
[Federal Register Volume 81, Number 52 (Thursday, March 17, 2016)]
[Notices]
[Pages 14495-14497]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-05974]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77350; File No. SR-BX-2016-014]


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

March 11, 2016.
    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 February 29, 2016, NASDAQ 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 the fee schedule under Exchange Rule 
7018(a) with respect to execution and routing of orders in securities 
priced at $1 or more per share.
    This filing is being made for immediate effectiveness and will 
become operative March 1, 2016.
    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 the fee schedule under BX Rule 
7018(a), relating to fees and credits provided for orders in securities 
priced and $1 or more per share that execute on BX.
    Under BX Rule 7018(a), the Exchange provides credits to member 
firms that access liquidity on BX. The Exchange is proposing to 
eliminate two credit tiers, as well as to amend the criteria of two 
other credit tiers, each for orders that access liquidity (excluding 
orders with midpoint pegging and excluding orders that receive price 
improvement and execute against an order with midpoint pegging).
    Specifically, the first eliminated credit tier is for a member that 
adds and accesses liquidity equal to or exceeding 0.50% of total 
consolidated volume (``TCV'') during a month to receive a credit of 
$0.0017 per share executed. The second eliminated credit tier is for a 
member that accesses liquidity equal to or exceeding 0.05% of TCV 
during a month to receive a credit of $0.0008 per share executed.
    Members that previously would have qualified under the eliminated 
tiers may continue to qualify for and receive either an equal or higher 
credit. Specifically, members that previously qualified for the credit 
of $0.0017 per share executed for adding and accessing liquidity equal 
to or exceeding 0.50% of TCV during a month may still receive the same 
credit, but for meeting the lower TCV threshold and through solely 
accessing liquidity (no longer includes adding liquidity) equal to or 
exceeding 0.20% of TCV during a month. Otherwise, members may receive a 
lower credit. For [sic] members that previously qualified for the 
credit of $0.0008 per share executed for accessing liquidity equal to 
or exceeding 0.05% of TCV during a month will receive a higher credit 
of $0.0015 per share executed for meeting the same monthly threshold.
    The first amended credit tier reduces the threshold to qualify for 
a credit of $0.0016 per share executed. The current threshold requires 
a member to access liquidity equal to or exceeding 0.15% of TCV during 
a month. The proposed rule change lowers this threshold for a member to 
access liquidity equal to or

[[Page 14496]]

exceeding 0.10% of TCV during a month.
    The second amended credit tier reduces the threshold to qualify for 
a credit of $0.0015 per share executed. The current threshold requires 
a member to access liquidity equal to or exceeding 0.09% of TCV during 
a month. The proposed rule change lowers this threshold for a member to 
access liquidity equal to or exceeding 0.05% of TCV during a month.
    Additionally, the Exchange is proposing to eliminate the fee of 
$0.0014 per share executed for displayed orders entered by a member 
that adds and accesses liquidity equal to or exceeding 0.50% of TCV 
during a month.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\3\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\4\ 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 its facilities which 
the Exchange operates or controls, and is not designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers.
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    \3\ 15 U.S.C. 78f(b).
    \4\ 15 U.S.C. 78f(b)(4) and (5).
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    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 broader forms that are most 
important to investors and listed companies.'' \5\ Likewise, in 
NetCoalition v. Securities and Exchange Commission \6\ 
(``NetCoalition'') the DC Circuit upheld the Commission's use of a 
market-based approach in evaluating the fairness of market data fees 
against a challenge claiming that Congress mandated a cost-based 
approach.\7\ As the court emphasized, the Commission ``intended in 
Regulation NMS that `market forces, rather than regulatory 
requirements' play a role in determining the market data . . . to be 
made available to investors and at what cost.'' \8\
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    \5\ Securities Exchange Act Release No. 34-51808 (June 9, 2005).
    \6\ NetCoalition v. SEC 615 F.3d 525 (D.C. Cir. 2010).
    \7\ Id. at 534-535.
    \8\ Id. at 537.
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    Further, ``[n]o one disputes that competition for order flow is 
`fierce.' . . . As the SEC explained, `[i]n 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' . . . .'' \9\
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    \9\ Id. at 539 (quoting ArcaBook Order, 73 FR at 74782-74783).
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    The Exchange believes that the proposed rule change to eliminate 
two credit tiers, as well as to amend the criteria of two other credit 
tiers, each for orders that access liquidity (excluding orders with 
midpoint pegging and excluding orders that receive price improvement 
and execute against an order with midpoint pegging), are reasonable 
because they refine the opportunities for market participants to 
receive credits for participation on BX and are designed to incentivize 
changes in market participant behavior to the benefit of the market 
overall [sic].
    Specifically, the proposed rule change eliminates the credit tier 
for a member that adds and accesses liquidity equal to or exceeding 
0.50% of TCV during a month to receive a credit of $0.0017 per share 
executed. Additionally, the proposed rule change eliminates the credit 
tier for a member that accesses liquidity equal to or exceeding 0.05% 
of TCV during a month to receive a credit of $0.0008 per share 
executed.
    The proposed rule change to the criteria for a member that accesses 
liquidity to receive a credit of $0.0016 per share executed, lowers the 
TCV threshold during a month from equal to or exceeding 0.15% to equal 
to or exceeding 0.10%. Similarly, the proposed rule change to the 
criteria for a member that accesses liquidity to receive a credit of 
$0.0015 per share executed, lowers the TCV threshold during a month 
from equal to or exceeding 0.09% to equal to or exceeding 0.05%. The 
Exchange believes that the proposed rule change to lower the threshold 
in each of these instances is reasonable since it makes it easier for a 
member to qualify for the respective credit and will provide the 
opportunity for more firms to attain the tier and further incentivize 
participation in the market.
    The Exchange also believes that the proposed elimination of the two 
credit tiers, coupled with the amending of two other credit tiers as 
stated above, are [sic] reasonable because the overall effect is to 
improve market quality by providing better targeted incentives to 
market participants to access beneficial displayed liquidity. To 
achieve this, the Exchange must, from time to time, adjust the levels 
of credits and the related qualification requirements in reaction to 
market behavior. In the present case, the Exchange is proposing to 
eliminate two credit tiers and amend two other credit tiers. The 
Exchange believes that the proposed changes are reasonable because it 
is [sic] reflective of the Exchange's desire to make BX an attractive 
venue to any member organization that is willing to access displayed 
liquidity. BX wants to further incentivize member firms to participate 
in the Exchange by removing liquidity and believes these refinements 
are a means to that end.
    The Exchange believes that the proposed elimination of the two 
credit tiers, coupled with the amending of the two other credit tiers 
as stated above, are consistent with an equitable allocation of fees 
and are not unfairly discriminatory because they apply to all members 
that access displayed liquidity through BX and meet the criteria of the 
credit tier [sic]. In addition, the Exchange believes the elimination 
of the two credit tiers is consistent with an equitable allocation of 
fees and are [sic] is not unfairly discriminatory because members that 
previously would have qualified under the eliminated tiers may continue 
to qualify for and receive either an equal or higher credit (although 
they may instead qualify for a lower credit as stated previously). 
Additionally, the Exchange will provide the same credits to all 
similarly situated members that achieve the level of TCV required by 
the amended tiers.
    BX believes that elimination of the fee of $0.0014 per share 
executed for displayed orders entered by a member that adds and 
accesses liquidity equal to or exceeding 0.50% of TCV during a month is 
reasonable because eliminating the fee may still allow a member the 
opportunity to qualify for this same fee if the displayed order is 
entered by a Qualified Market Maker (``QMM'') (as described in BX Rule 
7018(a)). Also, even if the member is not a QMM, the member remains 
eligible to receive other fees lower than the base fee rate of $0.0020 
per share executed.
    The Exchange also believes that this proposed rule change is an 
equitable allocation of fees and is not unfairly discriminatory because 
the removal of

