[Federal Register Volume 83, Number 76 (Thursday, April 19, 2018)]
[Notices]
[Pages 17454-17457]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-08152]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83045; File No. SR-BX-2018-011]


Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Exchange's Transaction Fees at Rule 7018

April 13, 2018.
    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 April 2, 2018, 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 
Rule 7018 to reduce the credit for a Retail Order that accesses 
liquidity provided by a Retail Price Improvement Order.
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaqbx.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

1. Purpose
    The purpose of the proposed rule change is to amend the Exchange's 
transaction fees at Rule 7018 to reduce the credit for a Retail Order 
that accesses liquidity provided by a Retail Price Improvement Order in 
connection with the Retail Price Improvement Program (``Program'').
    Under the RPI Program, a member (or a division thereof) approved by 
the Exchange to participate in the Program (a ``Retail Member 
Organization'' or ``RMO'') may submit designated ``Retail Orders'' \3\ 
for the purpose of seeking price improvement. All BX members may enter 
retail price improving orders (``RPI Orders''),\4\ a form of non-

[[Page 17455]]

displayed orders that are priced more aggressively than the Protected 
National Best Bid or Offer (``NBBO'') by at least $0.001 per share, for 
the purpose of offering such price improvement. RMOs may use two types 
of Retail Orders. A Type 1 Retail Order is eligible to execute only 
against RPI Orders and other orders on the Exchange Book (such as 
midpoint pegged orders) with a price that is (i) equal to or better 
than the price of the Type-1 Retail Order and (ii) at least $0.001 
better than the NBBO. A Type-1 Retail Order is not Routable and will 
thereafter be cancelled. Type 2 Retail Orders interact first with 
available RPI Orders and any other Orders on the Exchange Book with a 
price that is (i) equal to or better than the price of the Type-2 
Retail Order and (ii) at least $0.001 better than the NBBO and will 
then attempt to execute against any other Order on the Exchange Book 
with a price that is equal to or better than the price of the Type-2 
Retail Order, unless such executions would trade through a Protected 
Quotation. A Type-2 Retail Order may be designated as Routable.
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    \3\ A Retail Order is defined, in part, as ``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 BX Rules 4702(b)(6); 
4780(a)(2).
    \4\ A Retail Price Improvement Order is defined, in part, as 
``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.'' See BX Rules 4702(b)(5); 4780(a)(3).
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    Currently, the Exchange provides a credit of $0.0025 per share 
executed for a Retail Order that accesses liquidity provided by an RPI 
Order. This credit was adopted by the Exchange in 2014, 
contemporaneously with the implementation of the RPI Program.\5\ In 
adopting the fees and credits for the Program, the Exchange stated that 
its fees and credits were reflective of BX's ongoing efforts to use 
pricing incentive programs to attract orders of retail customers to BX 
and to improve market quality. With respect to the credit to access RPI 
Order liquidity, the Exchange stated that the credit would result in a 
significant increase of rebates with respect to such orders, thereby 
reducing the costs of members that represent retail customers and that 
take advantage of the Program, and potentially also reducing costs to 
the customers themselves.\6\
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    \5\ See Securities Exchange Act Release No. 73836 (December 15, 
2014), 79 FR 75852 (December 19, 2014) (SR-BX-2014-059).
    \6\ Id.
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    Since the introduction of the Program in 2014 and the accompanying 
fees and credits, the Program has attained a stable level of 
participation with respect to the number of monthly participants and 
average monthly volume. Given the maturity of the Program and the fact 
that it maintains a stable level of participants and volume, the 
Exchange believes that a lower credit, in addition to the potential 
price improvement Retail Orders will receive, will continue to 
incentivize retail participants to use the Program. Accordingly, the 
Exchange is reducing the current credit of $0.0025 per share executed 
for a Retail Order that accesses liquidity provided by an RPI Order to 
$0.0021 per share executed. The remaining credits and fees associated 
with the Program remain unchanged.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\7\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\8\ 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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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4) and (5).
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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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    Likewise, in NetCoalition v. Securities and Exchange Commission 
\10\ (``NetCoalition'') the DC Circuit upheld the Commission's use of a 
market-based approach in evaluating the fairness of market data fees 
against a challenge claiming that Congress mandated a cost-based 
approach.\11\ As the court emphasized, the Commission ``intended in 
Regulation NMS that `market forces, rather than regulatory 
requirements' play a role in determining the market data . . . to be 
made available to investors and at what cost.'' \12\
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    \10\ NetCoalition v. SEC, 615 F.3d 525 (DC Cir. 2010).
    \11\ See NetCoalition, at 534--535.
    \12\ Id. at 537.
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    Further, ``[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' . . . .'' \13\
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    \13\ Id. at 539 (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 Exchange believes that reducing the credit for a Retail Order 
that accesses liquidity provided by a Retail Price Improvement Order 
from $0.0025 to $0.0021 per share executed is reasonable. Given the 
maturity of the Program and the fact that it maintains a stable level 
of participants and volume, the Exchange believes that a lower credit, 
in addition to the potential price improvement Retail Orders will 
receive, will continue to incentivize retail participants to use the 
Program. The Exchange also believes that the new credit is reasonable 
because it remains higher than other credits offered by the Exchange, 
and will therefore continue to incentivize market participants to 
submit orders that qualify as Retail Orders to the Program.
    In assessing the reasonableness of the new credit, the Exchange 
also notes that the new credit remains greater than similar credits 
paid by other exchanges for their respective Retail Liquidity Programs. 
For example, Cboe BYX Exchange, Inc. currently provides a rebate of 
$0.00150 per share executed for a Retail Order that removes liquidity 
against a Retail Price Improving Order or a non-displayed order that 
adds liquidity.\14\ By way of further comparison, NYSE Arca, Inc. does 
not pay a credit (or assess a fee) for a Retail Order that executes 
against a Retail Price Improvement Order in Tape B and Tape C 
Securities.\15\
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    \14\ See Cboe BYX fee schedule at https://markets.cboe.com/us/equities/membership/fee_schedule/byx/.
    The Exchange notes that this Cboe BYX credit was previously 
$0.00250 per share. See Securities Exchange Act Release No. 81654 
(September 19, 2017), 82 FR 44674 (September 25, 2017) (SR-BatsBYX-
2017-21).
    \15\ See NYSE Arca, Inc. fee schedule at https://www.nyse.com/publicdocs/nyse/markets/nyse-arca/NYSE_Arca_Marketplace_Fees.pdf.
    Tape C securities are those that are listed on the Exchange, 
Tape A securities are those that are listed on New York Stock 
Exchange LLC (``NYSE''), and Tape B securities are those that are 
listed on exchanges other than Nasdaq or NYSE.
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    The Exchange believes that the new credit amount is an equitable 
allocation and is not unfairly discriminatory

