orders in securities listed on Nasdaq (``Tape C''), NYSE (``Tape A''), 
and on exchanges other than Nasdaq and NYSE (``Tape B'') (collectively, 
``Tapes''), which execute on BX and PSX: \7\
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    \7\ Orders using the SCAR routing option that execute on the 
Exchange would be subject to the Exchange's standard fees and 
rebates. Currently, members that do not meet certain volume 
thresholds that would qualify them for a discounted charge or credit 
are assessed a standard transaction fee of $0.0030 per share for 
orders in any Tape securities priced at $1 or more per share that 
execute on the Exchange. See Equity 7, Section 118(a).
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     SCAR orders executed on BX will be provided a credit of 
$0.0015 per share in Tape A and Tape C securities priced at $1 or more 
per share.
     SCAR orders executed on BX will be provided a credit of 
$0.0026 per share in Tape B securities priced at $1 or more per 
share.\8\
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    \8\ The Exchange is proposing to provide a higher credit for 
SCAR orders executed on BX in Tape B securities priced at $1 or more 
than such orders in securities in Tape A and Tape C to coordinate 
with BX pricing. BX similarly gives higher credits for orders that 
access liquidity on BX in Tape B securities priced at $1 or more per 
share than such orders in securities in Tape A and Tape C. See BX 
Equity 7, Section 118(a).
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     SCAR orders executed on PSX will be assessed a charge of 
$0.0029 per

[[Page 26917]]

