[Federal Register Volume 88, Number 114 (Wednesday, June 14, 2023)]
[Notices]
[Pages 38915-38917]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-12660]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97667; File No. SR-BX-2023-015]


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

June 8, 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 June 1, 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 amend the Exchange's transaction fees 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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    Currently, the Exchange charges a fee of $0.0018 per share executed 
for RPI Orders entered by a member that (i) quotes Retail Price 
Improvement Orders in at least 1,200 symbols on average per day and 
(ii) provides liquidity through Retail Price Improvement Orders equal 
to or exceeding an average daily volume of 2,500,000 shares. The 
Exchange currently charges a fee of $0.0025 per share executed for all 
other RPI Orders that provide liquidity. The Exchange proposes to adopt 
a new fee of $0.0020 per share executed for RPI Orders entered by a 
member that (i) quotes Retail Price Improvement Orders in at least 
1,200 symbols on average per day; (ii) provides liquidity through 
Retail Price Improvement Orders equal to or exceeding an average daily 
volume of 1,000,000 shares; and (iii) increases its average daily 
volume of liquidity provided in Retail Price Improvement Orders at 
least 10% relative to the month of March 2023. The Exchange hopes that 
the proposed fee will encourage members to increase liquidity providing 
activity in RPI Orders on the Exchange relative to March 2023. 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.
    At this time, the Exchange proposes to sunset the proposed fee of 
$0.0020 per share executed. The fee will be available through September 
30, 2023.\5\ Despite only offering this incentive for four months 
(i.e., June 2023 through September 2023), the Exchange believes that it 
may continue to encourage members to earn lower fees by increasing 
liquidity providing activity in RPI Orders on the Exchange. The 
Exchange will use this time period to evaluate the appropriate 
parameters going forward to encourage increasing liquidity providing 
activity in RPI Orders on the Exchange.
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    \5\ The proposed $0.0020 per share executed fee will be 
available through September 30, 2023 but would not be available 
thereafter. For example, as of October 1, 2023, the Exchange would 
no longer offer the incentive.

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[[Page 38916]]

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.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 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 
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'. . . .'' \8\
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    \8\ 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.'' \9\
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    \9\ 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 and equitable to adopt a new 
$0.0020 per share executed fee for RPI Orders entered by a member that 
(i) quotes Retail Price Improvement Orders in at least 1,200 symbols on 
average per day; (ii) provides liquidity through Retail Price 
Improvement Orders equal to or exceeding an average daily volume of 
1,000,000 shares; and (iii) increases its average daily volume of 
liquidity provided in Retail Price Improvement Orders at least 10% 
relative to the month of March 2023. As discussed above, the Exchange's 
goal is to increase liquidity adding activity in RPI Orders on its 
platform, particularly relative to March 2023. It is reasonable and 
equitable to address this need by providing a lower fee to members that 
meet the proposed thresholds as an incentive for them to increase their 
liquidity activity in RPI Orders on the Exchange relative to March 
2023. 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 Exchange's 
proposal to sunset the $0.0020 fee is also reasonable because the 
Exchange believes that despite only offering this fee for four months, 
the incentive may continue to encourage members to earn lower fees by 
increasing liquidity providing activity in RPI Orders on the Exchange.
    The Exchange believes that the proposal is not unfairly 
discriminatory. 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 the attractiveness of 
the Nasdaq BX market to all existing and prospective retail 
participants. The Exchange's proposal to sunset the incentive is 
equitable and not unfairly discriminatory because the fee will be 
available to all members during the four months it is offered.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
Intramarket Competition
    The Exchange does not believe that its proposal will place any 
category of Exchange participant at a competitive disadvantage.
    As noted above, all members of the Exchange will benefit from any 
increase in market activity that the proposal effectuates. Members may 
modify their businesses so that they can meet the required thresholds 
and pay lower charges. The Exchange's proposal to sunset the fee does 
not impose an undue burden on competition because any member can 
qualify for the fee during the four months it is offered. The Exchange 
notes that its members are free to trade on other venues to the extent 
they believe that the proposal is not attractive. As one can observe by 
looking at any market share chart, price competition between exchanges 
is fierce, with liquidity and market share moving freely between 
exchanges in reaction to fee and credit changes.
Intermarket Competition
    In terms of inter-market competition, the Exchange notes that it 
operates in a highly competitive market in which market participants 
can readily favor competing venues if they deem fee levels at a 
particular venue to be excessive, or rebate opportunities available at 
other venues to be more favorable. In such an environment, the Exchange 
must continually adjust its credits and fees to remain competitive with 
other exchanges and with alternative trading systems that have been 
exempted from compliance with the statutory standards applicable to 
exchanges. Because competitors are free to modify their own credits and 
fees in response, and because market participants may readily adjust 
their order routing practices, the Exchange believes that the degree to 
which credit or fee changes in this market may impose any burden on 
competition is

[[Page 38917]]

extremely limited. The proposal is 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, the Exchange intends for the proposed change to its fees 
for RPI Orders, in the aggregate, to increase member incentives to 
engage in the addition of liquidity on the Exchange. If the change 
proposed herein is unattractive to market participants, it is likely 
that the Exchange will lose market share as a result. Accordingly, the 
Exchange does not believe that the proposed change will impair the 
ability of members or competing order execution venues to maintain 
their competitive standing in the financial markets.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to section 
19(b)(3)(A)(ii) of the Act.\10\
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    \10\ 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-BX-2023-15 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-2023-015. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-BX-2023-15 and should be 
submitted on or before July 5, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-12660 Filed 6-13-23; 8:45 am]
BILLING CODE 8011-01-P