[[Page 17456]]

because the Exchange will apply the same credit to all similarly 
situated members. The Exchange believes that it is an equitable 
allocation and is not unfairly discriminatory to reduce the credit for 
a Retail Order that access liquidity provided by an RPI Order while 
leaving other credits that are paid in connection with the Program 
unchanged. The Exchange notes that the amount of those other credits 
($0.0017 per share executed for a Retail Order that accesses other 
liquidity on the Exchange book and $0.0000 per share executed for a 
Retail Order that receives price improvement when the accepted price of 
an order is different than the executed price of an order and accesses 
non-Retail Price Improvement order with Midpoint pegging) are lower 
than both the current $0.0025 credit and the proposed $0.0021 credit 
for accessing liquidity provided by an RPI Order. The Exchange believes 
that the $0.0017 credit for a Retail Order that accesses other 
liquidity on the Exchange book is still necessary to incentivize 
participation in the Program, and the proposed change will more closely 
align the credit for a Retail Order that accesses liquidity provided by 
a Retail Price Improvement Order to the credit for a Retail Order that 
accesses other liquidity on the Exchange book. The Exchange believes 
that is an equitable allocation and not unfairly discriminatory to 
leave the $0.0000 credit unchanged, since that credit cannot be further 
reduced while remaining a credit.

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. 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 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.
    In this instance, the proposed change to the credit available to 
member firms does not impose a burden on competition because the 
Exchange's execution services are completely voluntary and subject to 
extensive competition both from other exchanges and from off-exchange 
venues. The proposed credit will apply to all similarly situated 
members. While the Exchange believes that the current credit amount is 
no longer necessary to incentivize market participants to participate 
in the Program, the proposed credit will continue to incentivize market 
participants to submit orders that qualify as Retail Orders to the 
Program. The Exchange does not believe that it will impose any burden 
on competition not necessary or appropriate to leave the other credits 
that are available pursuant to the Program ($0.0017 and $0.0000 per 
share executed) unchanged. As discussed above, the Exchange believes 
that the $0.0017 credit for a Retail Order that accesses other 
liquidity on the Exchange book is still necessary to incentivize 
participation in the Program, while the $0.0000 credit cannot be 
further reduced while remaining a credit. The proposed change will more 
closely align the credit for a Retail Order that accesses liquidity 
provided by a Retail Price Improvement Order to those other credits.
    Finally, the proposed credit continues to be higher than comparable 
credits paid by other exchanges in connection with their respective 
Retail Liquidity Programs.
    In sum, 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.\16\
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    \16\ 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-BX-2018-011 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-2018-011. 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 (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 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 10:00 a.m. and 
3:00 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. Persons submitting comments are 
cautioned that we do not redact or edit

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personal identifying information from comment submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-BX-2018-011, and should be 
submitted on or before May 10, 2018.
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    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-08152 Filed 4-18-18; 8:45 am]
 BILLING CODE 8011-01-P