share in all Tape securities priced at $1 or more per share.
     SCAR orders executed on BX or PSX in all Tape securities 
priced below $1 per share will be assessed a charge of 0.30% of the 
total transaction cost.\9\
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    \9\ This is the same rate that the Exchange currently charges 
for all securities priced below $1 that route and execute at an away 
venue. See Equity 7, Section 118(b).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\10\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\11\ 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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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that its proposal is reasonable, equitable 
and not unfairly discriminatory because the pricing proposed above for 
SCAR is generally set at levels intended to incentivize members to use 
this new routing strategy while also allowing the Exchange to recoup 
the costs of providing routing services. For instance, under this 
proposal, members will be provided credits of $0.0015 (for securities 
in Tapes A and C) or $0.0026 (for Tape B securities) for orders in 
securities priced at $1 or more per share that route to and execute on 
BX using the SCAR strategy. In contrast, orders that execute directly 
on BX as the home exchange (i.e., without using SCAR) are currently 
charged a standard transaction fee of $0.0003 per share.\12\ 
Furthermore, the proposed $0.0029 per share charge for orders in any 
Tape securities priced at $1 or more per share that route to and 
execute on PSX using the SCAR routing strategy is lower than the 
standard transaction charge of $0.0030 per share that would apply if 
the order executed directly on PSX as the home exchange.\13\ As such, 
the proposed SCAR pricing is set at rates that make it more economical 
for members to use this routing strategy, especially for those members 
that do not already add and/or remove large amounts of volume on PSX 
and BX directly.
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    \12\ This fee would apply unless the member qualifies for a 
better rate (such as a liquidity removal credit) by meeting certain 
volume thresholds. See BX Equity 7, Section 118(a).
    \13\ This fee would apply unless the member qualifies for a 
better rate (such as a discounted fee or credit) by meeting certain 
volume thresholds. See PSX Equity 7, Section 3, Order Execution and 
Routing.
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    The Exchange also believes that the proposed SCAR credits and 
charges for all Tape securities priced at $1 or more per share are set 
at appropriate levels for the reasons that follow. As noted above, the 
Exchange is proposing a higher credit for SCAR orders in Tape B 
securities than in securities in Tape A and Tape C to coordinate with 
BX pricing, which generally provides higher credits for BX members to 
remove liquidity from BX in Tape B securities priced at $1 or more per 
share than in Tape A and Tape C securities priced at $1 or more.\14\ 
The Exchange therefore believes that the credits are set at appropriate 
levels because the proposed credit of $0.0026 for Tape B securities 
corresponds to the highest Tape B liquidity removal credit currently 
provided for accessing liquidity directly on BX.\15\ As a means of 
offsetting the higher credit proposed for Tape B securities and also of 
recouping the costs of providing routing services, Exchange is 
proposing the credit of $0.0015 for Tapes A and C securities that is 
slightly lower than the highest Tapes A and C credit currently provided 
for accessing liquidity directly on BX.\16\ The Exchange still believes 
that the proposed $0.0015 credit for Tape A and Tape C securities is 
set at an appropriate level because it remains within the range of the 
Tapes A and C liquidity removal credits currently provided for 
accessing liquidity directly on BX.\17\ The proposed credit is also 
aligned with the $0.0015 rebate currently provided by Cboe BZX Exchange 
(``BZX''), Cboe EDGX Exchange (``EDGX''), and Cboe EDGA (``EDGA'') to 
their members using ALLB, a routing strategy similar to SCAR in that 
ALLB routes between affiliated exchanges only,\18\ to route orders to 
their affiliate, Cboe BYX Exchange (``BYX'').\19\ In addition, the 
proposed $0.0029 charge for SCAR orders that route and execute on PSX 
is similarly aligned with the $0.0029 charge currently assessed by BYX, 
BZX, and EDGA to their members using the ALLB routing strategy to route 
orders to their affiliate, EDGX,\20\ while also remaining lower than 
the standard rate of $0.0030 per share presently charged for accessing 
liquidity directly on PSX, as discussed above.
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    \14\ See supra note 8.
    \15\ See BX Equity 7, Section 118(a) (providing a $0.0026 credit 
for BX members entering orders in Tape B securities that access 
liquidity on BX if they meet certain criteria).
    \16\ These credits range from $0.0001 to $0.0018. See BX Equity 
7, Section 118(a).
    \17\ Id.
    \18\ Unlike SCAR, which routes simultaneously to Nasdaq, PSX, 
and BX simultaneously in accordance with the System routing table, 
the ALLB routing strategy offered by BZX, BYZ, EDGA, and EDGX first 
checks the local book before being routed to the affiliated 
exchanges in accordance with the applicable system routing table. 
See Securities Exchange Act Release No. 85372 (March 20, 2019), 84 
FR 11357 (March 26, 2019) (SR-NASDAQ-2019-013).
    \19\ See BZX Fee Schedule, available at https://markets.cboe.com/us/equities/membership/fee_schedule/bzx; EDGX Fee 
Schedule, available at https://markets.cboe.com/us/equities/membership/fee_schedule/edgx; and EDGA Fee Schedule, available at 
https://markets.cboe.com/us/equities/membership/fee_schedule/edga.
    \20\ See BYX Fee Schedule, available at https://markets.cboe.com/us/equities/membership/fee_schedule/byx. See supra 
note 19.
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    The Exchange further believes that it is reasonable, equitable and 
not unfairly discriminatory to assess the proposed charge for SCAR 
orders executed on BX or PSX in any Tape securities priced below $1 per 
share because it is consistent with what it currently charges for all 
orders in securities priced at less than $1 per share that route and 
execute at an away venue.\21\ Lastly, the Exchange believes that the 
proposed pricing changes are equitable and not unfairly discriminatory 
because they will apply uniformly to all members.
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    \21\ The Exchange currently charges 0.30% of the total 
transaction cost for all such orders. See Equity 7, Section 118(b).
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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. The Exchange 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 to remain competitive. 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 changes in this market may impose any 
burden on competition is extremely limited.
    In this instance, the proposed pricing for SCAR orders are intended 
to recoup the Exchange's costs associated with providing routing 
services while providing incentives to members to make use of the 
Exchange's optional routing functionality. As discussed

[[Page 26918]]

above, the Exchange believes that its proposed pricing remains 
competitive with other equity exchanges.\22\ In addition, because the 
Exchange's routing services are the subject of competition, including 
price competition, from other exchanges and broker-dealers that offer 
routing services, as well as the ability of members to use their own 
routing capabilities, it is likely that the Exchange will lose market 
share as a result of the changes if they are unattractive to market 
participants. 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.
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    \22\ See supra notes 19 and 20.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\23\
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    \23\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2019-045 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2019-045. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NASDAQ-2019-045 and should be submitted 
on or before July 1, 2019.
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    \24\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-12090 Filed 6-7-19; 8:45 am]
BILLING CODE 8011-01-P