[Federal Register Volume 83, Number 233 (Tuesday, December 4, 2018)]
[Notices]
[Pages 62648-62651]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-26267]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84668; File No. SR-BX-2018-057]


Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Exchange's Transaction Fees at Equity 7, Section 118

November 28, 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 November 16, 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 
Equity 7, Section 118 to: (i) Eliminate a fee assessed for displayed 
orders; (ii) adopt a new fee for displayed orders; (iii) adopt a new 
fee for non-displayed orders; and (iv) adopt a Qualified Market Maker 
Program and a related fee.
    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 Equity 7, Section 118 to: (i) Eliminate a fee 
assessed for displayed orders; (ii) adopt a new fee for displayed 
orders; (iii) adopt a new fee for non-displayed orders; and (iv) adopt 
a Qualified Market Maker Program and a related fee.\3\
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    \3\ The Exchange initially filed the proposed pricing changes on 
November 1, 2018 (SR-BX-2018-053). On November 6, 2018, the Exchange 
withdrew that filing and replaced it with SR-BX-2018-054, which 
corrected a description of the quoting obligation under the QMM 
Program rule and made a technical correction to the purpose 
discussion. On November 16, 2018, the Exchange withdrew SR-BX-2018-
054 and submitted this filing, which makes technical changes and 
provides further description of the QMM Program.
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First Change
    The purpose of the first change is to eliminate a $0.0018 per share 
executed fee assessed for displayed orders. To qualify for the current 
fee, a member must add liquidity equal to or exceeding the member's 
Growth Target. The Growth Target is the liquidity the member added in 
January 2017 as a percent of total Consolidated Volume \4\ plus 0.04% 
of total Consolidated Volume. The fee tier has not provided adequate 
incentive to attract liquidity to the Exchange. Accordingly, the 
Exchange is proposing to eliminate the fee.
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    \4\ The term ``Consolidated Volume'' shall mean the total 
consolidated volume reported to all consolidated transaction 
reporting plans by all exchanges and trade reporting facilities 
during a month in equity securities, excluding executed orders with 
a size of less than one round lot. For purposes of calculating 
Consolidated Volume and the extent of a member's trading activity 
the date of the annual reconstitution of the Russell Investments 
Indexes shall be excluded from both total Consolidated Volume and 
the member's trading activity. See Equity 7, Section 118.
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Second Change
    The purpose of the second change is to adopt a new $0.0016 per 
share executed fee assessed for displayed orders. To qualify for the 
proposed fee, a member must add liquidity equal to or exceeding 0.06% 
of total Consolidated Volume during a month, and remove liquidity equal 
to or exceeding 0.40% of total Consolidated Volume during a month. The 
proposed new fee is similar to existing fees assessed for displayed 
orders, which require a certain level of total Consolidated Volume 
added during a month to qualify; however, the proposed new fee will 
also include a qualification requirement that a member remove a certain 
level of total Consolidated Volume during the month.
Third Change
    The purpose of the third change is to adopt a new $0.0020 per share 
executed fee for non-displayed orders (other than orders with Midpoint 
pegging). To qualify for the proposed fee, a member must meet the 
Qualified Market Maker Program qualification criteria and add 0.10% of 
total Consolidated Volume of non-displayed liquidity. The proposed new 
fee is similar to the certain existing fees assessed for non-displayed 
orders, which requires a certain level of total Consolidated Volume 
added during a month to qualify; however, the proposed new fee will 
also include a qualification requirement that a member also qualify for 
the Qualified Market Maker Program. The Qualified Market Maker Program, 
which is being proposed herein and is discussed immediately below, will 
require a member to provide market-improving behavior in the form of 
quoting and provision of total Consolidated Volume.
Fourth Change
    The purpose of the fourth change is to adopt a Qualified Market 
Maker (``QMM'') Program and a related fee. A QMM is a member that makes 
a significant contribution to market quality by providing liquidity at 
the national best bid and offer (``NBBO'') in a large number of 
securities for a significant portion of the day. A QMM may be, but is 
not required to be, a registered market maker in any security; thus, 
the QMM designation does not by itself impose a two-sided quotation 
obligation or convey any of the benefits associated with being a 
registered market maker. The designation will, however, reflect the 
QMM's commitment to provide meaningful and consistent support to market 
quality and price discovery by extensive quoting at the NBBO in a large 
number of securities. Thus, the program is designed to attract 
liquidity both from traditional market makers and from other firms that 
are willing to commit capital to support liquidity at the NBBO. In 
return for providing the required contribution of market-improving 
liquidity, a QMM will be assessed a lower rate for executions of 
displayed

