[Federal Register Volume 76, Number 114 (Tuesday, June 14, 2011)]
[Notices]
[Pages 34796-34797]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-14664]



[[Page 34796]]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64636; File No. SR-BX-2011-030]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Modify 
Fees for Members Using the NASDAQ OMX BX Equities System

 June 8, 2011.
    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 May 25, 2011, NASDAQ OMX BX, Inc. (the ``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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to modify pricing for member using the NASDAQ 
OMX BX Equities System. The Exchange will implement the proposed change 
on June 1, 2011. The text of the proposed rule change is available at 
http://nasdaqomxbx.cchwallstreet.com/, at the Exchange's principal 
office, on the Commission's Web site at http://www.sec.gov, 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
    BX is proposing to modify its fees for trades that execute at 
prices at or above $1.\3\ BX has a pricing model under which members 
are charged for the execution of quotes/orders posted on the BX book 
(i.e., quotes/orders that provide liquidity), while members receive a 
rebate for orders that access liquidity. Since BX introduced this 
pricing model in 2009, several other exchanges have emulated it, 
including the EDGA Exchange, the BATS-Y Exchange, and the CBOE Stock 
Exchange (``CBSX''). Currently, BX charges a fee to add liquidity of 
$0.0018 per share executed, while providing a rebate for accessing 
liquidity of $0.0014 per share executed.
---------------------------------------------------------------------------

    \3\ Although BX is not modifying its fees for securities priced 
below $1, it is moving the language describing such fees into Rule 
7018(b) and redesignating existing Rule 7018(b) as Rule 7018(c).
---------------------------------------------------------------------------

    Effective June 1, 2011, BX will introduce a tiered pricing 
structure for both the fee and rebate portion of the pricing schedule. 
First, although they are not paid a credit for liquidity provision, 
certain BX members nevertheless find it advantageous to post liquidity 
because the rebate paid to liquidity takers encourages more rapid 
execution of posted orders. To provide further incentives to members to 
post liquidity through BX, the Exchange is introducing a ``Qualified 
Liquidity Provider'' program. A Qualified Liquidity Provider is a BX 
member with (i) Shares of liquidity provided and (ii) total shares of 
liquidity accessed and provided in all securities through one or more 
of its NASDAQ OMX BX Equities System Market Participant Identifiers 
(``MPIDs'') that represent more than 0.40% and 0.50%, respectively, of 
the total consolidated volume reported to all consolidated transaction 
reporting plans by all exchanges and trade reporting facilities during 
the month. With respect to displayed orders entered through any MPID of 
a Qualified Liquidity Provider that is a Qualified MPID, the member 
will be charged $0.0015 per share executed, rather than the current 
rate of $0.0018 per share executed. A ``Qualified MPID'' is an MPID 
through which the member quotes at the national best bid or offer 
(``NBBO'') an average of at least 25% of the time during regular market 
hours (9:30 a.m. through 4 p.m.) during the month, in at least 150 
securities. For each trading day, the percentage of time that a member 
quotes at the NBBO for each security will be calculated by determining 
the percentage of time quoting at the best bid and the percentage of 
time quoting at the best offer, and determining the average of the two 
percentages. Thus, for a given security, if a member quotes at the best 
bid 10% of the day, and at the best offer 55% of the day, its average 
at the NBBO will be 32.5% ((10 + 55)/2). The percentage for each day 
will then be added and divided by the number of trading days in the 
month to determine the overall percentage in each stock.\4\
---------------------------------------------------------------------------

    \4\ The program is similar to the Supplemental Liquidity 
Provider program of the New York Stock Exchange, under which members 
may earn progressively higher liquidity provider credits if they 
satisfy a requirement of quoting at the NBBO 10% or more of the time 
and add specified levels of liquidity to the book, with the credit 
rising as the amount of liquidity provided increases. See http://www.nyse.com/pdfs/nyse_equities_pricelist.pdf.
---------------------------------------------------------------------------

