FR 2021-01592

The recent proposal from Nasdaq Stock Market LLC aims to revise the credits they offer for executing orders in the stock market. The goal of this proposal is to incentivize increased trading activity and improve overall market quality by offering more options for members to earn credits for providing liquidity, particularly in securities not listed on Nasdaq or NYSE.

General Summary

Nasdaq is proposing a change to its transaction credits for certain types of stock trades. Currently, Nasdaq members who significantly contribute to market liquidity can earn a credit of $0.0030 per share. The new proposal introduces an additional tier offering a slightly lower credit of $0.00295 per share for members meeting less rigorous volume requirements. This change seeks to encourage more trading and liquidity provision on the exchange.

Significant Issues or Concerns

One potential issue arises from the fact that the new credit tiers may appear to favor larger traders who can meet higher volume thresholds, potentially disadvantaging smaller participants who might struggle to qualify for these credits. The use of complex legal language and citations may also present a barrier to fully understanding the implications of these changes for individuals without a background in finance or law. Additionally, the specific reasoning behind the thresholds and credit amounts is not thoroughly explained, which might seem arbitrary to those not steeped in market intricacies.

Furthermore, while there is a brief mention of the potential for temporary suspension of the new rule, the text lacks a detailed explanation of how such a process would work, leaving some uncertainty about regulatory oversight and enforcement mechanisms.

Impact on the Public

For the general public, the proposed changes in Nasdaq's transaction credits are unlikely to have a direct impact. However, they may indirectly influence market conditions by increasing liquidity, potentially leading to more competitive pricing and better execution for trades, which could benefit individual investors. A more liquid market can enhance the trading experience by facilitating more efficient transaction execution, potentially leading to better prices for buyers and sellers.

Impact on Specific Stakeholders

Positive Impacts:

• Market Participants: Those able to meet the less strict volume requirements may benefit from the new credit, allowing them to reduce trading costs and incentivizing further trading activity.

• Overall Market Quality: Increased liquidity provision, especially in currently underrepresented securities, aims to improve the quality of the market, potentially benefiting all traders by creating a more vibrant trading environment.

Negative Impacts:

• Smaller Traders: There may be concerns that these changes could disproportionately benefit larger entities at the expense of smaller market participants, who might find it challenging to meet even the reduced volume criteria.

• Competitive Dynamics: Exchanges competing with Nasdaq may feel pressure to alter their own fee and credit structures in response to these adjustments, which could intensify competition but also cause uncertainty or instability.

The proposal exemplifies Nasdaq's efforts to stay competitive and attract more trading activity, yet it raises questions about equitable access to benefits across different market participants. As stakeholders navigate these changes, it will be crucial to monitor how liquidity providers and traders of varying sizes respond to the new incentives.

In reviewing the financial references within the Nasdaq Stock Market's proposed rule change, a few key financial elements emerge that impact market participants and the overall trading environment.

The document primarily discusses amendments to transaction credits, which are financial incentives provided to market members. Presently, the Exchange offers a credit of $0.0030 per share for certain displayed orders, provided the member's trading activity represents at least 1.30% of the Consolidated Volume across Nasdaq Market Center MPIDs. The goal is to encourage substantial liquidity provision in the exchange, emphasizing the inclusion of securities listed beyond Nasdaq or NYSE.

The proposed amendment introduces a new, slightly lower credit of $0.00295 per share for members who meet less stringent requirements, such as achieving at least 0.90% of the Consolidated Volume. This adjustment aims to provide broader access to credits, potentially benefiting entities unable to reach the higher current thresholds. However, the financial differentiation of credits ($0.0030 vs. $0.00295) may not immediately seem significant, it could impact members differently based on their trading volume and capabilities.

An issue noted in the document is the potential favoritism towards larger entities capable of reaching these volume-based requirements more readily than smaller participants. By offering financial incentives based on large trading volumes, there's a concern that smaller firms might face disadvantages, despite the new lower threshold intended to broaden eligibility.

Furthermore, the document's financial references and legal terms might be complex for a lay audience. Readers may find it challenging to understand the rationale behind the specific credit amounts and volume requirements. This aspect could be seen as creating an uneven playing field, given that smaller or less savvy participants may not benefit equally from the complex financial incentives described.

The document signifies a financial reshuffling of incentives to adapt to competitive forces within equity markets, with the hopes of improving market quality and attractiveness. However, the implications, particularly for smaller market participants, necessitate clarity and equitable consideration to ensure that all members, regardless of size, can benefit from the proposed changes.