[Federal Register Volume 86, Number 206 (Thursday, October 28, 2021)]
[Notices]
[Pages 59763-59766]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-23438]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93405; File No. SR-BX-2021-047]


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

October 22, 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 October 12, 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.
---------------------------------------------------------------------------

    \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 Equity 7, Section 118 to establish 
an Enhanced Market Quality Program, 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 proposes to establish an Enhanced Market Quality 
Program that is similar to a program that exists (with proposed 
amendments) on its sister exchange, Nasdaq PHLX, LLC.\3\ The Enhanced 
Market Quality Program is intended to provide supplemental incentives 
to members that meet certain quality standards in acting as market 
makers for securities on the Exchange. It rewards members that make a 
significant contribution to market quality by providing liquidity at 
the national best bid and offer (``NBBO'') in a large number of 
securities for a significant portion of the day.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 34-92754 (August 25, 
2021), 86 FR 48789 (August 31, 2021) (SR-Phlx-2021-47). The proposal 
reflects changes to this program that Nasdaq PHLX, LLC is proposing 
concurrently with this rule filing.
---------------------------------------------------------------------------

    Specifically, the Exchange proposes to make a lump sum payment at 
the end of each month (a ``Fixed Payment'') to a member to the extent 
that the member, through one or more of its MPIDs, quotes at the NBBO 
for at least a threshold percentage of the time during Market Hours in 
an average number of securities per day during the month (satisfying 
the ``NBBO requirement''), as specified below.\4\ On a daily basis, the 
Exchange will determine the number of securities in which each of a 
member's MPIDs satisfied the NBBO requirement. The Exchange will 
aggregate all of a member's MPIDs to determine the number of securities 
for purposes of the NBBO requirement.
---------------------------------------------------------------------------

    \4\ For purposes of the Enhanced Market Quality Program, a 
member will be deemed to quote at the NBBO in a security if it 
quotes a displayed order of at least 100 shares in the security and 
prices the order at either the national best bid or the national 
best offer or both the national best bid and offer for the security. 
Additionally, for a particular Tape A security to count towards the 
threshold for qualifying for the Fixed Payment on a particular day, 
and receiving the Fixed Payment, a member has to quote such security 
at the NBBO for at least 30% of the time during Market Hours on that 
day. For a particular Tape B security to count towards the threshold 
for qualifying for the Fixed Payment on a particular day, and 
receiving the Fixed Payment, a member has to quote such security at 
the NBBO for at least 50% of the time during Market Hours on that 
day.
---------------------------------------------------------------------------

    The Exchange proposes to limit the applicability of the Program to 
the top 1,500 securities in each of Tapes A and B, as determined by 
their total value traded during the second month prior to the current 
month (e.g., for October 2021, the measurement period for determining 
the list will be August 2021).\5\ In doing so, the Exchange seeks to 
target the Program at securities in Tapes A and B that are most in 
demand among market participants and which trade extensively, so that 
an improvement in quoting in those securities would, in turn, stand 
improve the attractiveness of the Exchange to participants. The 
Exchange would divide the 1,500 securities into three equal groups (or 
``Classes'') for each Tape, with the top 500 ranked securities placed 
in Class 3, the middle 500 ranked securities placed in Class 2, and the 
lowest ranked 500 securities placed in Class 1. The Exchange would 
assign Fixed Payment amounts to each of the three Classes in each Tape 
and in each of the five Tiers, with these amounts generally increasing 
from Class 1 to Class 3, and from Tiers 1-5. Generally speaking (with 
exceptions set forth in the schedules below), this proposed structure 
would provide the largest Fixed Payments to those members that meet the 
NBBO requirement in the greatest number of qualifying securities and 
those that trade most extensively, and the lowest incentives to those 
members that meet the NBBO requirement in the fewest number of 
qualifying securities and those that trade least extensively.
---------------------------------------------------------------------------

    \5\ The Exchange notes that a symbol that did not trade during 
the measurement month will not be eligible for inclusion in the 
list.
---------------------------------------------------------------------------

