[Federal Register Volume 86, Number 187 (Thursday, September 30, 2021)]
[Notices]
[Pages 54259-54262]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-21210]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93121; File No. SR-BX-2021-040]


Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend BX Options 
7, Section 2, BX Options Market-Fees and Rebates

September 24, 2021.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on September 10, 2021, Nasdaq BX, Inc. (``BX'' or 
``Exchange'') filed with the Securities and Exchange Commission (the 
``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\ 15 U.S.C. 78a.
    \3\ 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 BX Options 7, Section 2, ``BX 
Options Market-Fees and Rebates.''
    The Exchange originally filed the proposed pricing changes on 
August 27, 2021 (SR-BX-2021-036). On September 10, 2021, the Exchange 
withdrew that filing and submitted this filing.
    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 proposes to amend BX's Pricing Schedule at Options 7, 
Section 2, ``BX Options Market-Fees and Rebates.'' Specifically, within 
Options 7, Section 2(1), the Exchange proposes to: (1) Increase the 
Non-Penny Symbol Customer Taker Fee; and (2) amend note 3 of that 
section that reduces the Non-Penny Symbol Customer Maker Rebate in 
certain circumstances.
    Today, Customers are assessed a Non-Penny Symbol Taker Fee of $0.65 
per contract for removing liquidity and paid a Non-Penny Symbol Maker 
Rebate of $0.90 per contract for adding liquidity. Today, with respect 
to the Customer Non-Penny Symbol Maker Rebate, Customer orders receive 
a $0.45 per contract Non-Penny Symbol Maker Rebate, instead of the 
aforementioned $0.90 per contract rebate, if the quantity of 
transactions where the contra-side is also a Customer is greater than 
25% of Participant's total Customer Non-Penny Symbol volume which adds 
liquidity in that month.\4\
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    \4\ See Options 7, Section 2(1) note 3. The 25% calculation does 
not consider orders within the Opening Process per Options 3, 
Section 8, orders that generate an order exposure alert per BX 
Options 5, Section 4, or orders transacted in the Price Improvement 
Auction (``PRISM'') per Options 3, Section 13.
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    The Exchange proposes to increase the Customer Non-Penny Symbol 
Taker Fee from $0.65 to $0.79 per contract. The Exchange also proposes 
to amend the percentage within note 3, related to the quantity of 
transactions where the contra-side is also a Customer, from 25% to 50%. 
Proposed note 3 would provide, ``Customer orders will receive a $0.45 
per contract Non-Penny Symbol Maker Rebate if the quantity of 
transactions where the contra-side is also a Customer is greater than 
50% of

[[Page 54260]]

