
[Federal Register Volume 80, Number 135 (Wednesday, July 15, 2015)]
[Notices]
[Pages 41528-41530]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-17297]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75409; File No. SR-BX-2015-038]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Exchange Rule 7018

July 9, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 30, 2015, NASDAQ OMX BX, Inc. (``BX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule change as described in Items I, II, and III below, 
which Items have been prepared by the Exchange. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend BX Rule 7018(a) and to eliminate the 
Excess Order Fee in BX Rule 7018(d).
    While the changes proposed herein are effective upon filing, the 
Exchange has designated that the amendments be operative on July 1, 
2015.
    The text of the proposed rule change is also available on the 
Exchange's Web site at http://nasdaqomxbx.cchwallstreet.com, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

II. Self-Regulatory Organization's 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 Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is proposing to amend BX Rule 7018(a) and to eliminate 
the Excess Order Fee in BX Rule 7018(d).
    Specifically, BX Rule 7018(a) defines the criteria for a firm to 
become a Qualified Market Maker (``QMM'') as by being a member that 
provides through one or more of its NASDAQ OMX BX Equities System 
(``System'') market participant identifiers (``MPIDs'') more than 0.15% 
of consolidated volume (``Consolidated Volume'') during the month. For 
a member qualifying under this method, the member must have at least 
one qualified MPID (``Qualified MPID''), that is, an MPID through 
which, for at least 200 securities, the QMM quotes at the national best 
bid and offer (``NBBO'') an average of at least 50% of the time during 
regular market hours (9:30 a.m. through 4:00 p.m. ET) during the month. 
Currently, the member must also provide an average daily volume of 1.5M 
shares or more using orders with midpoint pegging during the month.
    The Exchange proposes to modify this last part of the criteria such 
that the member must also provide an average daily volume of 1.5M 
shares or more of non-displayed liquidity (rather than using orders 
with midpoint liquidity) during the month. BX believes that by 
expanding the type of liquidity that allows firms to qualify as a QMM 
will improve the market by incentivizing firms to provide more 
liquidity and meet the other QMM criteria. Non-displayed orders, which 
include midpoint liquidity, can provide price improvement and improve 
the experience of members trading on the Exchange and thus provide a 
benefit to all other Exchange members.
    The Exchange also proposes to delete BX Rule 7018(d), which is the 
Excess Order Fee. The Excess Order Fee was designed to provide a 
disincentive to member organizations to engage in order entry practices 
that are inefficient and thereby burdensome on the systems of BX by 
assessing a fee on member organizations if they reach a threshold of 
order activity based on an Order Entry Ratio calculation.\3\ Although 
not a pervasive characteristic of the market, the fee was adopted to 
encourage member organizations with such practices to enhance the 
efficiency of their systems and modify their order entry practices, 
thus improving the market for all participants.\4\ An unwanted 
consequence of the rule has been to capture beneficial, liquidity 
providing order flow and thereby dissuade member organizations from 
participating in BX in an effort to avoid triggering the fee. Moreover, 
the Exchange has observed that the fee is not assessed on a significant 
number of member organizations nor is it triggered every month, leading 
the Exchange to conclude that the small number of member organizations 
that may have been affected by the fee because of their inefficient 
order practices have taken the steps necessary to avoid such practices. 
The Exchange believes that, in light of the lack of consistent order 
activity that triggers the fee and the negative effect it has had on 
beneficial order flow, the Excess Order Fee should be eliminated. The 
Exchange notes that, should the inefficient order entry practices that 
gave rise to the fee once again arise, it may adopt the fee once again 
or take other steps to provide a disincentive for such practices.
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    \3\ See BX Rule 7018(d)(2) for a definition of ``Order Entry 
Ratio.''
    \4\ See Securities Exchange Act Release No. 67272 (June 27, 
2012), 77 FR 39530 (July 3, 2012) (SR-BX-2012-042) (adopting the 
Excess Order Fee).
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2. Statutory Basis
    BX believes that the proposed rule change is consistent with the 
provisions