    The Program will be open to all members. A member may but is not

[[Page 59764]]

required to be, a registered market maker in any security; thus, the 
Program will not by itself impose a two-sided quotation obligation or 
convey any of the benefits associated with being a registered market 
maker. Accordingly, the Program is designed to attract liquidity both 
from traditional market makers and from other firms that are willing to 
commit capital to support liquidity at the NBBO.
    For securities in each of the three Classes, the Exchange will 
determine the amount of the Fixed Payment that it pays to a qualifying 
member as follows. First, the Exchange will determine the number of 
securities in each Class for which a member has met the NBBO 
requirement during the month. The Exchange will then determine whether 
the number of securities in a particular Class for which a member has 
satisfied the NBBO requirement during the month is sufficient to 
qualify it for a Tier, and if so, it will determine the highest Tier 
applicable to the member with respect to that Class of securities. 
Next, the Exchange will multiply the average daily number of its 
qualifying securities in the Class and Tier by the applicable amounts 
applicable to that Class and Tier, and [sic] the specified lump sum, if 
applicable.
    Under the proposal, a member that qualifies for a Fixed Payment for 
securities in each of Tapes A and B and in multiple Classes within each 
Tape will receive Fixed Payments covering qualifying securities in both 
Tapes, and within each Tape, each of the applicable Classes, but within 
each Tape and Class, a member may only qualify for one Tier during a 
month.
    The Exchange will pay the Fixed Payment in addition to other 
rebates or fees provided under Equity 7, Sections 118(a)-(f).
    As of the outset of every month, the Exchange will reevaluate and, 
as applicable, update its lists of the securities that it places in 
each Class, and it will publish its updated lists on its website as of 
the outset of the month in which they will apply.
    The Exchange proposes to set the Tiers, Classes, and the Fixed 
Payments as follows:

----------------------------------------------------------------------------------------------------------------
                                                Tape A Securities
-----------------------------------------------------------------------------------------------------------------
                                     Average daily
                                       number of
                                   securities quoted
                                  at the NBBO for at   Fixed payment for   Fixed payment for   Fixed payment for
              Tiers                least 30% of the   securities in Tape  securities in Tape  securities in Tape
                                  time during Market     A in Class 1        A in Class 2        A in Class 3
                                   Hours during the
                                         month
----------------------------------------------------------------------------------------------------------------
1...............................  0-24..............  $0 per qualified    $0 per qualified    $0 per qualified
                                                       security per        security per        security per
                                                       month.              month.              month.
2...............................  25-49.............  $0 per qualified    $0 per qualified    $200 per qualified
                                                       security per        security per        security over 24
                                                       month.              month.              per month.
3...............................  50-149............  $50 per qualified   $200 per qualified  $5,000 + ($450 per
                                                       security per        security over 49    qualified
                                                       month [sic].        per month.          security over 49)
                                                                                               per month.
4...............................  150-249...........  $5,000 + ($100 per  $20,000 + ($300     $50,000 + ($600
                                                       qualified           per qualified       per qualified
                                                       security over       security over       security over
                                                       149) per month.     149) per month.     149) per month.
5...............................  250 or greater....  $15,000 + ($150     $50,000 + ($350     $50,000 + ($600
                                                       per qualified       per qualified       per qualified
                                                       security over       security over       security over
                                                       249) per month.     249) per month.     149) per month.
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                                Tape B Securities
-----------------------------------------------------------------------------------------------------------------
                                     Average daily
                                       number of
                                   securities quoted
                                  at the NBBO for at   Fixed payment for   Fixed payment for   Fixed payment for
              Tiers                least 50% of the   securities in Tape  securities in Tape  securities in Tape
                                  time during Market     B in Class 1        B in Class 2        B in Class 3
                                   Hours during the
                                         month
----------------------------------------------------------------------------------------------------------------
1...............................  0-24..............  $0 per qualified    $0 per qualified    $0 per qualified
                                                       security per        security per        security per
                                                       month.              month.              month.
2...............................  25-49.............  $0 per qualified    $0 per qualified    $100 per qualified
                                                       security per        security per        security over 24
                                                       month.              month.              per month.
3...............................  50-149............  $0 per qualified    $25 per qualified   $2,500 + ($150 per
                                                       security per        security over 49    qualified
                                                       month.              per month.          security over 49)
                                                                                               per month.
4...............................  150-249...........  $50 per qualified   $2,500 + ($50 per   $17,500 + ($300
                                                       security over 149   qualified           per qualified
                                                       per month.          security over       security over
                                                                           149) per month.     149) per month.
5...............................  250 or greater....  $5,000 + ($75 per   $7,500 + ($150 per  $17,500 + ($300
                                                       qualified           qualified           per qualified
                                                       security over       security over       security over
                                                       249) per month.     249) per month.     149) per month.
----------------------------------------------------------------------------------------------------------------

