[Federal Register Volume 78, Number 243 (Wednesday, December 18, 2013)]
[Notices]
[Pages 76689-76691]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-30039]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71055; File No. SR-BX-2013-059]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend the 
Fee Schedule Under Exchange Rule 7018(a) With Respect to Transactions 
in Securities Priced at $1 per Share or More

December 12, 2013.
    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 November 29, 2013, NASDAQ OMX 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.
---------------------------------------------------------------------------

    \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 amend the fee schedule under Exchange Rule 
7018(a) with respect to transactions in securities priced at $1 per 
share or more. The Exchange will implement the proposed rule change on 
December 2, 2013.
    The text of the proposed rule change is also available on the 
Exchange's Web site at http://nasdaqomxbx.cchwallstreet.com, 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

    The Exchange is proposing several changes to its fees and rebates 
applicable to transactions in securities priced at $1 or more. First, 
the Exchange is proposing to add a new tier for members that are active 
in both the NASDAQ OMX BX Equities System (the ``BX Equities System'') 
and BX Options. As such, the tier is similar to various tiers that have 
previously been introduced by the NASDAQ Stock Market for members of 
that exchange that are active in both the NASDAQ Market Center and the 
NASDAQ Options Market.\3\ Under the proposed tier, a member will be 
charged $0.0016 per share executed when providing liquidity through a 
displayed order if the member (i) has a daily average volume of 
liquidity provided in all securities during the month of 2 million or 
more shares through one or more BX Equities System market participant 
identifiers (``MPIDs''), and (ii) adds Options Market Maker volume 
under Chapter XV of BX Options rules of 20,000 or more contracts per 
day during the month.
---------------------------------------------------------------------------

    \3\ See NASDAQ Rule 7018(a).
---------------------------------------------------------------------------

    The proposed tier recognizes the prevalence of trading in which 
members simultaneously trade different asset classes within the same 
strategy. Because cash equities and options markets are linked, with 
liquidity and trading patterns on one market affecting those on the 
other, the Exchange believes that a pricing incentive that encourages 
market participant activity in BX Options will also support price 
discovery and liquidity provision in the BX Equities System.
    Second, the Exchange is proposing new pricing tiers for midpoint 
pegged orders, a non-displayed order whose price is pegged to the 
midpoint between the national best bid and national best offer. Thus, 
midpoint pegged orders provide price improvement when they execute that 
is equivalent to the difference between the price of the order and the 
national best bid or offer (as applicable). Currently, midpoint orders 
are charged a fee of $0.0015 per share executed when they provide 
liquidity, which is lower than the fee of $0.0020 per share executed 
for displayed orders and the current fee of $0.0025 \4\ per share 
executed for non-displayed orders other than midpoint orders. Thus, the 
pricing structure is designed to encourage members that provide 
liquidity to do so in a manner that provides price improvement. To 
further encourage the use of these orders, BX is proposing two new 
volume tiers for midpoint pegged orders. First, if a member provides an 
average daily volume of 2 million or more shares of liquidity using 
midpoint pegged orders during the month, the fee for such orders will 
be $0.0010 per share executed. Second, if a member provides an average 
daily volume of 1 million or more, but fewer than 2 million, shares of 
liquidity using midpoint pegged orders during the month, the fee for 
such orders will $0.00125 per share executed. For lower volumes, the 
fee will remain $0.0015 per share executed.
---------------------------------------------------------------------------

    \4\ As discussed below, BX is proposing increasing this fee to 
$0.0028 per share executed.
---------------------------------------------------------------------------

    Third, consistent with the goal of encouraging greater use of 
midpoint pegged orders to provide price improvement, BX is increasing 
the fee for non-displayed orders other than midpoint pegged orders to 
$0.0028 per share executed. Thus, to the extent that a member wishes to 
offer non-displayed liquidity on BX, it will be provided with a 
meaningful pricing incentive to do so using midpoint pegged orders, 
which benefit the counterparty accessing liquidity through price 
improvement, rather than non-displayed orders, which neither offer 
price improvement nor contribute to pre-trade price discovery.
    Fourth, BX is proposing to decrease the rebate for orders that 
access liquidity and that do not qualify for any other rebate category, 
from $0.0007 per share executed to $0.0004 per share executed.\5\ 
Currently, BX offers several

