[Federal Register Volume 87, Number 135 (Friday, July 15, 2022)]
[Notices]
[Pages 42518-42521]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-15116]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95240; File No. SR-BX-2022-010]


Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Exchange's Transaction Credits in Equity 7, Section 118(e)

July 11, 2022.
    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 July 1, 2022, 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 the Exchange's transaction credits, 
at Equity 7, Section 118(e), 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 liquidity and charges fees 
to members that provide liquidity. Currently, the Exchange has a 
schedule, at Equity 7, Section 118(e), which consists of several 
different credits and fees for Retail Orders \3\ and Retail Price 
Improvement Orders \4\ under Rule 4780 (Retail Price Improvement 
Program).
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    \3\ Retail Orders shall mean an order type with a Non-Display 
Order Attribute submitted to the Exchange by a Retail Member 
Organization (as defined in Rule 4780). A Retail Order must be an 
agency Order, or riskless principal Order that satisfies the 
criteria of FINRA Rule 5320.03. The Retail Order must reflect 
trading interest of a natural person with no change made to the 
terms of the underlying order of the natural person with respect to 
price (except in the case of a market order that is changed to a 
marketable limit order) or side of market and that does not 
originate from a trading algorithm or any other computerized 
methodology. See Rule 4702(b)(6).
    \4\ Retail Price Improving (``RPI'') Orders shall mean an Order 
Type with a Non-Display Order Attribute that is held on the Exchange 
Book in order to provide liquidity at a price at least $0.001 better 
than the NBBO through a special execution process described in Rule 
4780. A Retail Price Improving Order may be entered in price 
increments of $0.001. RPI Orders collectively may be referred to as 
``RPI Interest.'' See Rule 4702(b)(5).

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[[Page 42519]]

    Currently, the Exchange provides certain credits for Retail Orders 
that provide liquidity. The Exchange proposes to adopt a new credit of 
$0.0010 per share executed for Retail Orders with an accepted price 
greater than or equal to $10,000 that accesses liquidity provided by a 
Retail Price Improvement Order. The Exchange is also proposing to 
adjust the existing credit of $0.0021 per share executed to require the 
Retail Order to have an accepted price of less than $10,000. The 
Exchange hopes that the proposed new credit will encourage member 
organizations to increase liquidity providing activity on RPI Orders on 
the Exchange. If the proposal is effective in achieving this purpose, 
then the quality of the Exchange's market will improve, particularly 
with respect to RPI and retail orders to the benefit of all 
participants, especially those who submit RPI and Retail Orders.
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 and Is an Equitable Allocation of Credits
    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'. . . .'' \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) (``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.\9\
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    \9\ 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.\10\ Within 
the foregoing context, the proposal represents a reasonable attempt by 
the Exchange to increase its 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 believes it is reasonable and equitable to adopt a new 
$0.0010 per share executed credit for Retail Orders with an accepted 
price greater than or equal to $10,000 that access liquidity provided 
by a Retail Price Improvement Order. Similarly, the Exchange believes 
that it is reasonable to adjust its existing $0.0021 credit to conform 
with its new proposed credit by requiring the Retail order to have an 
accepted price less of less than $10,000. As discussed above, the 
Exchange's goal is to increase liquidity adding activity in RPI Orders 
on its platform. It is reasonable and equitable to address this need by 
providing an additional credit to member organizations that meet the 
proposed thresholds as an incentive for them to increase their 
liquidity activity in RPI Orders on the Exchange. If the proposal is 
effective in achieving this purpose, then the quality of the Exchange's 
market will improve, particularly with respect to RPI and Retail orders 
to the benefit of all participants, especially those who submit RPI and 
Retail Orders.
The Proposed Credit Is Not Unfairly Discriminatory
    The Exchange believes that the proposal is not unfairly 
discriminatory. As an initial matter, the Exchange believes that 
nothing about its volume-based tiered pricing model is inherently 
unfair; instead, it is a rational pricing model that is well-
established and ubiquitous in today's economy among firms in various 
industries--from co-branded credit cards to grocery stores to cellular 
telephone data plans--that use it to reward the loyalty of their best 
customers that provide high levels of business activity and incent 
other customers to increase the extent of their business activity. It 
is also a pricing model that the Exchange and its competitors have long 
employed with the assent of the Commission. It is fair because it 
incentivizes customer activity that increases liquidity, enhances price 
discovery, and improves the overall quality of the equity markets.
    The Exchange intends for its proposal to improve market quality for 
all members that submit RPI and Retail Orders on the Exchange and by 
extension attract more liquidity to the market, improving market wide 
quality and price discovery. Although net adders of liquidity for RPI 
Orders will benefit most from the proposal, this result is fair insofar 
as increased liquidity adding activity in RPI Orders will help to 
improve market quality and

[[Page 42520]]

the attractiveness of the Nasdaq BX market to all existing and 
prospective retail participants.

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 member organizations of the Exchange will benefit from 
any increase in market activity that the proposal effectuates. Member 
organizations may modify their businesses so that they can meet the 
required thresholds and receive the credits. Moreover, members are free 
to trade on other venues to the extent they believe that the credits 
provided are not attractive. As one can observe by looking at any 
market share chart, price competition between exchanges is fierce, with 
liquidity and market share moving freely between exchanges in reaction 
to fee and credit changes. The Exchange notes that the tier structure 
is consistent with broker-dealer fee practices as well as the other 
industries, as described above.
Intermarket Competition
    The Exchange believes that its proposed modifications to its 
schedule of credits will not impose a burden on competition because the 
Exchange's execution services are completely voluntary and subject to 
extensive competition from the other live exchanges and from off-
exchange venues, which include alternative trading systems that trade 
national market system stock. 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 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 in response, and 
because market participants may readily adjust their order routing 
practices, the Exchange believes that the degree to which credits 
change in this market may impose any burden on competition is extremely 
limited.
    The proposed credit for adding liquidity 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 17-18% market share, which in most markets could 
hardly be categorized as having enough market power to burden 
competition. Moreover, as noted above, price competition between 
exchanges is fierce, with liquidity and market share moving freely 
between exchanges in reaction to fee and credit changes. This is in 
addition to free flow of order flow to and among off-exchange venues 
which comprised more than 40% of industry volume in recent months.
    In sum, the Exchange intends for the proposed change to its credits 
for RPI Orders, in the aggregate, to increase member incentives to 
engage in the addition of liquidity on the Exchange. If the additional 
credit 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 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) of the Act \11\ and paragraph (f) of Rule 19b-4 \12\ 
thereunder.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f).
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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 [email protected]. Please include 
File Number SR-BX-2022-010 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-2022-010. 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-2022-010 and should be submitted on 
or before August 5, 2022.


[[Page 42521]]


    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. 2022-15116 Filed 7-14-22; 8:45 am]
BILLING CODE 8011-01-P