    The following are examples of the operation of the proposed 
Enhanced Market Quality Program.
    Example 1: A member quotes an average of 200 symbols a day in Tape 
A, Class 2 in excess of the 30% NBBO requirement to qualify for a Tier 
during the month. Under the proposal, the member would qualify for a 
Fixed Payment equal to the combination of Tier 4, Class 2. The Fixed 
Payment due to such member is calculated as follows: 51 (the number of 
symbols over 149) times $300, which equals $15,300, plus $20,000, for a 
total of $35,300 for the month.
    Example 2: A member meets the NBBO requirements for an average of 
200 symbols a day in Tape A, Class 2, 26 symbols a day in securities in 
Tape A, Class 3, and 51 securities in Tape B,

[[Page 59765]]

Class 2. In this scenario, the member would qualify for three Fixed 
Payments.
     First, for the 200 Tape A, Class 2 securities for which 
the member meets the NBBO requirement during the month, the member 
would receive a Fixed Payment equal to the combination of Tier 4, Class 
2. The Fixed Payment due to such member is calculated as follows: 51 
(the number of symbols over 149) times $300, which equals $15,300, plus 
$20,000, for a total of $35,300 for the month.
     Second, for the 26 Tape A, Class 3 securities for which 
the member meets the NBBO requirement during the month, the member 
would receive a Fixed Payment equal to the combination of Tier 2, Class 
3. The Fixed Payment due to such member is calculated as follows: 2 
(the number of symbols over 24) times $200, which equals $400 for the 
month.
     Third, for the 51 Tape B, Class 2 securities for which the 
member meets the NBBO requirement during the month, the member would 
receive a Fixed Payment equal to the combination of Tier 3, Class 2. 
The Fixed Payment due to such member is calculated as follows: 2 (the 
number of symbols over 49) times $25, which equals $50 for the month.
     The total of all Fixed Payments due to the member for the 
month will be $35,750 ($35,300 + $400 + $50).
    Through the use of this incentive Program, the Exchange hopes to 
provide improved trading conditions for all market participants through 
narrower bid-ask spreads and increased depth of liquidity available at 
the inside market. In addition, the Program reflects an effort to use 
financial incentives to encourage a wider variety of members to make 
positive commitments to promote market quality. The Exchange believes 
that different members may respond to different incentives, and 
therefore the Enhanced Market Quality Program is designed to promote 
market quality through quoting activity. The Exchange recognizes that 
while generally market participants will provide quotes with the 
intention of trading, market makers and liquidity providers cannot 
control when counter parties choose to interact with those quotes and 
therefore the Exchange believes it is beneficial to the market to offer 
this incentive based on quoting activity directly.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\6\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\7\ 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.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    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'').
---------------------------------------------------------------------------

    Likewise, in NetCoalition v. Securities and Exchange Commission \9\ 
(``NetCoalition'') 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'. . . .'' \10\
---------------------------------------------------------------------------

    \9\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \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)).
---------------------------------------------------------------------------

