
[Federal Register Volume 88, Number 200 (Wednesday, October 18, 2023)]
[Notices]
[Pages 71891-71894]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-22926]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98731; File No. SR-BX-2023-024]


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

October 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 September 29, 2023, Nasdaq BX, Inc. (``BX'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``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.
    While these amendments are effective upon filing, the Exchange has 
designated the proposed amendments to be operative on October 1, 2023.
    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 the 
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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    The purpose of the proposed rule change is to amend the Exchange's 
schedule of fees at Equity 7, Section 118(e). Specifically, the 
Exchange proposes to amend the qualifying criteria for two existing 
fees for RPI Orders and update a related sunset date for one of the 
aforementioned fees.
    Currently, the Exchange charges a $0.0018 per share executed fee 
for RPI Orders entered by a member that

[[Page 71892]]

provides liquidity through RPI Orders equal to or exceeding an average 
daily volume of 2,500,000 shares. The Exchange proposes to amend the 
qualifying criteria for the $0.0018 fee. Under the proposed change, a 
member could qualify for the $0.0018 per share executed fee for RPI 
Orders if the member provides liquidity through RPI Orders equal to or 
exceeding 0.02% of total Consolidated Volume during a month (rather 
than an average daily volume of 2,500,000 shares, as the current Rule 
provides).
    The Exchange believes that by modifying the qualifying criteria for 
the $0.0018 per share executed fee to require that a member provides 
liquidity through RPI Orders equal to or exceeding 0.02% of total 
Consolidated Volume during a month rather than an average daily volume 
of 2,500,000 shares in order to qualify, the criteria would be more 
representative of the overall volume trading in the market. In a 
fluctuating volume environment, the change to the qualifying criteria 
would ease the burden to qualify for the fee. The Exchange hopes that 
modifying the qualifying criteria for the $0.0018 fee as described 
above will encourage members to increase liquidity providing 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.
    Currently, the Exchange charges a $0.0020 per share executed fee 
for RPI Orders entered by a member that (i) quotes RPI Orders in at 
least 1,200 symbols on average per day; (ii) provides liquidity through 
RPI 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 RPI Orders at least 10% relative to the month of March 
2023. This fee is applicable through September 30, 2023. The Exchange 
proposes to amend the qualifying criteria for the $0.0020 fee. First, 
the Exchange proposes to revise the criteria to require that a member 
provides liquidity through RPI Orders equal to or exceeding 0.01% of 
total Consolidated Volume during a month instead of the current 
criteria that a member provides liquidity through RPI Orders equal to 
or exceeding an average daily volume of 1,000,000 shares. Second, the 
Exchange proposes to revise the criteria that a customer increases its 
average daily volume of liquidity provided in RPI Orders at least 10% 
relative to the month of March 2023 by modifying the reference month 
from March 2023 to April 2023. Additionally, the Exchange proposes to 
offer the fee through October 31, 2023. Specifically, the Exchange 
proposes to charge a $0.0020 per share executed fee for RPI Orders 
entered by a member that (i) quotes RPI Orders in at least 1,200 
symbols on average per day; (ii) provides liquidity through RPI Orders 
equal to or exceeding 0.01% of total Consolidated Volume during a month 
(rather than an average daily volume of 1,000,000 shares); and (iii) 
increases its average daily volume of liquidity provided in RPI Orders 
at least 10% relative to the month of April 2023 (rather than March 
2023). The proposed rule change provides that such fee is applicable 
through October 31, 2023.
    The Exchange believes that by modifying the qualifying criteria for 
the $0.0020 per share executed fee to require that a member provides 
liquidity through RPI Orders equal to or exceeding 0.01% of total 
Consolidated Volume during a month rather than an average daily volume 
of 1,000,000 shares in order to qualify, the criteria would be more 
representative of the overall volume trading in the market. In a 
fluctuating volume environment, the change to the qualifying criteria 
would ease the burden to qualify for the fee. Additionally, the 
Exchange hopes that the proposed revision to the qualifying criteria to 
a more recent reference month, together with the change to require RPI 
Orders equal to or exceeding 0.01% of total Consolidated Volume, will 
encourage members to increase liquidity providing activity in RPI 
Orders on the Exchange relative to April 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 amend the sunset date for 
the proposed fee of $0.0020 per share executed. The fee will be 
available through October 31, 2023.\5\ By revising the reference month 
in the qualifying criteria and extending the sunset date, the Exchange 
intends to continue to encourage members to earn lower fees by 
increasing liquidity providing activity in RPI Orders on the Exchange. 
The Exchange will continue 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 would be 
available through October 31, 2023 but would not be available 
thereafter. For example, as of November 1, 2023, the Exchange would 
no longer offer the incentive as proposed.
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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 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

