[Federal Register Volume 88, Number 74 (Tuesday, April 18, 2023)]
[Notices]
[Pages 23717-23720]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-08144]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97290; File No. SR-BX-2023-008]


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

April 12, 2023.
    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 April 3, 2023, 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 (i) adjust or eliminate several of the 
Exchange's transaction credits, at Equity 7, Section 118(a); and (ii) 
eliminate several of the Exchange's transaction fees, 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 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 purpose of the proposed rule change 
is to amend this schedule of fees and credits, at Equity 7, Section 
118(a) to: (i) adjust or eliminate several of the Exchange's 
transaction credits; and (ii) eliminate several of the Exchange's 
transaction fees.
Revision to and Elimination of Transaction Credits
    The Exchange proposes to eliminate two of the Exchange's 
transaction credits and adjust three of the Exchange's transaction 
credits.
    Currently, the Exchange provides $0.0015, $0.0015, and $0.0014 per 
share executed credits for securities in Tape A, Tape B, and Tape C, 
respectively, to a member accessing liquidity (excluding orders with 
Midpoint pegging and excluding orders that receive price improvement 
and execute against an order with a non-displayed price): (i) whose 
combined liquidity removing and adding activities equal or exceed 
0.075% of total Consolidated Volume during a month; and (ii) that adds 
liquidity equal to or exceeding an average daily volume of 50,000 
shares in a month. The Exchange proposes to eliminate this credit 
because it has not been successful in accomplishing its objectives. 
That is, it has not induced members to materially grow liquidity 
removing and adding activity on the Exchange. The Exchange also seeks 
to simplify its schedule of credits. The Exchange has limited resources 
to allocate to incentive programs and it must, from time to time, 
reallocate resources to maximize their net impact on the Exchange, 
market quality, and participants.
    Currently, the Exchange provides a $0.0018 per share executed 
credit for securities in Tape B to a member accessing liquidity that 
(excluding orders with Midpoint pegging and excluding orders that 
receive price improvement and execute against an

[[Page 23718]]

