Nasdaq supports adjusting the minimum tick size to better reflect the trading dynamics of Reg. NMS securities, but it is important to recalibrate the proposal to avoid harming displayed liquidity and widening spreads.  Nasdaq suggests adding one tick size below one penny – at $0.005 – to help tick-constrained securities trade more naturally.  The SEC should also consider a wider minimum tick size of $0.05 for higher-priced and less liquid securities that currently trade with much wider spreads.

Nasdaq supports the Proposal to harmonize tick sizes across all trading venue types to eliminate an artificial competitive disparity that exists.  Because harmonizing quoting and trading increments might reduce opportunities for retail investors to receive price improvement, we support that liquidity that interacts with retail orders may be in increments of 0.001.

Nasdaq supports adjusting the access fee cap to accommodate new tick sizes, but the Proposal risks weakening the NBBO by restricting exchanges’ ability to offer meaningful rebates to encourage more liquidity and tighter spreads that underpin the NBBO.  The Commission’s supposition that rebates present harmful conflicts-of-interest to brokers is not supported with evidence, and ignores the countervailing benefits associated with rebates, which are essential tools for gathering the displayed quotes that form the NBBO. As an alternative, we recommend that the SEC adopt a fee cap that is $0.0015 for securities in the $0.005 tick size bucket while maintaining the same $0.0030 cap that exists today for securities in the $0.01 tick bucket.

Exchange pricing is already highly-transparent, uniquely so among trading venues, and Nasdaq does not believe that additional transparency is necessary.  Nonetheless, we do not object in principle to enhancing price transparency of volume-based fees and rebates to facilitate broker-dealers’ ability to pass-through fees and rebates to investors. 

Nasdaq supports the Commission’s proposal to accelerate the implementation of pending provisions of its MDI Rule that would re-define the concept of “round lots” and incorporate odd-lots into the SIP feeds.  However, the proposed 90 day accelerated timeline is too aggressive and it requires adjustment to account for technical realities. 

Nasdaq believes that finding ways to bring retail and institutional investors together in a competitive environment is a worthy goal which would benefit retail investors, institutional investors, and the market as a whole. However, the SEC risks too much by solely focusing on qualified auctions. We instead recommend that the SEC define a minimum price improvement threshold (e.g., a percentage of the spread) that broker-dealers must meet in order to internalize retail order flow.

Nasdaq supports the Commission’s Proposal to modernize and improve the usability of Rule 605 reports so that they provide broker-dealers and investors with more relevant, comprehensive, and understandable information by which to make best execution determinations and to assess market quality.

Nasdaq believes best execution is an important aspect of modern markets and supports efforts to strengthen best execution rules to the extent it is beneficial to investors.  It is also reasonable for the SEC to seek its own rules and extend into additional asset classes.  However, the Proposal, as written, lacks clarity about the Commission’s unique vision for best execution, and we are concerned that its interplay with existing rules will lead to confusion and duplication of efforts.