[Federal Register Volume 83, Number 97 (Friday, May 18, 2018)]
[Notices]
[Pages 23312-23313]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-10600]



[[Page 23312]]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83224; File No. SR-BX-2018-018]


Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Rule 
7018(a) To Establish a New Fee for Orders With Midpoint Pegging That 
Execute at a Price Better Than the Midpoint of the NBBO

May 14, 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 30, 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.
---------------------------------------------------------------------------

    \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 establish a new fee for orders with 
Midpoint pegging that receive an execution price that is better than 
the midpoint of the National Best Bid and Offer (``NBBO''), as 
described further below.
    While these amendments are effective upon filing, the Exchange has 
designated the proposed amendments to be operative on May 1, 2018.
    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 establish a new fee of $0.0017 per 
share executed for a buy (sell) order with Midpoint pegging that 
receives an execution price that is lower (higher) than the midpoint of 
the NBBO.
    The Exchange operates on the ``taker-maker'' model, whereby it pays 
credits to members that take liquidity and charges fees to members that 
provide liquidity. Among the fees that the Exchange charges to members 
that submit liquidity-providing orders to the Exchange, the Exchange 
charges a baseline fee of $0.0030 per share executed for each non-
displayed order that adds liquidity. However, for certain types of non-
displayed orders that add liquidity, the Exchange charges lower fees 
relative to the baseline fee as a means of incentivizing additional 
liquidity. For example, the Exchange charges $0.0015 per share executed 
for orders with Midpoint pegging \3\ or $0.0005 if the order with 
Midpoint pegging is entered by a member that adds 0.02% of total 
Consolidated Volume of non-displayed liquidity.
---------------------------------------------------------------------------

    \3\ Pursuant to Rule 4703(d), an order with a ``Midpoint 
pegging'' attribute is a non-displayed order whose price is 
determined with reference to midpoint between the Inside Bid and 
Inside Offer (the ``Midpoint'').
---------------------------------------------------------------------------

    The new fee that the Exchange proposes to charge for a Midpoint 
pegging order that executes at a price which is less aggressive than 
the midpoint of the NBBO will be higher than the $0.0005 or $0.0015 
fees that the Exchange charges for Midpoint pegging orders, generally. 
This is reasonable because Midpoint pegging orders that execute at 
prices less aggressive than the Midpoint of the NBBO provide less price 
improvement to other participants and execute at better prices (from 
the perspective of the firm having entered the order with Midpoint 
pegging) than Midpoint pegging orders that execute at the midpoint. 
However, the Exchange notes that the proposed fee will still be lower 
than the baseline $0.0030 fee that the Exchange charges for non-display 
orders as a means of incenting orders that provide price improvement 
relative to the Midpoint.
    The Exchange also proposes to add language to existing provisions 
of the fee schedule that also apply to orders with Midpoint pegging to 
clarify that these other provisions and their associated fees do not 
apply to orders with Midpoint pegging that receive price improvement 
relative to the midpoint of the NBBO.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\4\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\5\ 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.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    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.'' \6\
---------------------------------------------------------------------------

    \6\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
---------------------------------------------------------------------------

    Likewise, in NetCoalition v. Securities and Exchange Commission \7\ 
(``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.\8\ 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.'' \9\
---------------------------------------------------------------------------

    \7\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \8\ See NetCoalition, at 534-535.
    \9\ Id. at 537.
---------------------------------------------------------------------------

    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

[[Page 23313]]

the execution of order flow from broker dealers'. . . .'' \10\ Although 
the court and the SEC were discussing the cash equities markets, the 
Exchange believes that these views apply with equal force to the 
options markets.
---------------------------------------------------------------------------

    \10\ 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)).
---------------------------------------------------------------------------

    The Exchange believes that its proposed fee is reasonable because 
it benefits participants by providing a new way in which members may 
qualify for a reduced transaction fee, while also incentivizing members 
to add liquidity to the Exchange. It is also reasonable for the 
Exchange to charge a higher fee for a Midpoint pegging order that 
receives price improvement relative to the midpoint of the NBBO than it 
does for a Midpoint pegging order that executes at the Midpoint because 
the former order receives a better price than the latter one relative 
to the midpoint of the NBBO.
    The Exchange believes that the proposed fee is an equitable 
allocation and is not unfairly discriminatory because the Exchange will 
apply the same fee to all similarly situated members.

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 fee 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 fee will apply to 
all similarly situated members.
    Moreover, the proposal promotes competition because the Exchange 
intends for it to incentivize members to add liquidity to the Exchange, 
potentially attracting additional participants to the Exchange.
    In sum, if the change proposed herein is 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 
change 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.\11\
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

    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-2018-018 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-2018-018. 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 (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 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-2018-018 and should be submitted on 
or before June 8, 2018.

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

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

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-10600 Filed 5-17-18; 8:45 am]
 BILLING CODE 8011-01-P