[[Page 41529]]

of Section 6 of the Act,\5\ in general, and with Sections 6(b)(4) and 
6(b)(5) 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 or system 
which the Exchange operates or controls, and is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest; and is not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers.
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    \5\ 15 U.S.C. 78f.
    \6\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange proposes to amend the criteria for a firm to become a 
QMM. The criteria currently states that a member may become a QMM by 
providing through one or more of its System MPIDs more than 0.15% of 
Consolidated Volume during the month. For a member qualifying under 
this method, the member must have at least one Qualified MPID, that is, 
an MPID through which, for at least 200 securities, the QMM quotes at 
the NBBO an average of at least 50% of the time during regular market 
hours (9:30 a.m. through 4:00 p.m.) during the month. Currently, the 
member must also provide an average daily volume of 1.5M shares or more 
using orders with midpoint pegging during the month.
    [sic] Exchange believes it is reasonable to modify this last part 
of the criteria such that the member must provide an average daily 
volume of 1.5M shares or more of non-displayed liquidity (rather than 
using orders with midpoint liquidity) during the month because non-
displayed orders can provide price improvement and improve the 
experience of members trading on the Exchange and thus provide a 
benefit to all other Exchange members. Also, BX believes the proposed 
change is reasonable because it expands the opportunity for firms to 
qualify as a QMM.
    The Exchange also believes that the proposed change is equitably 
allocated and not unfairly discriminatory because modifying the 
criteria, as stated above, applies uniformly to all members that seek 
to become a QMM. Additionally, the Exchange believes that the proposed 
change further perfects the mechanism of a free and open market by 
refining and making more effective the means by which a member firm may 
become a QMM. Furthermore firms that currently qualify as a QMM will 
not need to change behavior under the new qualification method as 
midpoint liquidity is considered non-displayed liquidity.
    The Exchange believes that elimination of the Excess Order Fee is 
reasonable because the fee is not triggered by a significant number of 
member organizations nor is it triggered every month; however, the 
Exchange believes that certain member organizations are disincentivized 
from providing order activity that is beneficial to market 
participants. Moreover, the Exchange may adopt the fee once again 
should the issues that gave rise to it reemerge. The Exchange believes 
that the proposed change is consistent with an equitable allocation of 
fees and is not unfairly discriminatory because it eliminates a fee, 
which applies to all member organizations and which has served as a 
disincentive to certain market participants in providing beneficial 
order activity while also not being assessed significantly on member 
organizations. The Exchange believes that elimination of the Excess 
Order Fee will not unfairly burden competition because the fee is not 
relevant to competition. The Exchange notes that the fee was adopted to 
deter member organizations from using inefficient order practices that 
place excessive burdens on the systems of BX and, as a consequence, was 
not designed to impact competition among member organizations.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule changes will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended.\7\ 
BX notes that it operates in a highly competitive market in which 
market participants can readily favor dozens of different competing 
exchanges and alternative trading systems if they deem fee levels at a 
particular venue to be excessive, or rebate opportunities available at 
other venues to be more favorable. In such an environment, BX must 
continually adjust its fees to remain competitive with other exchanges. 
Because competitors are free to modify their own fees in response, and 
because market participants may readily adjust their order routing 
practices, BX believes that the degree to which fee changes in this 
market may impose any burden on competition is extremely limited.
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    \7\ 15 U.S.C. 78f(b)(8).
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    In this instance, the modification to part of the criteria to 
become a QMM does not impose a burden on competition because it is 
optional and is the subject of competition from other exchanges. The 
Exchange does not believe that the proposed change will impair the 
ability of members or competing order execution venues to maintain 
their competitive standing in the financial markets. Moreover, because 
there are numerous competitive alternatives to the use of the Exchange, 
it is likely that BX will lose market share as a result of the changes 
if they are unattractive to market participants.
    As noted above, the Exchange believes that elimination of the 
Excess Order Fee will not unfairly burden competition because the fee 
is not relevant to competition as it was adopted to deter member 
organizations from using inefficient order practices that place 
excessive burdens on the systems of BX. Moreover, other exchanges' fee 
schedules do not restrict order activity by using a fee like the Excess 
Order Fee. As noted, the practices that prompted the Exchange to adopt 
the rule have subsided and, consequently, the change does not impact 
the ability of any market participant or trading venue to compete.
    Accordingly, BX does not believe that the proposed rule change will 
impair the ability of members or competing order execution venues to 
maintain their competitive standing in the financial markets.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing change has become effective pursuant to Section 
19(b)(3)(A) of the Act \8\ and paragraph (f) of Rule 19b-4 \9\ 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of

[[Page 41530]]

investors, or otherwise in furtherance of the purposes of the Act.
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-BX-2015-038 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-BX-2015-038. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal offices of the Exchange. 
All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-BX-2015-038, 
and should be submitted on or before August 5, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-17297 Filed 7-14-15; 8:45 am]
 BILLING CODE 8011-01-P


