[Federal Register Volume 85, Number 124 (Friday, June 26, 2020)]
[Notices]
[Pages 38418-38421]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-13772]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89114; File No. SR-BX-2020-011]


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

June 22, 2020.
    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 10, 2020, 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 make certain changes to the Exchange's 
transaction fees, at Equity 7, Section 118(a).
    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 aim of increasing activity on the Exchange, improving market 
quality, and increasing market share.\3\ Although these changes have 
met with some success, the Exchange has yet to achieve the results it 
desires. Accordingly, the Exchange proposes to again revise its pricing 
schedule, in a further attempt to improve the attractiveness of the 
market to new and existing participants.
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    \3\ See e.g., Securities Exchange Act Release No. 34-87271 
(October 10, 2019), 84 FR 55621 (October 17, 2019) (SR-BX-2019-035); 
Securities Exchange Act Release No. 34-87093 (September 24, 2019), 
84 FR 57530 (October 25, 2019) (SR-BX-2019-031); Securities Exchange 
Act Release No. 34-86120 (June 17, 2019); 84 FR 29270 (June 21, 
2019) (SR-BX-2019-019); Securities Exchange Act Release No. 34-85912 
(May 22, 2019); 84 FR 24834 (May 29, 2019) (SR-BX-2019-013).
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    The Exchange proposes to amend its existing $0.0028 per share 
executed charge for non-displayed orders (other than orders with 
Midpoint pegging) entered by a member that adds liquidity equal to or 
exceeding 0.25% of total Consolidated Volume \4\ during a month. The 
Exchange proposes to reduce the percentage of total Consolidated Volume 
needed to qualify for this charge, from 0.25% to 0.225% of total 
Consolidated Volume. Additionally, the Exchange proposes to allow a 
member to achieve the new volume threshold by including the removal of 
liquidity. By easing the volume requirements for this charge, which 
represents a discount off of the standard $0.0030 per share executed 
charge (for all other non-displayed orders), the Exchange intends to 
increase the number of members that seek to and do qualify for it, and 
thereby provide incentives for members to add liquidity to the 
Exchange.
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    \4\ As used in this rule, the term ``Consolidated Volume'' shall 
mean 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. For purposes of 
calculating Consolidated Volume and the extent of a member's trading 
activity the date of the annual reconstitution of the Russell 
Investments Indexes shall be excluded from both total Consolidated 
Volume and the member's trading activity. As used in this rule, 
``price improvement'' shall mean instances when the accepted price 
of an order differs from the executed price of an order.
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    The proposed changes to ease the qualifying volume threshold for 
obtaining the $0.0028 per share executed charge and to include removing 
liquidity in the calculation of the new volume threshold, will benefit 
participants that are net adders and net takers of liquidity by 
enabling them to more easily qualify for the existing $0.0028 per share 
executed discounted charge. Those participants that act as net adders 
of liquidity to the Exchange will benefit directly from the proposed 
change that would apply to orders that add liquidity to the Exchange. 
Those participants that act as net removers of liquidity will also 
benefit from the proposed amendment as their liquidity removal activity 
will be tied to achieving the $0.0028 discounted charge. Any ensuing 
increase in liquidity adding and removing activity

[[Page 38419]]

will improve the overall quality of the market, to the benefit of all 
members. 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.
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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 Proposal Is Reasonable
    The Exchange's proposed changes to its schedule of credits and fees 
are 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\
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    \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)).
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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.'' \8\
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    \8\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496, 37499 (June 29, 2005).
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    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\
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    \9\ See CBOE EDGA Fee Schedule, at https://markets.cboe.com/us/equities/membership/fee_schedule/edga/; NYSE National Fee Schedule, 
at https://www.nyse.com/publicdocs/nyse/regulation/nyse/NYSE_National_Schedule_of_Fees.pdf.
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    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.
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    \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.
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    The Exchange has designed its proposed changes to the schedule of 
charges to assist members in more easily qualifying for the discounted 
$0.0028 charge by reducing the percentage threshold and including the 
removal of liquidity. The Exchange believes the proposal is reasonable 
because it adjusts the incentives to members in order to increase their 
liquidity adding and removing activity on the Exchange. An increase in 
liquidity adding and removing 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 amendments to the charges will be comparable to, if not 
favorable to, those that its competitors provide.\11\
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    \11\ See n. 9, supra.
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    The Exchange notes that those participants that are dissatisfied 
with the proposed fees are free to shift their order flow to competing 
venues that offer them lower fees.
The Proposal Is an Equitable Allocation of Fees
    The Exchange believes its proposed amended qualification 
requirements for the discounted charge will be fairly allocated among 
its market participants. It is equitable for the Exchange to lower the 
volume threshold and increase the types of activities that count toward 
qualifying for discounted charges to participants whose orders add 
liquidity to the Exchange as a means of incentivizing increased 
liquidity adding activity on the Exchange. It is also equitable to tie 
the receipt of the discounted charge to the member engaging in a 
threshold volume of combined liquidity adding and removing activity on 
the Exchange. An increase in overall liquidity adding and removing 
activity on the Exchange will improve the quality of the Nasdaq BX 
market and increase its attractiveness to existing and prospective 
participants.
    Any participant that is dissatisfied with the proposed amended fees 
is free to shift their order flow to competing venues that provide more 
favorable pricing or less stringent qualifying criteria.
The Proposed Fee 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.

[[Page 38420]]

    The Exchange intends for its proposal to improve market quality for 
all members on the Exchange and by extension attract more liquidity to 
the market, improving market wide quality and price discovery. Both net 
removers and net adders of liquidity to the Exchange stand to benefit 
directly from the proposed changes. Moreover, to the extent that the 
proposed changes increase liquidity adding and removing activity on the 
Exchange, this will improve market quality and the attractiveness of 
the Nasdaq BX market, to the benefit of all existing and prospective 
participants.
    Furthermore, any participant that is dissatisfied with the proposed 
amended fees is free to shift their order flow to competing venues that 
provide more favorable pricing or less stringent qualifying criteria.

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 lower charge. 
Moreover, members are free to trade on other venues to the extent they 
believe that the credit provided or fees imposed 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
    Addressing whether the proposal could impose a burden on 
competition on other SROs that is not necessary or appropriate, the 
Exchange believes that its proposed modifications to its schedule of 
credits and 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 34 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 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 and credit changes in this market may 
impose any burden on competition is extremely limited.
    The proposed amendments to the 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 has less than 17% 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 41% of industry volume for the month of May 
2020.
    The Exchange intends for the proposed changes to its schedule of 
fees, in the aggregate, to increase member incentives to engage in the 
removal and addition of liquidity on the Exchange. These changes are 
procompetitive and reflective of the Exchange's efforts to make it an 
attractive and vibrant venue to market participants.
    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 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 rule-comments@sec.gov. Please include 
File Number SR-BX-2020-011 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-2020-011. 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

[[Page 38421]]

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-2020-011 and should be 
submitted on or before July 17, 2020.

    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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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-13772 Filed 6-25-20; 8:45 am]
BILLING CODE 8011-01-P


