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Federal Register / Vol. 86, No. 121 / Monday, June 28, 2021 / Notices
solicit comments on the proposed rule change from interested persons.
I. Self-Regulatory Organizations Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend the Exchanges pricing schedule at Equity 7, Section 3, as described further below.
The text of the proposed rule change is available on the Exchanges website at https listingcenter.nasdaq.com/
rulebook/phlx/rules, at the principal office of the Exchange, and at the Commissions Public Reference Room.
II. Self-Regulatory Organizations 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 Organizations Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
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1. Purpose The Exchange proposes to amend its pricing schedule, at Equity 7, Section 3, to adopt a new $0.0033 per share executed credit for member organizations that provide displayed liquidity to the Exchange and receive an execution priced at or between $1.00
and $5.00. The Exchange proposes to add this new credit and target it at securities executed at prices between $1.00 and $5.00 because the Exchange observes that, at present, liquidity in securities in this lower price segment is less robust on the Exchange than it is in other price segments.3 The Exchange hopes that the proposed credit will encourage member organizations to increase the extent to which they quote or place orders on the Exchange for securities priced at or between $1.00
and $5.00. If the proposal is effective in achieving this purpose, then the quality of the Exchanges market will improve, to the benefit of all participants.4
3 The Exchange notes that the threshold for prices at or below $5.00 tracks the SECs definition of a penny stock. See 17 CFR 240.3a511.
4 Although there may be value in offering credits to members that provide liquidity in securities executed at other prices, or that satisfy other
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2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6b of the Act,5 in general, and furthers the objectives of Sections 6b4 and 6b5
of the Act,6 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 Reasonable and Is an Equitable Allocation of Credits The Exchanges proposed change to its schedule of credits is 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: no one disputes that competition for order flow is fierce. . . . As the SEC
explained, in 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 . . . . 7
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 criteria, the Exchange has limited resources available to it to offer its members marketimproving incentives, and it allocates those limited resources to those segments of the market where it perceives the need to be greatest and/or where it determines that the incentive is likely to achieve its intended objective.
5 15 U.S.C. 78fb.
6 15 U.S.C. 78fb4 and 5.
7 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, 7478283
December 9, 2008 SRNYSEArca200621.

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broader forms that are most important to investors and listed companies. 8
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.
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.9 Within the foregoing context, the proposal represents a reasonable attempt by the Exchange to increase its market share relative to its competitors.
The Exchange believes that it is reasonable and equitable to adopt a new $0.0033 per share executed credit for member organizations that provide displayed liquidity in securities that execute at prices at or between $1.00
and $5.00 per share. As discussed above, the Exchange observes a particular need to increase displayed liquidity in securities at these prices because liquidity on the Exchange in such lower priced securities is less robust than it is in other market segments. It is reasonable and equitable to address this need by allocating its limited resources to offer member organizations a credit to incent them to provide the liquidity needed. If the proposal is effective in achieving this purpose, then the quality of the Exchanges market will improve, to the benefit of all participants.
The Proposal Is Not Unfairly Discriminatory The Exchange believes that the proposal is not unfairly discriminatory.
The Exchange intends for its proposal to increase displayed liquidity in securities executed at or between $1.00
and $5.00 per share, where the Exchange observes that liquidity in such lower securities is less robust than it is in other market segments. Additional liquidity is needed for the Exchange to maintain and improve its market quality. Although member organizations that are able to provide liquidity in such securities are likely to benefit directly 8 Securities Exchange Act Release No. 51808
June 9, 2005, 70 FR 37496, 37499 June 29, 2005
Regulation NMS Adopting Release.
9 The Exchange perceives no regulatory, structural, or cost impediments to market participants shifting order flow away from it. In particular, the Exchange notes that such shifts in liquidity and market share occur within the context of market participants existing duties of Best Execution and obligations under the Order Protection Rule under Regulation NMS.

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