order with a non-displayed price): (i) accesses at least 60% more 
liquidity in Tape B securities, as a percentage of total Consolidated 
Volume during a month, than it did during April 2021; (ii) accesses 
liquidity in Tape B securities 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. The 
Exchange proposes to eliminate this credit because the baseline month 
for the growth element of the credit--April 2021--is no longer a 
relevant benchmark. As such, this credit no longer provides a growth 
incentive that is aligned with the Exchange's needs. Again, the 
Exchange has limited resources to devote to incentive programs, and it 
is appropriate for the Exchange to reallocate these incentives 
periodically in a manner that best achieves the Exchange's overall mix 
of objectives.
    Presently, the Exchange provides a $0.0015 per share executed 
credit for securities in Tape C to a member accessing liquidity 
(excluding orders with Midpoint pegging and excluding orders that 
receive price improvement and execute against an order with a non-
displayed price): (i) whose combined liquidity removing and adding 
activities equal or exceed 0.10% of total Consolidated Volume during a 
month; (ii) that accesses liquidity equal to or exceeding 0.05% of 
total Consolidated Volume during a month; and (iii) that adds liquidity 
equal to or exceeding an average daily volume of 50,000 shares in a 
month. The Exchange proposes to increase the amount of this credit for 
securities in Tape C to $0.0016 per share executed.
    Currently, the Exchange provides a $0.0009 per share executed 
credit for securities in Tape C to a member accessing liquidity 
(excluding orders with Midpoint pegging and excluding orders that 
receive price improvement and execute against an order with a non-
displayed price): (i) whose combined liquidity removing and adding 
activities equal or exceed 0.05% of total Consolidated Volume during a 
month; and (ii) that adds liquidity equal to or exceeding an average 
daily volume of 50,000 shares in a month. The Exchange proposes to 
increase the amount of this credit for securities in Tape C to $0.0010 
per share executed.
    Finally, the Exchange currently provides a $0.0004 per share 
executed credit for securities in Tape C to a member accessing 
liquidity (excluding orders with Midpoint pegging and excluding orders 
that receive price improvement and execute against an order with a non-
displayed price) that adds liquidity equal to or exceeding an average 
daily volume of 50,000 shares in a month. The Exchange proposes to 
increase the amount of this credit for securities in Tape C to $0.0005 
per share executed.
    The Exchange proposes to increase the three credits described above 
for securities in Tape C to make these credit amounts consistent with 
the credits offered for securities in Tapes A and B. These adjustments 
will align existing incentives for members to add liquidity or 
executions on the Exchange.
Elimination of Transaction Fees
    In addition, the Exchange proposes to eliminate six of the 
Exchange's transaction fees.
    Currently, the Exchange charges members providing liquidity $0.0012 
per share executed for securities in Tapes A, B, and C for displayed 
orders entered by a member that adds liquidity equal to or exceeding 
0.25% of total Consolidated Volume during a month. The Exchange charges 
members providing liquidity $0.0014 per share executed for securities 
in Tapes A, B, and C for displayed orders entered by a member that adds 
liquidity equal to or exceeding 0.15% of total Consolidated Volume 
during a month. The Exchange charges members providing liquidity 
$0.0017 per share executed for securities in Tapes A, B, and C for 
displayed orders entered by a member that adds liquidity equal to or 
exceeding 0.10% of total Consolidated Volume during a month. The 
Exchange proposes to eliminate these fees because they have not been 
successful in accomplishing their objectives. That is, they have not 
induced members to materially add liquidity on the Exchange. The 
Exchange also seeks to simplify its schedule of fees. The Exchange has 
limited resources to allocate to incentive programs and it must, from 
time to time, reallocate resources to maximize their net impact on the 
Exchange, market quality, and participants.
    Presently, the Exchange charges members providing liquidity $0.0017 
per share executed for securities in Tapes A, B, and C for displayed 
orders entered by a member that: (i) adds liquidity equal to or 
exceeding an average daily volume of 9,500,000 shares in a month; and 
(ii) adds at least 15% more liquidity relative to the member's March 
2021 average daily volume of liquidity provided. The Exchange charges 
members providing liquidity $0.0020 per share executed for securities 
in Tapes A, B, and C for displayed orders that adds liquidity entered 
by a member that: (i) adds liquidity equal to or exceeding an average 
daily volume of 2,500,000 shares in a month; and (ii) adds at least 25% 
more liquidity relative to the member's March 2021 average daily volume 
of liquidity provided. The Exchange proposes to eliminate these fees 
because the baseline month for the growth element of the fees--March 
2021--is no longer a relevant benchmark. As such, this fee no longer 
provides a growth incentive that is aligned with the Exchange's needs. 
As noted, the Exchange has limited resources to devote to incentive 
programs, and it is appropriate for the Exchange to reallocate these 
incentives periodically in a manner that best achieves the Exchange's 
overall mix of objectives.
    Finally, the Exchange also currently charges members providing 
liquidity $0.0024 per share executed for securities in Tapes A, B, and 
C for non-displayed orders (other than orders with Midpoint pegging) 
entered by a member that (i) adds and removes liquidity equal to or 
exceeding 0.15% total Consolidated Volume during a month; and (ii) 
achieves at least a 35% ratio of its displayed liquidity adding 
activity to its total liquidity adding activity during a month. The 
Exchange proposes to eliminate this fee because the fee has not been 
successful in accomplishing its objective and the Exchange seeks to 
streamline its fee schedule.
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.
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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 Exchange's proposed changes to its schedule of credits are 
reasonable in several respects. As a threshold matter, the Exchange is 
subject to significant competitive forces in the market for equity 
securities transaction services that constrain its pricing 
determinations in that market. The fact that this market is competitive 
has long been recognized by the courts. In NetCoalition v. Securities 
and Exchange Commission, the D.C. Circuit stated as follows: ``[n]o one 
disputes that competition for order flow is `fierce.' . . . As the SEC

[[Page 23719]]

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. 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.
    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 believes it is reasonable, equitable, and not unfairly 
discriminatory to eliminate two of the Exchange's transaction credits, 
adjust three of the Exchange's transaction credits, and eliminate six 
of the Exchange's transaction fees. The Exchange seeks to simplify and 
streamline its schedule of credits and fees by: (i) eliminating credits 
and fees that have not been successful in inducing members to grow 
their liquidity adding or removing activity or that are no longer based 
on relevant benchmarks; and (ii) adjusting several credits to 
securities in Tape C to streamline such credits to those provided in 
Tapes A and B. The proposed changes are designed to better align with 
the Exchange's needs. The Exchange has limited resources to devote to 
incentive programs, and it is appropriate for the Exchange to 
reallocate these incentives periodically in a manner that best achieves 
the Exchange's overall mix of objectives.
    Those participants that are dissatisfied with the eliminations and 
adjustments to the Exchange's schedule of credits and fees are free to 
shift their order flow to competing venues that provide more generous 
incentives 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 proposals will place any 
category of Exchange participant at a competitive disadvantage.
    The Exchange intends for its proposed changes to its credits and 
fees to reallocate its limited resources more efficiently and for 
optimized effect, to recalibrate them to reflect changing market 
behavior, and to align them with the Exchange's overall mix of 
objectives. The Exchange notes that its members are free to trade on 
other venues to the extent they believe that these proposals 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.
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 or fee changes in this market may impose any burden on 
competition is extremely limited. The proposals are reflective of this 
competition.
    Even as one of the largest U.S. equities exchanges by volume, the 
Exchange has less than 20% 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 comprises upwards of 50% of industry volume.
    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) of the Act \7\ and paragraph (f) of Rule 19b-4 \8\ 
thereunder.
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 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.

[[Page 23720]]

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-2023-008 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-2023-008. 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-2023-008 and should be submitted on 
or before May 9, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-08144 Filed 4-17-23; 8:45 am]
BILLING CODE 8011-01-P