Participant's total Customer Non-Penny Symbol volume which adds 
liquidity in that month. The aforementioned calculation of 50% will not 
consider orders within the Opening Process per Options 3, Section 8, 
orders that generate an order exposure alert per BX Options 5, Section 
4, or orders transacted in the Price Improvement Auction (``PRISM'') 
per Options 3, Section 13.''
    The Exchange would continue to pay a Customer Non-Penny Symbol 
Maker Rebate of $0.90 per contract. Also, the Exchange would continue 
to pay the lower Non-Penny Symbol Maker Rebate of $0.45 per contract if 
the quantity of transactions where the contra-side is also a Customer 
is greater than the proposed 50% of Participant's total Customer Non-
Penny Symbol volume which adds liquidity in that month.
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. 78 f(b).
    \6\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange's proposed changes to its Pricing Schedule are 
reasonable in several respects. As a threshold matter, the Exchange is 
subject to significant competitive forces in the market for options 
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 (DC 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\ See 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 
options security transaction services. The Exchange is only one of 
sixteen options exchanges to which market participants may direct their 
order flow. 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. As such, 
the proposal represents a reasonable attempt by the Exchange to 
increase its liquidity and market share relative to its competitors.
    The Exchange's proposal to increase the Customer Non-Penny Symbol 
Taker Fee from $0.65 to $0.79 per contract is reasonable. While the 
Exchange's Customer Non-Penny Symbol Taker Fee is increasing, the 
Exchange believes its fees remain competitive with other options 
exchanges.\9\ Also, BX continues to offer the highest base rebate of 
$0.90 per contract prior to taking into account volume or contra-
party.\10\ Of note, other exchanges have higher simple order rebates, 
provided certain volume criteria are met.\11\ Accordingly, the Exchange 
believes that the proposed Customer Non-Penny Symbol Taker Fee remains 
competitive and will continue to attract order flow to BX to the 
benefit of all market participants.
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    \9\ NYSE Arca, Inc. (``NYSEArca Options Fees'') currently 
assesses customers a Take Liquidity fee of $0.85 per contract in 
Non-Penny Issues (or $0.67 per contract if the Customer is trading 
against a lead market maker). See NYSEArca Options Fees and Charges, 
Transaction Fee for Electronic Executions--Per Contract.
    \10\ The examples which follow represent options fees. BOX 
Exchange LLC (``BOX'') pays no Non-Penny Interval Class Public 
customer Maker Rebate. See BOX's Fee Schedule at Section I, A. Cboe 
Exchange, Inc. (``Cboe'') pays a Non-Penny Class rebate to customers 
of $0.18 per contract only if the original order is greater than or 
equal to 100 contracts and removes liquidity. See Cboe's Fee 
Schedule. Cboe C2 Exchange, Inc. (``C2'') pays a Non-Penny Class 
rebate to customers of $0.80 per contract to transactions which add 
liquidity. See C2's Fee Schedule. Cboe BZX Exchange, Inc. 
(``CboeBZX'') pays Non-Penny Program Securities rebates to customers 
which range from $0.85 to $1.06 per contract to transactions which 
add liquidity. See CboeBZX's Fee Schedule. Cboe EDGX Exchange, Inc. 
(``CboeEDGX'') pays Non-Penny Program Securities rebates to 
customers which range from $0.01 to $0.21 based on customer volume 
tiers. See CboeEDGX's Fee Schedule. Miami International Securities 
Exchange, LLC (``MIAX'') pays no customer rebate for non-penny 
classes. See MIAX's Fee Schedule. MIAX PEARL, LLC (``PEARL'') pays 
Priority Customer Non-Penny Classes Maker Rebates which range from 
$0.85 to $1.04 based on volume. See PEARL's Fee Schedule. MIAX 
Emerald, LLC (``EMERALD'') pays Priority Customer Maker Rebates 
which range from $0.43 to $0.53, except that SPY, QQQ and IWM 
rebates are $0.45 and Priority Customer Simple Order rebates when 
contra is an Affiliated Market Maker are $0.49. See EMERALD's Fee 
Schedule. NYSEArca pays a Customer a $0.75 rebate to post liquidity 
unless contra a lead market maker, in which case no rebate is paid. 
See NYSE Arca Options Fees and Charges. NYSE American LLC 
(``NYSEAmerican'') pays no Customer rebates. See NYSE American 
Options Fee Schedule. The Nasdaq Stock Market LLC (``NOM'') pays an 
$0.80 per contract Customer Non-Penny Symbol Rebate and in some 
cases $1.00, or $1.05 if other criteria are met. See NOM's Pricing 
Schedule. Nasdaq Phlx LLC (``Phlx'') pays Customer Non-Penny rebates 
which range from $0.00 to $0.27. See Phlx's Pricing Schedule. Nasdaq 
ISE, LLC (`ISE'') pays no Non-Penny Priority Customer rebates. See 
ISE's Pricing Schedule. Nasdaq GEMX, LLC (``GEMX'') pays Priority 
Customer Non-Penny Symbol Maker Rebates which range from $0.75 to 
$1.05. See GEMX's Pricing Schedule. Nasdaq MRX, LLC (`MRX'') pays no 
Priority Customer Non-Penny Symbol rebates. See MRX's Pricing 
Schedule.
    \11\ Id.
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    The Exchange's proposal to increase the Customer Non-Penny Symbol 
Taker Fee from $0.65 to $0.79 per contract is equitable and not 
unfairly discriminatory because the proposed pricing will apply 
uniformly to all similarly situated Participants for Non-Penny Symbols. 
Customers would continue to receive favorable pricing as compared to 
other market participants because Customer liquidity enhances liquidity 
on the Exchange for the benefit of all market participants. 
Specifically, Customer liquidity benefits all market participants by 
providing more trading opportunities which attracts market makers. An 
increase in the activity of these market participants (particularly in 
response to pricing) in turn facilitates tighter spreads which may 
cause an additional corresponding increase in order flow from other 
market participants.
    The Exchange's proposal to amend the percentage within note 3 
related to the volume consideration for the ratio of Customer to 
Customer orders as compared to total Participant volume which adds Non-
Penny Symbol liquidity in order to receive the $0.90 per contract 
Customer Non-Penny Symbol rebate as compared to the reduced $0.45 per 
contract rebate is

[[Page 54261]]

