[Federal Register Volume 86, Number 103 (Tuesday, June 1, 2021)]
[Notices]
[Pages 29314-29317]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-11403]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92000; File No. SR-BX-2021-024]


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

May 25, 2021.
    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 May 19, 2021, 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: (i) The Exchange's transaction 
credits, at Equity 7, Section 118(a), as described further below.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/bx/rules, 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

[[Page 29315]]

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.
    The Exchange proposes to add a new credit to this schedule of 
$0.0018 per share executed for orders in securities in Tape B that 
access 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: (i) Accesses at least 
60% more liquidity in securities in Tape B, as a percentage of total 
Consolidated Volume during a month, than it did during April 2021; (ii) 
accesses liquidity in securities in Tape B equal to or exceeding 0.035% 
of total Consolidated Volume during a month; and (iii) adds liquidity 
equal to or exceeding an average daily volume of 50,000 shares in a 
month. Orders in securities in Tapes A and C will not be eligible for 
the new proposed credit.
    The Exchange intends for this new credit to reward members that 
remove significant volumes of Tape B liquidity from the Exchange and to 
encourage such members to further grow the extent to which they remove 
Tape B liquidity from the Exchange. The Exchange believes that any 
ensuing increase in the removal of Tape B liquidity from the Exchange 
will improve the quality of the Exchange's market. In particular, the 
Exchange intends to encourage members to increase the extent to which 
they remove liquidity in securities in Tape B, as the Exchange believes 
that increased removal activity in securities in Tape B is most needed 
and likely to be most beneficial to market quality.
    The Exchange also notes that, like its other removal credit tiers, 
it proposes to tie the new proposed credit to the addition of at least 
an average daily volume of 50,000 shares of liquidity during the month. 
Doing so will help to incent members, not only to remove a significant 
amount of liquidity from the Exchange, but also to add a significant 
amount of liquidity as well. Any increase in liquidity adding activity 
that ensues from this credit will improve market quality, to the 
benefit of all participants.
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 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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    \3\ 15 U.S.C. 78f(b).
    \4\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposal Is Reasonable
    The Exchange's proposed change to its schedule of credits 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'. . . .'' \5\
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    \5\ 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.'' \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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    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.\7\
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    \7\ See CBOE BYX Fee Schedule, at http://markets.cboe.com/us/equities/membership/fee_schedule/byx/; 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.\8\ 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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    \8\ 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 believes that its proposal is reasonable to establish 
a new remove credit with a growth component tied to the removal of 
liquidity in securities in Tape B. The proposal will encourage members 
to increase the extent to which they remove Tape B liquidity from the 
Exchange, and it will reward members that do so in significant volumes. 
The Exchange believes that any ensuing increase in the removal of 
liquidity from the Exchange--and in particular, liquidity in securities 
in Tape B--will improve the quality of the Exchange's market, and it 
will cause the Exchange to become more attractive to existing and 
prospective participants. The Exchange notes that it selected April 
2021 as the baseline for the growth requirements because it is the 
month immediately preceding the establishment of the new tier.
    The Exchange also believes it is reasonable to tie the new proposed 
credit to the addition of at least an average daily volume of 50,000 
shares of liquidity during the month. Doing so will help to incent 
members, not only to remove a significant amount of liquidity from the 
Exchange, but also to add a

[[Page 29316]]

significant amount of liquidity as well. Any increase in liquidity 
adding activity that ensues from this credit will improve market 
quality, to the benefit of all participants. The Exchange notes that it 
includes the same criteria in several of its existing remove credit 
tiers.
    The Exchange notes that those participants that are dissatisfied 
with the proposed credit are free to shift their order flow to 
competing venues that offer them higher credits or lower charges.
The Proposal Is an Equitable Allocation of Credits and Charges
    The Exchange believes that it is an equitable allocation of its 
credits to establish a new remove credit tier that is tied to the 
growth in removal of liquidity in securities in Tape B. The addition of 
this new proposed credit tier will encourage members to increase the 
extent to which they remove Tape B liquidity from the Exchange, and it 
will reward members that do so in significant volumes. The Exchange 
believes that any increase in the removal of liquidity from the 
Exchange that follows from the introduction of this new credit--and in 
particular, liquidity in securities in Tape B--will improve the quality 
of the Exchange's market, and it will cause the Exchange to become more 
attractive to existing and prospective participants.
    The Exchange also believes it is an equitable allocation to tie the 
new proposed credit to the addition of at least an average daily volume 
of 50,000 shares of liquidity during the month. Doing so will help to 
incent members, not only to remove a significant amount of liquidity 
from the Exchange, but also to add a significant amount of liquidity as 
well. Any increase in liquidity adding activity that ensues from this 
credit will improve market quality, to the benefit of all participants. 
The Exchange notes that it includes the same criteria in several of its 
existing remove credit tiers.
    Any participant that is dissatisfied with the proposal is free to 
shift their order flow to competing venues that provide more generous 
pricing or less stringent qualifying criteria.
The Proposed New Credit Is Not Unfairly Discriminatory
    The Exchange believes that its new proposed remove credit with a 
growth component is not unfairly discriminatory because it is aimed at 
encouraging the growth in removal of liquidity from the Exchange, which 
if successful, stands to improve the quality of the Exchange's market, 
to the benefit of all market participants. The Exchange notes that its 
proposal to offer the new credit to members with orders in securities 
in Tape B is fair because the Exchange observes that its market has a 
greater need for, and its market quality would benefit most from, 
growth in removal of liquidity in securities in Tape B. The Exchange 
has limited resources with which to apply to incentives, and it must 
allocate those limited resources in a manner that prioritizes areas of 
greatest need and potential effect.
    Any participant that is dissatisfied with the proposal is free to 
shift their order flow to competing venues that provide more generous 
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 new proposed 
credit. Moreover, members are free to trade on other venues to the 
extent they believe that the credit proposed is 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.
Intermarket Competition
    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 credits and 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 credits and 
fees in response, and because market participants may readily adjust 
their order routing practices, the Exchange believes that the degree to 
which credit changes in this market may impose any burden on 
competition is extremely limited.
    The proposed new credit 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 March 2021.
    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.\9\
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    \9\ 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

[[Page 29317]]

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-2021-024 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-2021-024. 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-2021-024 and should be submitted on 
or before June 22, 2021.
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    \10\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-11403 Filed 5-28-21; 8:45 am]
BILLING CODE 8011-01-P