[[Page 76690]]

incentive rebate tiers that are quite easy for a member to achieve. 
First, BX offers a rebate tier of $0.0011 per share executed for an 
order that access [sic] liquidity at BX using a routable order. Second, 
BX offers the same rebate for an order that access [sic] liquidity if 
entered through an MPID through which the member provides an average 
daily volume of at least 25,000, but less than 1 million shares of 
liquidity during the month. Finally, BX offers a rebate of $0.0013 per 
share executed for an order that accesses liquidity if entered through 
an MPID through which the member (i) provides an average daily volume 
of 1 million or more shares of liquidity during the month or (ii) 
access [sic] an average daily volume of 3.5 million or more shares of 
liquidity. Thus, BX believes that the change in the rebate rate 
otherwise applicable will incentivize market participants to seek to 
qualify for more favorable pricing, either by providing or accessing 
more liquidity or by using BX's routing services.
---------------------------------------------------------------------------

    \5\ It should be noted, however, that rebates are not paid for 
orders that access liquidity provided by midpoint pegged orders, 
since the applicable price improvement ($0.005 per share executed on 
a security with a $0.01 spread, and more for securities with wider 
spreads) would in all cases exceed the rebates offered for orders 
accessing other liquidity.
---------------------------------------------------------------------------

    Finally, BX is amending the definition of ``Consolidated Volume'' 
in Rule 7018 to exclude executed orders with a size of less than one 
round lot. The amended definition refers to ``the total consolidated 
volume reported to all consolidated transaction reporting plans by all 
exchanges and trade reporting facilities . . . during the month, 
excluding executed orders with a size of less than one round lot.'' The 
exclusion for executed orders of less than a round lot is necessitated 
by recent amendments to the Consolidated Tape Association and NASDAQ 
UTP Plans \6\ under which odd lots must be reported to the consolidated 
tape. These amendments are taking effect in December 2013. When 
calculating a member's percentage, BX has historically included odd 
lots in the member's own total volume, but excluded them from 
Consolidated Volume, since they have not historically been included in 
the trades reported to consolidated transaction reporting plans. 
Accordingly, including odd lots in the calculation of a member's 
percentage of Consolidated Volume would make it more difficult for 
members to achieve certain percentages, and thus could constitute an 
unintended de facto price increase. To avoid this result, odd lots will 
be excluded from the definition of Consolidated Volume for pricing 
purposes, but would continue to be included in the member's own total 
volume.
---------------------------------------------------------------------------

    \6\ Securities Exchange Act Release No. 70794 (October 31, 
2013), 78 FR 66789 (November 6, 2013) (SR-CTA-2013-05); Securities 
Exchange Act Release No. 70793 (October 31, 2013), 78 FR 66788 
(November 6, 2013) (File No. S7-24-89).
---------------------------------------------------------------------------

2. Statutory Basis
    BX believes that the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\7\ in general, and Sections 6(b)(4) 
and (b)(5) of the Act,\8\ in particular, because 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 that 
the Exchange operates or controls, and it does not unfairly 
discriminate between customers, issuers, brokers or dealers.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(4), (5).
---------------------------------------------------------------------------

