[Federal Register Volume 83, Number 160 (Friday, August 17, 2018)]
[Notices]
[Pages 41121-41124]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-17742]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83833; File No. SR-BX-2018-037]


Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Section 
7018(a) of the Exchange's Rules

August 13, 2018.
    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 July 31, 2018, 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 Exchange's transaction fees at 
Rule 7018(a), as described further below.
    While these amendments are effective upon filing, the Exchange has 
designated the proposed amendments to be operative on August 1, 2018.
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaqbx.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 purpose of the proposed rule change is to amend the Exchange's 
transaction fees at Rule 7018 to (i) adjust the volume threshold for a 
credit associated with orders that access liquidity that are entered by 
members that access liquidity equal to or in excess of a certain 
percentage of their [sic] total Consolidated Volume \3\ for a month; 
and (ii) adding two credit tiers for orders entered by members that, 
during a given month, have a total volume (accessing and providing 
liquidity) equal to or exceeding 0.50% of total Consolidated Volume, at 
least 20% more volume during that month (as a percentage of 
Consolidated Volume) than the member's total volume in July 2018, and 
where at least 30% of that 20% increase in volume arises from adding 
liquidity.
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    \3\ Pursuant to Rule 7018(a), the term ``Consolidated Volume'' 
means the total consolidated volume reported to all consolidated 
transaction reporting plans by all exchanges and trade reporting 
facilities during a month in equity securities, excluding executed 
orders with a size of less than one round lot.

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[[Page 41122]]

First Change
    The Exchange operates on the ``taker-maker'' model, whereby it pays 
credits to members that take liquidity and charges fees to members that 
provide liquidity. Currently, the Exchange offers several different 
credits for orders that access liquidity on the Exchange. Among these 
credits, the Exchange pays a credit of $0.0015 per share executed for 
an order that accesses liquidity (excluding orders with Midpoint 
pegging and excluding orders that receive price improvement and execute 
against an order with a Non-displayed price) entered by a member that 
accesses liquidity equal to or exceeding 0.075% of total Consolidated 
Volume during a month. The Exchange proposes to decrease the 
Consolidated Volume threshold applicable to this credit to 0.065% of 
total Consolidated Volume during a month. The Exchange recently had 
increased this threshold to 0.075%,\4\ but it has since determined that 
this level is too high. It now proposes to recalibrate the threshold 
downward to make it easier for firms to reach the Consolidated Volume 
threshold necessary to qualify for the credit.
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    \4\ See Securities Exchange Act Release No. 34-83680 (July 20, 
2018), 83 FR 35502 (July 26, 2018) (SR-BX-2018-032).
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Second Change
    The Exchange presently offers several credits for members whose 
orders remove liquidity from the Exchange. Among these credits, the 
Exchange offers a $0.0018 per share executed credit for orders that 
access liquidity in securities in Tapes A and C (excluding orders with 
Midpoint pegging and excluding orders that receive price improvement 
and execute against an order with a Non-displayed price) that are 
entered by a member that: (i) Accesses liquidity equal to or exceeding 
0.20% of total Consolidated Volume during a month; and (ii) accesses 
20% more liquidity as a percentage of Consolidated Volume than the 
member accessed in May 2018. The Exchange also offers a $0.0019 per 
share executed credit for orders that access liquidity in securities in 
Tape B (excluding orders with Midpoint pegging and excluding orders 
that receive price improvement and execute against an order with a Non-
displayed price) that are entered by a member that: (i) Accesses 
liquidity equal to or exceeding 0.20% of total Consolidated Volume 
during a month; and (ii) accesses 20% more liquidity as a percentage of 
Consolidated Volume than the member accessed in May 2018.
    The Exchange now plans to add two new tiers that will also entitle 
members to receive credits of $0.0018 and $0.0019 per share executed. 
The first of these new tiers will offer a member a $0.0018 per share 
executed credit for its orders that access liquidity in securities in 
Tapes A and C (excluding orders with Midpoint pegging and excluding 
orders that receive price improvement and execute against an order with 
a Non-displayed price) to the extent that the member, during a given 
month: (i) Has a total volume (including both providing and accessing 
liquidity) that is equal to or exceeds 0.20% [sic] of total 
Consolidated Volume during that month; (ii) has a total volume that is 
at least 20% greater (as a percentage of Consolidated Volume) than its 
total volume in July 2018; and (iii) of the 20% or more increase in 
total volume described above, at least 30% is attributable to adding 
liquidity. The second tier will offer a member a $0.0019 per share 
executed credit for orders that access liquidity in securities in Tape 
B (excluding orders with Midpoint pegging and excluding orders that 
receive price improvement and execute against an order with a Non-
displayed price) to members that satisfy these same three conditions.
    An example of how these two new credits will work is as follows. 
Firm X adds and removes 0.60% of total Consolidated Volume in 
securities in Tape A in July 2018. In August 2018, Firm X adds and 
removes 0.72% of total Consolidated Volume in securities in the same 
Tape. The increase in total volume as a percentage of total 
Consolidated Volume from July to August is 0.12%--which is an increase 
of approximately [sic] 20%. If at least 30% of that 0.12% increase 
(0.036%) is attributable to Firm X adding liquidity, then Firm X will 
qualify for a $0.0018 per share executed credit for its orders that 
access liquidity in securities in Tape A (excluding orders with 
Midpoint pegging and excluding orders that receive price improvement 
and execute against an order with a Non-displayed price).
    The Exchange proposes to add these credits to provide new and 
stronger incentive for members to increase their total volume of 
activity on the Exchange, provided that at least a certain percentage 
of that increase in total volume arises from adding liquidity. The 
Exchange also proposes a higher credit for increasing volume in Tape B 
than it does in Tapes A or C to specifically target Tape B securities, 
where the Exchange has seen less activity than it has in Tape A and C 
securities.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\5\ in general, and furthers the objectives of 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, and is 
not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 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.'' \7\
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    \7\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    Likewise, in NetCoalition v. Securities and Exchange Commission \8\ 
(``NetCoalition'') the D.C. 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.\9\ 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.'' \10\
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    \8\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \9\ See NetCoalition, at 534-535.
    \10\ 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'. . . .'' \11\ Although the court