[[Page 71893]]

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 amend the 
qualifying criteria for the $0.0018 per share executed fee for RPI 
Orders by requiring that a member provides liquidity through RPI Orders 
equal to or exceeding 0.02% of total Consolidated Volume during a month 
rather than requiring an average daily volume of 2,500,000 shares. 
Similarly, the Exchange believes it is reasonable and equitable to 
amend the qualifying criteria for the $0.0020 per share executed fee 
for RPI Orders by requiring that a member provides liquidity through 
RPI Orders equal to or exceeding 0.01% of total Consolidated Volume 
rather than requiring an average daily volume of 1,000,000 shares. The 
Exchange's goal is to make the criteria more representative of the 
overall volume trading in the market and increase liquidity adding 
activity in RPI Orders on its platform. It is reasonable and equitable 
to address this need by modifying the qualification requirements as an 
incentive for members 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 Exchange also believes it is reasonable and equitable to amend 
the reference date in the qualifying criteria for the $0.0020 per share 
executed fee for RPI Orders, to provide, in part, that in order to 
qualify for such fee, a member must increase its average daily volume 
of liquidity provided in RPI Orders at least 10% relative to the month 
of April 2023 (instead of March 2023). The Exchange's goal is to 
continue to encourage an increase in liquidity adding activity in RPI 
Orders on its platform. It is reasonable and equitable to address this 
need by updating the requirement for a member to increase its average 
daily volume of liquidity provided in RPI Orders at least 10% relative 
to the month of April 2023, instead of March 2023, as an incentive for 
members to increase their liquidity activity in RPI Orders on the 
Exchange relative to a more current reference month. 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 at the end of 
October 2023 is also reasonable because the Exchange is updating the 
reference month in the qualifying criteria as discussed above and the 
Exchange believes that despite only offering this fee for a limited 
time, 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. 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 the attractiveness of the Exchange to all 
existing and prospective retail participants. The Exchange's proposal 
to sunset the $0.0020 fee incentive at the end of October 2023 is 
equitable and not unfairly discriminatory because the fee will be 
available to all members during the month it is offered.
    Any participant 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 
described above, the proposal modifies the qualification requirements 
for the $0.0018 per share executed fee and the $0.0020 per share 
executed fee for RPI Orders and revises the sunset date for the $0.0020 
per share executed fee. Members may modify their businesses so that 
they can meet the required threshold and pay lower charges. As noted 
above, all members of the Exchange will benefit from any increase in 
market activity that the proposal effectuates. The Exchange's proposal 
to sunset the fee at the end of October does not impose an undue burden 
on competition because any member can qualify for the fee during the 
month it is offered. Moreover, members are free to trade on other 
venues to the extent they believe that the fees assessed, and 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.
Intermarket Competition
    The Exchange believes that its proposed modifications to its 
schedule of fees will not impose a burden on competition because the 
Exchange's execution services are completely voluntary and subject to 
extensive competition both 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

[[Page 71894]]

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.
    The proposed change 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 comprises more than 40% of industry 
volume.
    In sum, the Exchange intends for the proposed changes to its fees 
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-2023-024 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-2023-024. 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-2023-024 and should be 
submitted on or before November 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. 2023-22926 Filed 10-17-23; 8:45 am]
BILLING CODE 8011-01-P