    The Exchange believes that the proposed Enhanced Market Quality 
Program is reasonable because it is similar to other incentive programs 
offered by the Exchange for displayed orders that provide liquidity, 
like the Qualified Market Maker Program set forth in Equity 7, Sections 
118(f). The proposed Fixed Payment will provide an opportunity to 
members to receive an additional credit in return for certain levels of 
participation on the Exchange as measured by quoting at the NBBO for a 
significant portion of the day each month. The proposed Fixed Payment 
is set at a level that reflects the beneficial contributions of market 
participants that quote significantly at the NBBO in certain qualifying 
securities. The Exchange believes that it is reasonable to limit the 
universe of qualifying securities to a list of 1,500 symbols that 
traded most extensively on the Exchange in Tapes A and B during second 
month prior to the current month, and to vary the amount of Fixed 
Payments in relation to the relative extent to which symbols on that 
list trade, because improving the quality of quotes for more popular 
symbols will do more to enhance the attractiveness of the Exchange than 
will improving quote quality for thinly-traded symbols. Given that the 
Exchange has finite resources to allocate to incentive programs, it is 
reasonable to allocate those resources in a manner that is most likely 
to achieve its intended objectives. The Exchange notes that a competing 
exchange which operates a similar incentive program also targets its 
incentives to a select list of symbols.\11\
---------------------------------------------------------------------------

    \11\ Securities Exchange Act Release No. 34-92150 (June 10, 
2021), 86 FR 32090, 32091 n.9 (June 16, 2021) (``SR-MEMX-2021-07'') 
(``As proposed, the term `DLI Target Securities' means a list of 
securities designated as such, the universe of which will be 
determined by the Exchange and published on the Exchange's website. 
The Exchange anticipates that the initial DLI Target Securities list 
will include between 275 and 300 securities. The DLI Target 
Securities list will always include at least 75 securities and may 
be periodically updated by the Exchange, provided that the Exchange 
will not remove a security from the DLI Target Securities list 
without at least 30 days' prior notice to Members as published on 
the Exchange's website (unless the security is no longer eligible 
for trading on the Exchange).''
---------------------------------------------------------------------------

    The Exchange believes that it is reasonable to limit applicability 
of the proposed Fixed Payments to securities in Tapes A and B, and to 
set the credits higher for the Tape A securities, insofar as the 
Exchange seeks to incentivize members to quote at the NBBO on the 
Exchange in such securities and improve the market therefor.
    The Exchange believes that the proposed Fixed Payments set forth by 
the Enhanced Market Quality Program are an equitable allocation and are 
not unfairly discriminatory because the Exchange will offer the same 
Fixed Payment rates to all similarly situated members. Moreover, the 
proposed qualification criteria requires a member to quote 
significantly at the NBBO in securities that trade extensively, 
therefore contributing to market quality in a meaningful way on the 
Exchange. Any member may quote at the NBBO at the level required by the 
qualification criteria of the Enhanced Market Quality Program. The 
Exchange notes that it has a similar Qualified Market Maker Program in 
which members are required to quote at the NBBO more than a certain 
amount of time during regular

[[Page 59766]]

market hours.\12\ For these reasons, the Exchange believes that the 
proposed Enhanced Market Quality Program Fixed Payments and 
qualification criteria are an equitable allocation and are not unfairly 
discriminatory.
---------------------------------------------------------------------------

    \12\ See Qualified Market Maker Program, Equity 7, Section 
118(f).
---------------------------------------------------------------------------

    The Exchange also believes that it is equitable and not unfairly 
discriminatory to apply the Enhanced Market Quality Program only to 
Tape A and Tape B securities, and then only to the top 1,500 symbols in 
each Tape by total value traded during the second month prior to the 
current month, and to set the Fixed Payment rates higher for the Tape A 
securities than Tape B securities, because the Exchange has limited 
resources available to it for incentive programs and the Exchange 
believes that the most effective application of such limited resources 
is to improve the market quality for the most actively traded Tape A 
and Tape B securities, as proposed.

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 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.
    In this instance, the proposed Program will 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. The proposed Program will 
provide members with the opportunity to receive incentive payments if 
they improve the market by providing significant quoting at the NBBO in 
a large number of securities, while limiting the universe of such 
securities to those which the Exchange believes will do most to improve 
market quality.
    In terms of intra-market 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 
because the Program is open to all members on the same terms.
    In sum, the proposed Program is designed to improve the quality of 
the Exchange for securities that are likely to attract the greatest 
trading interest; however, 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.\13\
---------------------------------------------------------------------------

    \13\ 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 [email protected]. Please include 
File Number SR-BX-2021-047 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-2021-047. 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-2021-047 and should be submitted on 
or before November 18, 2021.
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-23438 Filed 10-27-21; 8:45 am]
BILLING CODE 8011-01-P