[[Page 14497]]

this fee will help the Exchange offset the payment of credits to other 
members and maintain an overall balance between the payment of credits 
and collection of fees, all in an effort to encourage liquidity on the 
market and to the benefit of market participants. BX also believes this 
proposed rule change is an equitable allocation of fees and is not 
unfairly discriminatory because the Exchange will apply the elimination 
of this fee equally to all similarly situated members. Additionally, 
the elimination of this fee combined with the elimination and amending 
of the credit tiers are [sic] evidence that the current fee and credit 
combinations did not have the intended effect of increasing activity so 
the Exchange is pursuing other avenues of credit and fee combinations.
    Finally, BX notes that it operates in a highly competitive market 
in which market participants can readily favor competing venues if they 
deem fee levels at a particular venue to be excessive or credit 
opportunities available at other venues to be more favorable. In such 
an environment, BX must continually adjust its fees and credits to 
remain competitive with other exchanges and with alternative trading 
systems that have been exempted from compliance with the statutory 
standards applicable to exchanges. The changes reflect this environment 
because they are designed to incentivize changes in market participant 
behavior to the benefit of the market overall.

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

    The Exchange does not believe that the proposed rule change will 
result in a burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act, as amended.\10\ In terms of 
inter-market competition, the Exchange notes that it operates in a 
highly competitive market in which market participants can readily 
favor competing venues if they deem fee levels at a particular venue to 
be excessive, or credit opportunities available at other venues to be 
more favorable. In such an environment, the Exchange must continually 
adjust its fees and credits to remain competitive with other exchanges 
and with alternative trading systems that have been exempted from 
compliance with the statutory standards applicable to exchanges. 
Because competitors are free to modify their own fees and credits in 
response, and because market participants may readily adjust their 
order routing practices, the Exchange believes that the degree to which 
fee changes in this market may impose any burden on competition is 
extremely limited. In this instance, the proposed eliminated and 
amended credit tiers, as well as the eliminated fee, are subject to 
extensive competition both from other exchanges and from off-exchange 
venues.
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    \10\ 15 U.S.C. 78f(b)(8).
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    In sum, if the changes proposed herein are unattractive to market 
participants, it is likely that the Exchange will lose market share as 
a result. Accordingly, the Exchange does not believe that the proposed 
changes 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 \11\ and paragraph (f) of Rule 19b-4 \12\ 
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 investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.
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    \11\ 15 U.S.C. 78f(b)(3)(A).
    \12\ 17 CFR 140.19n-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-2016-014 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-2016-014. 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 the filing also will be available 
for inspection and copying at the principal office 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-2016-014, and should be 
submitted on or before April 7, 2016.
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    \13\17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
Lynn M. Powalski,
Deputy Secretary.
[FR Doc. 2016-05974 Filed 3-16-16; 8:45 am]
 BILLING CODE 8011-01-P


