
[Federal Register Volume 84, Number 26 (Thursday, February 7, 2019)]
[Notices]
[Pages 2593-2596]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-01420]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85042; File No. SR-BX-2018-069]


Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Exchange's Transaction Fees at Equity 7, Section 118(a)

February 1, 2019.
    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 December 21, 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 
Equity 7, Section 118(a), as described further below.
    While these amendments are effective upon filing, the Exchange has 
designated the proposed amendments to be operative on January 2, 2018 
[sic].
    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(a) [sic] to: (1) Adjust the qualifying 
terms for certain existing credits it offers to members with orders 
that access liquidity on the Exchange; (2) offer a new credit for 
members with orders that access liquidity on the Exchange; and (3) 
eliminate a fee for members with orders that add liquidity on the 
Exchange.
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 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 \3\ 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.
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    \3\ Pursuant to Equity 7, Section 118(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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    For these two credits, the Exchange proposes to decrease the 
applicable volume threshold from 0.20% to 0.15% of total Consolidated 
Volume during a month. The Exchange proposes to recalibrate the 
threshold downward to make it easier for firms to reach the 
Consolidated Volume threshold necessary to qualify for these credits.
    The Exchange also proposes to change the benchmark month that it 
uses to determine whether a member, in a given month, has achieved the 
requisite 20% increase in liquidity accessed as a percentage of 
Consolidated Volume to qualify for the credits. Whereas the benchmark 
month presently is May 2018, the Exchange proposes to change it to 
December 2018. This change in benchmark month is intended to 
incentivize market participants to trade on the Exchange by making it 
easier for a member to qualify for these credits. Volumes in May 2018 
were generally higher than they were in December 2018, such that a 20% 
increase in

[[Page 2594]]

liquidity accessed as a percentage of Consolidated Volume will be 
easier to achieve relative to December 2018 than it would be relative 
to May 2018.
Second Change
    In addition to the credits above, the Exchange also offers other 
credits for orders that access liquidity on the Exchange. First, the 
Exchange offers 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 0.50% 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. Second, the Exchange offers 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.
    For these two credits, the Exchange proposes to decrease--from 
0.50% to 0.40%--the requisite percentage of total Consolidated Volume 
that a member's total volume must equal for a member to qualify for 
each of the credits, The Exchange proposes to recalibrate the threshold 
downward to make it easier for a member to qualify for these credits.
    The Exchange also proposes to change the benchmark month that it 
will use to determine whether, in a given month, a member has achieved 
a 20% or more increase in total volume so as to qualify for each of the 
credits. Whereas the benchmark date presently is July 2018 for both 
credits, the Exchange proposes to change it to December 2018. This 
change in benchmark month is intended to incentivize market 
participants to trade on the Exchange by making it easier for a member 
to qualify for these credits. Total volumes in July 2018 were generally 
higher than they were in December 2018, such that a 20% increase in 
total volumes relative to December 2018 will be easier for a member to 
achieve than it would a 20% increase relative to July 2018.
Third Change
    Next, the Exchange proposes to offer a new credit for a member that 
accesses liquidity in any Tape. Specifically, the Exchange proposes to 
pay a credit of $0.0018 per share executed to a member with orders that 
access liquidity in securities in any Tape (excluding orders with 
Midpoint pegging and excluding orders that receive price improvement 
and execute against an order with a Non-displayed price) where the 
member accesses liquidity equal to or exceeding 0.50% of total 
Consolidated Volume during a month.
    The Exchange proposes to add this credit to provide a new and 
simple incentive for members to access liquidity in substantial volumes 
on the Exchange. The Exchange notes that it already offers members 
similar, albeit lower, credits for accessing liquidity equal to or 
exceeding lower threshold percentages of total Consolidated Volume 
during a given month ($0.0017 per share executed credit for accessing 
liquidity equal to or greater than 0.12% of total Consolidated Volume 
during a month; $0.0015 per share executed credit for accessing 
liquidity equal to or greater than 0.065% of total Consolidated Volume 
during a month. The proposed credit will offer a member a higher credit 
than these existing credits for maintaining a higher volume of 
liquidity accessing activity on the Exchange.
Fourth Change
    Finally, the Exchange proposes to eliminate its $0.0013 per share 
executed charge for displayed orders entered by a member that adds 
liquidity equal to or exceeding 0.55% of total Consolidated Volume 
during a month. This fee tier has not achieved its intended purpose of 
attracting liquidity to the Exchange. Accordingly, the Exchange 
proposes to eliminate it.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\4\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\5\ 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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    \4\ 15 U.S.C. 78f(b).
    \5\ 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.'' \6\
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    \6\ 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 \7\ 
(``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.\8\ 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.'' \9\
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    \7\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \8\ See NetCoalition, at 534-535.
    \9\ 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'. . . .'' \10\ Although the court 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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    \10\ 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 and adjust the benchmark month on its 
credits for orders that access liquidity in securities (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