reasonable. With this proposal, the Exchange would assess a $0.79 per 
contract Customer Non-Penny Taker Fee, the lowest BX Taker Fee for Non-
Penny Symbols,\12\ and, currently, the Exchange pays the highest 
Customer Maker Rebate of $0.90 per contract that does not consider 
volume or contra-party. The Exchange continues to offer Customers the 
highest Non-Penny Maker Rebate on BX by assessing higher Non-Penny 
Taker Fees to Non-Customers.\13\ To the extent a Participant submits a 
Non-Penny Customer order to add liquidity which interacts with a Non-
Penny Customer order that removes liquidity, both Participants benefit 
from the higher Non-Penny Maker Rebate and lower Non-Penny Taker Fee. 
The Exchange's intention for assessing Customer orders with the reduced 
Non-Penny Taker Fee was designed to bolster interaction with Non-
Customer participants. Today, Non-Penny Customer orders which add 
liquidity have priority \14\ ahead of Non-Penny Non-Customer orders 
and, therefore, the Exchange's intention to enhance Non-Customer 
liquidity is subverted when a Non-Penny Customer order transacts with 
another Non-Penny Customer order. As a result, when Non-Penny Customers 
interact with other Non-Penny Customer orders more than by 
happenstance, the Exchange believes it is reasonable to pay Customer 
orders which add liquidity a lower rebate. The Exchange notes that 
Participants do occasionally submit Non-Penny Customer orders which add 
liquidity in Non-Penny Symbols to the order book that trade against 
Non-Penny Customer orders that remove liquidity in Non-Penny Symbols. 
The Exchange believes that type of behavior occurs, by happenstance, a 
small percentage of the time in a month. The Exchange initially 
determined that 25% was the proper percentage which represented the 
quantity of transactions that would demarcate the point at which a 
Participant should receive the lower Customer Non-Penny Symbol Maker 
Rebate of $0.45 per contract because it does not believe that the type 
of behavior outlined herein should occur more than a certain percentage 
of the time (in this case 25% of a Participant's total Customer Non-
Penny Symbol volume) unless the trading behavior was intended. After 
reviewing the trading behavior for a period of time since the adoption 
of the 25% threshold, the Exchange believes that a percentage of 50% 
would be a more accurate demarcation. The Exchange has monitored 
Customer to Customer trading behavior transacted on BX since the 
inception of the 25% threshold. The Exchange believes that the addition 
of the threshold deterred certain intended Customer to Customer 
transactions, and the Exchange observed an expansion of counter parties 
on Customer to Customer trades after the threshold was introduced. The 
Exchange believes that increasing the percentage to 50% will more 
reasonably account for inadvertent Customer to Customer trades while 
still deterring those Customer to Customer transactions which occur 
more than by happenstance given the number of Non-Penny Symbol Customer 
to Customer orders transacted on BX.
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    \12\ Non-Customer orders are assessed a $1.10 Non-Penny Symbol 
Taker Fee.
    \13\ A Non-Customer includes a Professional, Broker-Dealer and 
Non-BX Options Market Maker. See BX Options 7, Section 1.
    \14\ See Options 3, Section 10.
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    While this proposal would continue to provide Customer orders with 
lower rebates if they transact the requisite number of Customer-to 
Customer trades, the Exchange continues to believe that the $0.45 per 
contract rebate remains competitive and equal to or greater than the 
rebates that other Participants are afforded.\15\
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    \15\ Today, Lead Market Makers are paid $0.45 per contract Non-
Penny Symbol Maker Rebates and Market Maker are paid $0.40 per 
contract Non-Penny Symbol Maker Rebates. Firms and Non-Customers are 
not eligible for Non-Penny Symbol Maker Rebates and instead are 
charged a Maker Fee of $0.45 per contract.
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    The Exchange's proposal to amend the percentage within note 3 
related to the volume consideration for the ratio of Customer to 
Customer orders as compared to total Participant volume which adds Non-
Penny Symbol liquidity in order to receive the $0.90 per contract 
Customer Non-Penny Symbol rebate as compared to the reduced $0.45 per 
contract rebate is equitable and not unfairly discriminatory. The 
Exchange would uniformly apply the criteria to all Customer orders to 
determine the applicable rebate.

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.
Inter-market Competition
    The proposal does not impose an undue burden on inter-market 
competition. The Exchange believes its proposal remains competitive 
with other options markets and will offer market participants with 
another choice of where to transact options. 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 
options 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.
Intra-Market Competition
    The Exchange's proposal to increase the Customer Non-Penny Symbol 
Taker Fee from $0.65 to $0.79 per contract does not impose an undue 
burden on competition because the proposed pricing will apply uniformly 
to all similarly situated Participants for Non-Penny Symbols. Customers 
would continue to receive favorable pricing as compared to other market 
participants because Customer liquidity enhances liquidity on the 
Exchange for the benefit of all market participants. Specifically, 
Customer liquidity benefits all market participants by providing more 
trading opportunities which attracts market makers. An increase in the 
activity of these market participants (particularly in response to 
pricing) in turn facilitates tighter spreads which may cause an 
additional corresponding increase in order flow from other market 
participants.
    The Exchange's proposal to pay a $0.45 per contract Customer Non-
Penny Symbol Maker Rebate if the quantity of transactions where the 
contra-side is also a Customer is greater than 50% of Participant's 
total Customer Non-Penny Symbol volume which adds liquidity \16\ in 
that month does not impose an undue burden on competition as the 
Exchange would uniformly apply the criteria to all Customer orders to 
determine the applicable rebate.
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    \16\ As proposed, the 25% calculation will not consider orders 
within the Opening Process per Options 3, Section 8, orders that 
generate an order exposure alert per BX Options 5, Section 4, or 
orders transacted in the Price Improvement Auction (``PRISM'') per 
Options 3, Section 13.

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[[Page 54262]]

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.\17\
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    \17\ 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-2021-040 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-2021-040. 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-2021-040, and should be submitted on 
or before October 21, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-21210 Filed 9-29-21; 8:45 am]
BILLING CODE 8011-01-P


