[Federal Register Volume 84, Number 201 (Thursday, October 17, 2019)]
[Notices]
[Pages 55621-55624]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22589]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87271; File No. SR-BX-2019-035]


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

October 10, 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 September 30, 2019, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its 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 October 1, 2019.
    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 Exchange operates on the ``taker-maker'' model, whereby it 
generally pays credits to members that take liquidity and charges fees 
to members that provide liquidity. Currently, the Exchange has a 
schedule, at Equity 7, Section 118(a), which consists of several 
different credits that it provides for orders in securities priced at 
$1 or more per share that access liquidity on the Exchange and several 
different charges that it assesses for orders in such securities that 
add liquidity on the Exchange.
    Over the course of the last few months, the Exchange has 
experimented with various reformulations of its pricing schedule with 
the purpose of increasing activity on the Exchange, improving market 
quality, and increasing market share.\3\ The Exchange

[[Page 55622]]

now proposes a further amendment to its pricing schedule to support 
these efforts.
---------------------------------------------------------------------------

    \3\ See SR-BX-2019-031(filed September 12, 2019, pending 
publication); Securities Exchange Act Release No. 34-86120 (June 17, 
2019); 84 FR 29270 (June 21, 2019) (SR-BX-2019-026); Securities 
Exchange Act Release No. 34-85912 (May 22, 2019); 84 FR 24834 (May 
29, 2019) (SR-BX-2019-013).
---------------------------------------------------------------------------

    Specifically, the Exchange proposes to amend one of its charges for 
displayed orders in securities that add liquidity to the Exchange. 
Presently, the Exchange charges $0.0012 per share executed for 
displayed orders in securities in Tape C that add liquidity entered by 
a member that: (i) Adds liquidity equal to or exceeding 0.17% of total 
Consolidated Volume; \4\ and (ii) adds liquidity equal to or exceeding 
0.15% of total Consolidated Volume in securities in Tape C during a 
month. The Exchange proposes to amend this charge by lowering the 
threshold level of total Consolidated Volume that a member must achieve 
in securities in Tape C from 0.15% to 0.12% during a month.
---------------------------------------------------------------------------

    \4\ As used in 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.
---------------------------------------------------------------------------

Applicability to and Impact on Participants
    By lowering the level of total Consolidated Volume in securities in 
Tape C that is necessary to qualify for the $0.012 per share executed 
charge, the Exchange intends to render it easier for a member to 
qualify for this charge, which represents the lowest transaction fee 
that the Exchange charges for orders that add liquidity in securities 
in Tape C. The Exchange believes this change will incentivize members 
to increase their liquidity adding activity in Tape C, and to thereby 
improve the overall quality and attractiveness of the Nasdaq BX market.
    Exchange members that act as net adders of liquidity to the 
Exchange in securities in Tape C will stand to benefit most from the 
proposed change. Other members will benefit indirectly from any 
improvement in the overall quality of the market that this proposal 
facilitates. The Exchange notes that its proposal is not otherwise 
targeted at or expected to be limited in its applicability to a 
specific segment(s) of market participants nor will it apply 
differently to different types of market participants.
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. The proposal is also consistent with 
Section 11A of the Act relating to the establishment of the national 
market system for securities.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

The Proposal Is Reasonable
    The Exchange's proposed change to its schedule of charges is 
reasonable in several respects. As a threshold matter, the Exchange is 
subject to significant competitive forces in the market for equity 
securities transaction services that constrain its pricing 
determinations in that market. The fact that this market is competitive 
has long been recognized by the courts. In NetCoalition v. Securities 
and Exchange Commission, the D.C. Circuit stated as follows: ``[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'. . . .'' \7\
---------------------------------------------------------------------------

    \7\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(quoting Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
---------------------------------------------------------------------------

    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.'' \8\
---------------------------------------------------------------------------

    \8\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
---------------------------------------------------------------------------

    Numerous indicia demonstrate the competitive nature of this market. 
For example, clear substitutes to the Exchange exist in the market for 
equity security transaction services. The Exchange is only one of 
several equity venues to which market participants may direct their 
order flow, and it represents a small percentage of the overall market. 
It is also only one of several taker-maker exchanges. Competing equity 
exchanges offer similar tiered pricing structures to that of the 
Exchange, including schedules of rebates and fees that apply based upon 
members achieving certain volume thresholds.\9\
---------------------------------------------------------------------------

    \9\ CBOE EDGA provides a standard charge of $0.0030 per share 
executed for liquidity adders (or between $0.0022 and $0.0026 if a 
member qualifies for a volume tier). NYSE National has a standard 
charge of $0.0028 per share executed for liquidity adders (and a 
range of charges from $0.0020-$0.0026 if a member qualifies for a 
volume tier).
---------------------------------------------------------------------------

    Within this environment, market participants can freely and often 
do shift their order flow among the Exchange and competing venues in 
response to changes in their respective pricing schedules.\10\ 
Separately, the Exchange has provided the SEC staff with multiple 
examples of instances where pricing changes by BX and other exchanges 
have resulted in shifts in exchange market share. Within the foregoing 
context, the proposal represents a reasonable attempt by the Exchange 
to increase its liquidity and market share relative to its competitors.
---------------------------------------------------------------------------