[[Page 41123]]

and the SEC were discussing the cash equities markets, the Exchange 
believes that these views apply with equal force to the options 
markets.
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    \11\ Id. at 539 (quoting Securities Exchange Act Release No. 
59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008) 
(SR-NYSEArca-2006-21)).
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First Change
    The Exchange believes that it is reasonable to decrease the 
Consolidated Volume threshold on its credit 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 [sic]) entered by members that access liquidity equal 
to or exceeding 0.075% of total Consolidated Volume during a month. The 
Exchange must, from time to time, assess the effectiveness of its 
credits in achieving their intended objectives and adjust the levels of 
such credits based on the Exchange's observations of market participant 
behavior. In this instance, the Exchange recently had increased the 
Consolidated Volume threshold to provide a stronger incentive to market 
participants to improve the market, but the Exchange has since 
determined that this increase was too high and that the threshold needs 
to be recalibrated downward to 0.065% to ensure that firms can continue 
to qualify for the credit. The Exchange believes that the proposed 
decrease is equitable and is not unfairly discriminatory because it 
will apply to all similarly situated member firms.
Second Change
    Likewise, the Exchange believes that its proposal is reasonable to 
add new credits for orders that access liquidity (excluding orders with 
Midpoint pegging and those that receive price improvement and execute 
against an order with a non-displayed price) that are entered by 
members that, in a given month, remove and access [sic] liquidity equal 
to or in excess of 0.50% of Consolidated Volume during the month, have 
a total volume (as a percentage of Consolidated Volume) that is 20% 
greater than it was in July 2018, and where at least 30% of the 20% 
increase in total volume (as a percentage of Consolidated Volume) 
arises from adding liquidity. This proposal is reasonable because it 
will provide new and stronger incentive for members to improve the 
market by both adding and removing liquidity from the Exchange. It will 
also incent them to increase the extent of this activity on the 
Exchange relative to their activity levels as of July 2018. The 
Exchange believes it is reasonable, equitable, and not unfairly 
discriminatory to propose a higher credit to members that increase 
volume in securities in Tape B than those that do so in securities in 
Tapes A and C because the Exchange has experienced less activity in 
Tape B securities relative to Tapes A and C securities and it wishes to 
specifically target increased activity with respect to Tape B 
securities. The Exchange also believes that these proposals are 
equitable and not unfairly discriminatory because they will apply to 
all similarly situated member firms.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. 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 rebate 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 or credit changes in this market may impose any burden on 
competition is extremely limited.
    In this instance, the Exchange's proposals to add to or modify its 
credits do not impose a burden on competition because these proposals 
are reflective of the Exchange's overall efforts to provide greater 
incentives to market participants that it believes will improve the 
market, to the benefit of all participants. The Exchange does not 
believe that any of the proposed changes 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.
    Likewise, the Exchange's proposed credits and credit amendments do 
not impose a burden on competition because the Exchange's execution 
services are completely voluntary and subject to extensive competition 
both from other exchanges and from off-exchange venues. Again, if the 
proposed credits 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 proposal 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 rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\12\
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    \12\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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.

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 [email protected]. Please include 
File Number SR-BX-2018-037 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-2018-037. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your

[[Page 41124]]

comments more efficiently, please use only one method. The Commission 
will post all comments on the Commission's internet website (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 website 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. Persons submitting comments are cautioned that we do 
not redact or edit personal identifying information from comment 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-BX-
2018-037 and should be submitted on or before September 7, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2018-17742 Filed 8-16-18; 8:45 am]
 BILLING CODE 8011-01-P