    The change with respect to a new tier for members active in both 
the BX Equities System and BX Options is reasonable because it reflects 
the availability of a price reduction for members that support 
liquidity on both markets. The change is consistent with an equitable 
allocation of fees because the pricing tier requires significant levels 
of liquidity provision, which benefits all market participants, and 
because activity in BX Options also supports price discovery and 
liquidity provision in the BX Equities System due to the increasing 
propensity of market participants to be active in both markets and the 
influence of each market on the pricing of securities in the other. 
Moreover, the new tier has the potential to reduce fees for a wider 
range of market participants by introducing a new means of qualifying 
for a lower fee for providing liquidity. The change is not unreasonably 
discriminatory because market participants may qualify for a still 
lower fee without participating in BX Options through participation in 
BX's Qualified Liquidity Provider program.
    The changes with respect to new tiers for midpoint pegged orders 
are reasonable because they will reduce fees for members that use 
higher volumes of midpoint pegged orders to offer price improvement. 
The changes are consistent with an equitable allocation of fees because 
the Exchange believes that it is equitable to provide financial 
incentives, such as the reduced fees in question, to encourage members 
to offer price improvement. The changes are not unfairly discriminatory 
because they are structured as volumetric pricing tiers, under which 
the level of fee reduction increases as the member's volume increases. 
Such pricing tiers are widely in use at various national securities 
exchanges and have been accepted as consistent with the Act because the 
financial benefit offered is correlated to the member's usage of the 
market.
    The change with respect to the fee charged to members providing 
liquidity through non-displayed orders other than midpoint pegged 
orders is reasonable because the fee change may readily be avoided 
through use of midpoint pegged orders or displayed orders, both of 
which the Exchange believes to be more beneficial to the market than 
non-midpoint, non-displayed orders. The change is consistent with an 
equitable allocation of fees and is not unfairly discriminatory because 
the Exchange believes that it is appropriate to charge a lower fee to 
displayed orders, which aid price discovery, and to midpoint pegged 
orders, which provide price improvement. The change is also not 
unfairly discriminatory because use of non-displayed orders is wholly 
voluntary.
    The change to the rebate offered for orders accessing liquidity is 
reasonable because it is still consistent with the Exchange's approach 
of paying a rebate to orders accessing liquidity, in contrast to most 
trading venues, which charge an access fee. Moreover, the change is 
consistent with an equitable allocation of fees because members can 
readily avoid the change by using routable orders or by offering a 
modest volume of liquidity (25,000 shares per day or more) through the 
Exchange. Thus, the change is equitable because it incentivizes members 
to make greater use of the Exchange's services to receive a higher 
rebate. The change is not unfairly discriminatory because it applies 
uniformly to all members that opt not to avoid it through the means 
described above.
    The change with respect to exclusion of odd lots from the 
definition of Consolidated Volume is reasonable because it avoids a de 
facto price increase that could occur due to the upcoming requirement 
to report odd lots to the consolidated tape. Similarly, the change is 
consistent with an equitable allocation of fees and is not unfairly 
discriminatory because it will maintain the status quo with respect to 
the Qualified Liquidity Provider incentive program, which requires 
calculations based on Consolidated Volume. Thus, the change avoids a 
potential inequitable and unfair result under which members with 
volumes close to a required percentage would be unable to achieve a 
pricing tier for which they had formerly qualified.

[[Page 76691]]

(B) Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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.\9\ 
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, or rebate opportunities 
available at other venues to be more favorable. 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. 
Because competitors are free to modify their own fees in response, and 
because market participants may readily adjust their order routing 
practices, BX believes that the degree to which fee changes in this 
market may impose any burden on competition is extremely limited. In 
this instance, the changes with respect to midpoint orders and the new 
pricing tier for members active in the Exchange's cash equities and 
options markets enhances the Exchange's competitiveness by reducing 
fees. Likewise, the change with respect to the definition of 
Consolidated Volume avoids a potential de facto price increase, thereby 
also enhancing the Exchange's competitiveness. The Exchange further 
believes that the changes for non-displayed orders and liquidity 
accessing orders not qualifying for a pricing tier also increase the 
Exchange's competitiveness, because they serve to encourage members to 
increase their use of displayed or midpoint pegged orders, or to 
increase volume or make greater use of BX's router. Thus, although 
price increases, they provide incentives for behavior that may allow 
members to reduce their trading costs. Moreover, because there are 
numerous competitive alternatives to the use of the Exchange, it is 
likely that BX will lose market share as a result of the changes if 
they are unattractive to market participants. Accordingly, 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.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

(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 change has become effective pursuant to Section 
19(b)(3)(A) of the Act \10\ and paragraph (f) of Rule 19b-4 \11\ 
thereunder. 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.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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-2013-059 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-2013-059. 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 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 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of BX. 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-2013-059 and should be 
submitted on or before January 8, 2014.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

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

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-30039 Filed 12-17-13; 8:45 am]
BILLING CODE 8011-01-P