    \10\ The Exchange perceives no regulatory, structural, or cost 
impediments to market participants shifting order flow away from it. 
In particular, the Exchange notes that these examples of shifts in 
liquidity and market share, along with many others, have occurred 
within the context of market participants' existing duties of Best 
Execution and obligations under the Order Protection Rule under 
Regulation NMS.
---------------------------------------------------------------------------

    The Exchange has designed its proposal to ease its qualification 
requirements for a reduced $0.0012 per share executed charge and to 
provide increased overall incentives to members to increase their 
liquidity adding activity on the Exchange in Tape C securities. An 
increase in liquidity adding activity on the Exchange will, in turn, 
improve the quality of the Nasdaq BX market and increase its 
attractiveness to existing and prospective participants. Generally, the 
proposed amended charge will be comparable to, if not favorable to, 
those that its competitors provide.\11\
---------------------------------------------------------------------------

    \11\ See n.9, supra.
---------------------------------------------------------------------------

    The Exchange notes that those participants that are dissatisfied 
with the proposed amended charge are free to shift their order flow to 
competing venues that offer them lower charges or less stringent 
qualification criteria.
The Proposal Is an Equitable Allocation of Charges
    The Exchange believes its proposal will allocate its charges fairly 
among its

[[Page 55623]]

market participants. It is equitable for the Exchange to reduce the 
qualification requirements for its $0.0012 per share executed charge 
for displayed orders that add liquidity to the Exchange as a means of 
incentivizing liquidity adding activity. An increase in overall 
liquidity addition activity on the Exchange will improve the quality of 
the Nasdaq BX market and increase its attractiveness to existing and 
prospective participants.
The Proposed Credit Is Not Unfairly Discriminatory
    The Exchange believes that the proposal is not unfairly 
discriminatory. As an initial matter, the Exchange believes that 
nothing about its volume-based tiered pricing model is inherently 
unfair; instead, it is a rational pricing model that is well-
established and ubiquitous in today's economy among firms in various 
industries--from co-branded credit cards to grocery stores to cellular 
telephone data plans--that use it to reward the loyalty of their best 
customers that provide high levels of business activity and incent 
other customers to increase the extent of their business activity. It 
is also a pricing model that the Exchange and its competitors have long 
employed with the assent of the Commission. It is fair because it 
incentivizes customer activity that increases liquidity, enhances price 
discovery, and improves the overall quality of the equity markets.
    The Exchange intends for the proposal to attract more liquidity to 
the market, improving market wide quality and price discovery. Although 
net adders of liquidity in Tape C will benefit most from the proposal, 
this result is fair insofar as increased activity in securities in Tape 
C will help to improve market quality and the attractiveness of the 
Nasdaq BX market to all existing and prospective participants. 
Moreover, any participant that does not find the qualifying criteria 
for the amended charge to be sufficiently is attractive is free to 
shift its order flow to a competing venue.

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.
Intramarket Competition
    The Exchange does not believe that its proposal will place any 
category of Exchange participant at a competitive disadvantage. As 
noted above, all members of the Exchange will benefit from any increase 
in market activity that the proposal effectuates. Members may grow or 
modify their businesses so that they can receive the $0.0012 per share 
executed charge. Moreover, members are free to trade on other venues to 
the extent they believe that the fees charged are too high or the 
qualification criteria are not attractive. As one can observe by 
looking at any market share chart, price competition between exchanges 
is fierce, with liquidity and market share moving freely between 
exchanges in reaction to fee and credit changes. The Exchange notes 
that the tier structure is consistent with broker-dealer fee practices 
as well as the other industries, as described above.
Intermarket Competition
    The Exchange believes that its proposed modification to its 
schedule of charges will not impose a burden on competition because the 
Exchange's execution services are completely voluntary and subject to 
extensive competition both from the other 12 live exchanges and from 
off-exchange venues, which include 32 alternative trading systems. 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 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 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.
    The proposed amended schedule of charges is reflective of this 
competition because, as a threshold issue, the Exchange is a relatively 
small market so its ability to burden intermarket competition is 
limited. In this regard, even the largest U.S. equities exchange by 
volume only has 17-18% market share, which in most markets could hardly 
be categorized as having enough market power to burden competition. 
Moreover, as noted above, price competition between exchanges is 
fierce, with liquidity and market share moving freely between exchanges 
in reaction to fee and credit changes. This is in addition to free flow 
of order flow to and among off-exchange venues which comprised more 
than 37% of industry volume for the month of July 2019.
    The Exchange intends for the proposed change to increase member 
incentives to engage in the addition of Tape C liquidity on the 
Exchange. This change is procompetitive and reflective of the 
Exchange's efforts to make it an attractive and vibrant venue to market 
participants.
    In sum, if the change proposed herein is 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 
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 rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\12\
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

    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-2019-035 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange

[[Page 55624]]

Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-BX-2019-035. 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 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-2019-035 and should be submitted on 
or before November 7, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-22589 Filed 10-16-19; 8:45 am]
 BILLING CODE 8011-01-P


