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Federal Register / Vol. 86, No. 31 / Thursday, February 18, 2021 / Notices broader forms that are most important to investors and listed companies. 10
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. Within the foregoing context, the proposals represent reasonable attempts by the Exchange to increase its liquidity and market share relative to its competitors.
As to the Exchanges proposal to potentially exclude sub-dollar volume for purposes of determining QMMs qualifications for Tier 1 and Tier 2
rebates, the Exchange believes that this proposal is reasonable because in its absence, QMMs may fail to qualify for their existing QMM pricing tiers or fail to qualify for better pricing tiers. The Exchange does not wish to penalize QMMs that engage in significant activity on the Exchange in securities priced at or above $1 due to the sub-dollar trading activities of other firms. The proposed rule change would seek to avoid such a penalty by calculating eligibility for Tier 1 and Tier 2 rebates by first including and then excluding sub-dollar volume, and then by applying the calculation that would result in the pricing determination that is most advantageous to each QMM.
At the same time, the Exchange believes that it is reasonable, when excluding sub-dollar volume from its QMM Tier eligibility formulas, to increase the threshold percentages of Consolidated Volume that a QMM must achieve to qualify for the Tier 1 rebate.
This proposal will help to properly calibrate eligibility criteria for the QMM
Tier 1 rebate so that, when excluding sub-dollar volume, the Tier is neither too hard nor too easy for QMMs to attain. That is, even though excluding sub-dollar volume from the calculations may help QMMs to remain in their existing Tiers even as sub-dollar activity by other firms rises, the Exchange also 10 Securities Exchange Act Release No. 51808
June 9, 2005, 70 FR 37496, 37499 June 29, 2005
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wants to be sure that the Tiers 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 requirements 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.
As to the Exchanges proposals to ease the qualification criteria for three of its transaction credits, at Equity 7, Section 118a, the Exchange believes that these proposals are reasonable because they will ease or broaden the eligibility criteria for the credits and, in doing so, they will encourage more members to try to attain the credits by adding additional liquidity to the Exchange. If more members increase their liquidity adding activity on the Exchange to attain these credits, then the quality of the market will improve, and the Exchange will become more attractive to existing and prospective participants.
Finally, the Exchange believes that its proposal is reasonable to establish a new add credit with a growth component tied to MELO activity. The proposal will encourage members to increase the extent to which they utilize MELO Orders on the Exchange, and it will reward members that do so in significant volumes. The Exchange believes that any ensuing increase in MELO liquidity on the Exchange 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. Additionally, if members increase their liquidity adding activity on the Exchange to attain this new credit, then the quality of the market will improve, and the Exchange will become more attractive to existing and prospective participants. The Exchange notes that it selected January 2021 as the baseline for the growth requirements because it is the month immediately preceding the establishment of the new tier.
The Exchange notes that those market participants that are dissatisfied with the proposals are free to shift their order flow to competing venues that offer them lower charges or higher or more readily attainable credits.
The Proposals Are Equitable Allocations of Credits The Exchange believes its proposals will allocate its credits fairly among its market participants.
The Exchange believes that its proposal to amend the qualification criteria for Tier 1 and Tier 2 QMM

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rebates is an equitable allocation because it would bolster the effectiveness of QMM rebates, which are imperiled by a rise in sub-dollar trading.
Maintaining the attainability of QMM
rebates is crucial to ensuring participation in the QMM program, which in turn is an important contributor to the quality of the Nasdaq market. Although the recent spike in sub-dollar pricing also threatens to upend the ability of members to qualify for Nasdaqs other volume-based tiers of credits and charges, the Exchange believes that its most pressing need is to address the threat to the QMM program given that several QMMs are already experiencing adverse pricing effects from the sub-dollar phenomenon. The Exchange notes that it continues to assess whether and how to modify its other volume-based pricing programs going forward to accommodate the rise in sub-dollar volumes.
The Exchange also believes that it an equitable allocation, when excluding sub-dollar volume from the QMM Tier 1 eligibility formula, to increase the threshold percentage of Consolidated Volume that a QMM must achieve to qualify for the credit. The Exchange believes that it is fair to calibrate eligibility criteria for the 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 equitable, 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 the Tier 1 rebate, they still may qualify for the Tier under the existing qualification formula, which includes sub-dollar volume but applies lower Consolidated Volume percentage requirements.
It is also equitable for the Exchange to amend three of its transaction credits, by lowering and broadening their eligibility requirements, respectively, as a means of encouraging more members to try to attain the credits by adding additional liquidity to the Exchange, including in MELO Orders. To the extent that the Exchange succeeds in increasing liquidity on the Exchange, including in MELO Orders, then the Exchange will experience improvements in its market quality, which will benefit all market participants.
Lastly, the Exchange believes that it is equitable to establish a new add credit tier that is tied to the growth of MELO
activity. The MELO Order Type
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