[[Page 2595]]

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. As noted above, the Exchange proposes 
to decrease the volume threshold for these credits from .20% to .15% of 
total Consolidated Volume and adjust the benchmark month from May 2018 
to December 2018.
    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 has observed that 
the credits are becoming too difficult for members to achieve. The 
Exchange proposes to decrease the volume threshold for the credits to 
make it easier for members to qualify for the credits. Likewise, the 
Exchange proposes to change the benchmark month that it uses to 
determine whether a member, in a given month, has achieved the 
requisite 20% increase in liquidity accessed as a percentage of 
Consolidated Volume to qualify for the credits. The change in benchmark 
month will incentivize trading on the Exchange by making it easier for 
a member to qualify for these credits. Volumes in May 2018 were 
generally higher than they were in December 2018, such that a 20% 
increase in liquidity accessed as a percentage of Consolidated Volume 
will be easier to achieve relative to December 2018 than it would be 
relative to May 2018.
    The Exchange believes that the proposed change is equitable because 
it will incentivize increased participation on the Exchange. It is not 
unfairly discriminatory because it will apply to all similarly situated 
member firms.
Second Change
    The Exchange believes that it is reasonable to decrease the 
Consolidated Volume threshold and adjust the benchmark month on its 
credits for orders that access liquidity in securities (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, during a given month: (i) Has a 
total volume (including both providing and accessing liquidity) that is 
equal to or exceeds 0.50% 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. As noted above, the 
Exchange proposes to decrease--from 0.50% to 0.40%--the requisite 
percentage of total Consolidated Volume that a member's total volume 
must equal for a member to qualify for each of the credits. It also 
proposes to change the benchmark month from July 2018 to December 2018.
    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 has observed that 
the credits are becoming too difficult for members to achieve. The 
Exchange proposes to decrease the volume threshold for the credits to 
make it easier for members to qualify for the credits. Likewise, the 
Exchange proposes to change the benchmark month that it uses to 
determine whether a member, in a given month, has achieved the 
requisite 20% increase in total volume as a percentage of Consolidated 
Volume to qualify for the credits. The change in benchmark month will 
incentivize trading on the Exchange by making it easier for a member to 
qualify for these credits. Total volumes in July 2018 were generally 
higher than they were in December 2018, such that a 20% increase in 
total volume as a percentage of Consolidated Volume will be easier to 
achieve relative to December 2018 than it would be relative to July 
2018.
    The Exchange believes that the proposed change is equitable because 
it will incentivize increased participation on the Exchange. It is not 
unfairly discriminatory because it will apply to all similarly situated 
member firms.
Third Change
    The Exchange believes that its proposal is reasonable to add a new 
credit 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 liquidity equal to or in excess of 
0.50% of Consolidated Volume during the month. This proposal is 
reasonable because it will provide new and stronger incentive for 
members to remove liquidity from the Exchange. The Exchange believes 
that these proposals are equitable and not unfairly discriminatory 
because they will apply to all similarly situated member firms.
Fourth Change
    The Exchange believes that its proposal is reasonable to eliminate 
its $0.0013 per share executed fee for displayed orders entered by a 
member that adds liquidity equal to or exceeding 0.55% of total 
Consolidated Volume during a month. The Exchange believes that 
eliminating this fee tier is reasonable because this fee tier has not 
been effective in achieving its intended purpose of incentivizing 
participants to add liquidity to the Exchange. The Exchange has limited 
resources available to it to devote to the operation of special pricing 
programs and as such, it is reasonable and equitable for the Exchange 
to allocate those resources to those programs that are effective and 
away from those programs that are ineffective. The proposal is also 
equitable and not unfairly discriminatory because tit will apply 
uniformly to all similarly situated members.

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 
credits and to eliminate fees 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

[[Page 2596]]

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, credit amendments, and 
fee eliminations 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 proposals 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.\11\
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    \11\ 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 rule-comments@sec.gov. Please include 
File Number SR-BX-2018-069 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-2018-069. 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 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 such 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-2018-069, and should be submitted on 
or before February 19, 2019.\12\
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    \12\ The Commission believes that a 10 day comment period is 
reasonable, given the 60-day suspension period under Exchange Act 
Section 19(b)(3). It will provide adequate time for comment.
    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
Brent J. Fields,
Secretary.
[FR Doc. 2019-01420 Filed 2-6-19; 8:45 am]
 BILLING CODE 8011-01-P


