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Federal Register / Vol. 86, No. 31 / Thursday, February 18, 2021 / Notices
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provides a valuable means by which like-minded participants, with shared time horizons, can safely interact on the market and mitigate the risk of adverse selection and information leakage. The addition of this new proposed credit tier will encourage members to increase the extent of their use of MELO Orders on the Exchange, and it will reward members that do so in significant volumes. The Exchange believes that any increase in MELO liquidity on the Exchange that follows from the introduction of this new credit will improve the quality of the Nasdaq market generally as well as the experiences of those members that choose to interact with the market through MELO Orders. Additionally, if members increase their liquidity adding activity on the Exchange to attain this credit, then the quality of the market will improve, and the Exchange will become more attractive to existing and prospective participants.
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 ae 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 todays economy among firms in various industriesfrom co-branded credit cards to grocery stores to cellular telephone data plansthat 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 believes that its proposal to amend the qualification criteria for Tier 1 and Tier 2 QMM
rebates is not unfairly discriminatory.
Although the rise in sub-dollar trading affects the attainability of many of Nasdaqs volume-based pricing tiers, it is fair for the Exchange to address the impact on QMM rebates, in particular, because maintaining the attainability of QMM rebates is crucial to maintaining participation in the QMM program, which in turn is an important
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contributor to the quality of the Nasdaq market. Even as the Exchange continues to assess whether and how to generally modify its volume-based pricing programs going forward to accommodate the rise in sub-dollar volumes, the Exchange believes that a pressing need exists now to address the particular threat this phenomenon poses to the QMM program given that several QMMs are already experiencing adverse pricing effects.
At the same time, it is not unfairly discriminatory to increase the threshold percentage of Consolidated Volume that a QMM must achieve to qualify for the Tier 1 rebate when the Exchange also excludes sub-dollar volume from the eligibility calculation. The Exchange believes that it is fair to calibrate eligibility criteria for the QMM Tier 1
rebate so that the Tiers are neither too hard nor too easy for QMMs to attain.
That is, just as the Exchange believes that it is not unfairly discriminatory, for the reasons discussed above, to help QMMs to remain in their existing Tiers by excluding sub-dollar activity, the Exchange also believes it is beneficial to market quality to continue to challenge QMMs to add additional volume in stocks priced at or above $1. The Exchange notes that if QMMs are unable to meet the higher Consolidated Volume percentage requirement for Tier 1, they still may qualify for the Tier under the existing qualification formula, which includes sub-dollar volume but applies lower Consolidated Volume percentage requirements.
Moreover, the Exchange believes that its three proposed amendments to its transaction credits are not unfairly discriminatory because they stand to improve the overall market quality of the Exchange, to the benefit of all market participants, by incentivizing more members to provide additional liquidity to the Exchange, including MELO liquidity.
Likewise, the Exchange believes that its new proposed add credit with a growth component is not unfairly discriminatory because it is aimed at encouraging the growth of MELO
Orders on the Exchange, which if successful, stands to improve the quality of the Nasdaq market generally, to the benefit of all market participants, as well as improve the experiences of those members that choose to interact with the market through MELO.
Additionally, if members increase their liquidity adding activity on the Exchange to attain this credit, then the quality of the market will improve, and the Exchange will become more attractive to existing and prospective participants.

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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 Organizations Statement on Burden on Competition The Exchange does not believe that the proposed rule changes 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 proposal will place any category of Exchange participant at a competitive disadvantage.
As noted above, the proposal to amend the Exchanges QMM rebate pricing methodology will help to ensure that no QMM suffers a pricing disadvantage due to the ongoing spike in sub-dollar volumes, while at the same time it will provide an appropriatelycalibrated incentive for QMMs to continue to add additional liquidity to the Exchange in securities priced at or above $1. It is not intended to provide a competitive advantage to any particular QMM.
Meanwhile, the proposed changes to the qualifying criteria for three of the Exchanges transaction credits will make it easier for members to attain these credits, and will thereby encourage more members to try to attain these credits by increasing their marketimproving behavior. Any member may elect to provide the levels or types of liquidity required in order to receive the credits. Furthermore, all members of the Exchange will benefit from any increase in market activity that the proposals effectuate.
Likewise, the proposed addition of a rebate tied to a members activity in MELO Orders will encourage growth in that activity, to the benefit of users of those Order Types as well as the quality of the market in general. Any member may elect to engage in the levels of M
ELO liquidity required to qualify for this new credit.
The Exchange notes that its members are free to trade on other venues to the extent they believe that the proposed amended credits 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 its pricing tier structure is consistent with broker-dealer fee
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