
[Federal Register Volume 88, Number 159 (Friday, August 18, 2023)]
[Notices]
[Pages 56670-56672]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-17757]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98127; File No. SR-BX-2023-018]


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

August 14, 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 August 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 schedule of fees and 
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 Equity 4, 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 Equity 4, Rule 4702(b)(5).
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    The purpose of the proposed rule change is to amend the Exchange's 
schedule of fees and credits, at Equity 7, Section 118(e). 
Specifically, the Exchange proposes to (1) establish a new fee for 
certain RPI Orders that provide liquidity to the Exchange; and (2) 
specify that certain Retail Orders that access liquidity shall be 
excluded in the calculation of a member's volume for purposes of Equity 
7, Section 118.
    Currently, the Exchange charges certain fees for RPI Orders that 
provide liquidity, ranging from $0.0018 per share executed to $0.0025 
per share executed. The Exchange proposes to adopt a new fee of $0.0003 
per share executed for RPI Orders that provide liquidity for accepted 
Retail Orders greater than or equal to $10,000. The Exchange hopes that 
the proposed fee will encourage members to increase liquidity providing 
activity in RPI Orders greater than or equal to $10,000 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 Exchange also proposes to exclude accepted Retail Orders 
greater than or equal to $10,000 that access liquidity provided by RPI 
Orders for purposes of determining a member's volume for Equity 7, 
Section 118.\5\ 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.
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    \5\ For example, pursuant to Equity 7, Section 118(a), the 
Exchange provides a credit of $0.0018 per share executed for an 
Order that accesses liquidity (excluding orders with Midpoint 
pegging and excluding orders that receive price improvement and 
execute against an order with a Non-displayed price) entered by a 
member: (i) whose combined liquidity removing and adding activities 
equal or exceed 0.15% 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 proposed change would exclude accepted Retail Orders 
greater than or equal to $10,000 that access liquidity provided by 
RPI Orders from the volume calculations for purposes of determining 
whether or not a member qualifies for this $0.0018 per share 
executed credit.
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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

[[Page 56671]]

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 fee schedule 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 
$0.0003 per share executed fee for RPI Orders that provide liquidity 
for accepted Retail Orders greater than or equal to $10,000. As 
discussed above, the Exchange's goal is to increase liquidity adding 
activity in RPI Orders, particularly those greater than or equal to 
$10,000, on its platform. It is reasonable and equitable to address 
this need by providing a lower fee to members that meet the proposed 
threshold as an incentive for them to increase their liquidity activity 
in RPI Orders greater than or equal to $10,000 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 Exchange's proposal to exclude 
accepted Retail Orders greater than or equal to $10,000 that access 
liquidity provided by RPI Orders for purposes of determining a member's 
volume for Equity 7, Section 118 is also reasonable because 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.
    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 (particularly in Orders greater than or equal to $10,000) and 
by extension attract more liquidity to the market, improving market 
wide quality and price discovery. Although net adders of liquidity for 
RPI Orders (particularly of RPI Orders greater than or equal to 
$10,000) will benefit most from the proposal, this result is fair 
insofar as increased liquidity adding activity in RPI Orders greater 
than or equal to $10,000 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 exclude accepted Retail 
Orders greater than or equal to $10,000 that access liquidity provided 
by RPI Orders for purposes of determining a member's volume for Equity 
7, Section 118 is equitable and not unfairly discriminatory because the 
exclusion will apply to all members. The Exchange notes that it has 
limited funds to apply in the form of incentives, and thus must deploy 
those limited funds to incentives that it believes will be the most 
effective at improving market quality in areas that the Exchange 
determines are in need of improvement. Any member that is dissatisfied 
with the proposal is free to shift their order flow to competing venues 
that provide more generous pricing 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 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 exclude accepted 
Retail Orders greater than or equal to $10,000 that access liquidity 
provided by RPI Orders for purposes of determining a member's volume 
for Equity 7, Section 118 does not impose an undue burden on 
competition because such exclusion applies to all members. 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

[[Page 56672]]

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 proposal 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 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 comprised more than 40% of industry 
volume.
    In sum, the Exchange intends for the proposed changes, in the 
aggregate, to increase member incentives to engage in the addition of 
liquidity on the Exchange. 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.\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-2023-18 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-2023-018. 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-2023-18 and should be 
submitted on or before September 8, 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. 2023-17757 Filed 8-17-23; 8:45 am]
BILLING CODE 8011-01-P