    With respect to the rebate paid to members accessing liquidity, BX 
is modifying the fee schedule to provide that the current credit of 
$0.0014 will be paid only with respect to orders entered by a member 
through an MPID through which the member accesses an average daily 
volume of 3.5 million or more shares of liquidity during the month, or 
provides an average daily volume of 25,000 or more shares of liquidity 
during the month. Because these requirements are not especially high, 
BX expects that most members seeking the higher rebate will be able to 
achieve at least one of the criteria. However, for members that do not 
achieve these requirements, the credit will be $0.0005 per share 
executed.\5\ The change is designed to ensure that the most favorable 
rebate is provided to members that consistently support the BX market 
through liquidity provision or order routing at the levels required by 
the new tier. To the extent that the change results in a fee increase 
for some members, it will also help to offset the cost of implementing 
the Qualified Liquidity Provider program.
---------------------------------------------------------------------------

    \5\ By comparison, under the fee schedule of the EDGA Exchange, 
a member accessing liquidity can earn a rebate of $0.00015 per share 
executed if it adds or routes an average daily volume of 50,000 
shares on the EDGA Exchange, but is charged $0.0030 per share 
executed if it does not. See http://www.directedge.com/Membership/FeeSchedule/EDGAFeeSchedule.aspx. Thus, both aspects of BX's 
proposed credit tiers are more favorable to its members than the 
corresponding credit/fee of the EDGA Exchange.
---------------------------------------------------------------------------

2. Statutory Basis
    BX believes that the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\6\ in general, and with Section 
6(b)(4) of the Act,\7\ in

[[Page 34797]]

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 or system which BX operates or 
controls. All similarly situated members are subject to the same fee 
structure, and access to BX is offered on fair and non-discriminatory 
terms.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The new program for Qualified Liquidity Providers is reasonable and 
equitable because it will reduce fees for members that contribute to 
BX's market quality by directing a relatively large quantity of orders 
to BX and quoting at the NBBO with regularity in a large number of 
stocks. Volume-based discounts such as the proposed Qualified Liquidity 
Provider program have been widely adopted in the cash equities markets, 
and are equitable because they are open to all members on an equal 
basis and provide discounts that are reasonably related to the value to 
an exchange's market quality associated the requirements for the 
favorable pricing tier. By adding not only volume requirements but also 
requirements for Qualified Liquidity Providers to quote at the NBBO 
with some degree of consistency, BX believes that it can use pricing 
incentives to increase quoted depth at the NBBO, thereby also 
benefiting market participants that direct orders to the quotes/orders 
of Qualified Liquidity Providers.
    Similarly, the proposed pricing tier with respect to BX's credit 
for members accessing liquidity is designed to provide incentives for 
members to contribute to BX's market quality by accessing and/or 
providing liquidity. Orders that provide liquidity increase the 
likelihood that members seeking to access liquidity will have their 
orders filled, while orders that access liquidity encourage liquidity 
providers to post in the expectation of having their own orders filled. 
Accordingly, BX believes that it is reasonable and equitable to use 
pricing incentives, such as a higher rebate for accessing liquidity, to 
encourage members to increase their participation in the market either 
through liquidity provision or routing of liquidity accessing orders. 
BX also notes that the credits it offers, both to members achieving the 
tier and those that do not, are more favorable than the credit/fee 
charged by the EDGA Exchange in comparable circumstances.
    Finally, BX 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. In such an 
environment, BX must 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. BX believes that the proposed rule change reflects this 
competitive environment because it will use pricing incentives to 
encourage greater use of BX's order execution facilities.

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

    BX does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended. Because the market 
for order execution is extremely competitive, members may readily opt 
to disfavor BX's execution services if they believe that alternatives 
offer them better value. For this reason and the reasons discussed in 
connection with the statutory basis for the proposed rule change, BX 
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

    Written comments were neither solicited nor 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.\8\ 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 necessary or appropriate in the public interest, for the 
protection of investors, or 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.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

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 e-mail to [email protected]. Please include 
File Number SR-BX-2011-030 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-BX-2011-030. This file 
number should be included on the subject line if e-mail 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 Web site (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 Web site 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. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-BX-2011-030 and should be 
submitted on or before July 5, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
---------------------------------------------------------------------------

    \9\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-14664 Filed 6-13-11; 8:45 am]
BILLING CODE 8011-01-P