[[Page 62649]]

orders in securities priced at $1 or more per share that provide 
liquidity on the Exchange System. Through the use of this incentive, 
the Exchange hopes to provide improved trading conditions for all 
market participants through narrower bid-ask spreads and increased 
depth of liquidity available at the inside market. In addition, the 
program reflects an effort to use financial incentives to encourage a 
wider variety of members to make positive commitments to promote market 
quality.
    To be designated as a QMM, a member must quote at the NBBO at least 
25% of the time during regular market hours in an average of at least 
400 securities per day during a month, and provide add volume of at 
least 0.125% of total Consolidated Volume during the month. In return 
for its contributions, the Exchange will assess a lower rate for 
executions of displayed orders in securities priced at $1 or more per 
share that provide liquidity on the Exchange System. Specifically, the 
Exchange is proposing to charge a fee of $0.0016 per share executed 
with respect to all displayed orders in securities priced at $1 or more 
per share that provide liquidity.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\5\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\6\ 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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    \5\ 15 U.S.C. 78f(b).
    \6\ 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 revenues of self-regulatory organizations 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.'' \7\
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    \7\ 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 \8\ 
(``NetCoalition'') the D.C. 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.\9\ 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.'' \10\
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    \8\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \9\ See NetCoalition, at 534-535.
    \10\ 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'. . . .'' \11\
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    \11\ 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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First Change
    The Exchange believes that elimination of the $0.0018 per share 
executed fee assessed for displayed orders that provide liquidity is 
reasonable because the Exchange continues to provide similar fees to 
members that meet the qualification criteria required to receive the 
fee. In this regard, the Exchange will provide four fee tiers ranging 
from $0.0017 per share executed to $0.0013 per share executed. For 
example, the Exchange assesses a fee of $0.0017 per share executed for 
displayed orders entered by a member that adds liquidity equal to or 
exceeding 0.15% of total Consolidated Volume during a month. Thus, 
members will continue to have opportunities to receive fees lower than 
the $0.0018 per share executed fee that is being eliminated.
    The Exchange believes that elimination of the $0.0018 per share 
executed fee assessed for displayed orders is an equitable allocation 
and is not unfairly discriminatory because the fee has not 
significantly provided incentive to market participants to provide the 
required level of total Consolidated Volume to receive the fee, and 
consequently the Exchange believes that it should eliminate the fee. 
The Exchange notes that it continues to provide opportunities to its 
members to qualify for fees lower than the $0.0018 per share executed 
fee assessed for displayed orders that provide liquidity.
Second Change
    The Exchange believes that the proposed $0.0016 per share executed 
fee is reasonable because it is similar to the fees currently assessed 
by the Exchange for displayed orders that provide liquidity. As noted 
above, the Exchange provides other fee tiers for displayed orders 
ranging from $0.0017 per share executed to $0.0013 per share executed. 
For example, the Exchange assesses a fee of $0.0017 per share executed 
for displayed orders entered by a member that adds liquidity equal to 
or exceeding 0.15% of total Consolidated Volume during a month. The 
proposed fee will provide another opportunity to members to receive a 
similar fee in return for certain levels of participation on the 
Exchange as measured by total Consolidated Volume.
    The Exchange believes that the proposed $0.0016 per share executed 
fee is an equitable allocation and is not unfairly discriminatory 
because the Exchange will apply the same fee to all similarly situated 
members. To qualify for the new fee, a member must provide certain 
minimum levels of total Consolidated Volume in both transactions that 
add and remove liquidity. The qualification criteria ensure that 
members qualifying for this fee are meaningfully participating on the 
Exchange in a given month. The Exchange notes that any member may 
qualify for the proposed fee if it meets the levels of total 
Consolidated Volume required by the fee's qualification criteria. Thus, 
the Exchange believes that this additional new fee provides all of its 
members with choice and flexibility, and is therefore an equitable 
allocation and not unfairly discriminatory.
Third Change
    The Exchange believes that the proposed $0.0020 per share executed 
fee for non-displayed orders that provide liquidity (other than orders 
with Midpoint pegging) is reasonable because it is similar to other 
fees that the Exchange assesses for non-displayed liquidity. For 
example, the Exchange currently assesses a fee of $0.0024 per share 
executed for non-displayed orders (other than orders with Midpoint 
pegging) entered by a member that adds 0.06% of total Consolidated 
Volume of non-displayed liquidity. The Exchange assesses a fee of 
$0.0030 per share

[[Page 62650]]

executed for all other non-displayed orders.\12\ The proposed fee will 
provide members with an opportunity to receive a lower fee for 
execution of their non-displayed orders. As a consequence, the Exchange 
believes that the proposed fee is reasonable.
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    \12\ The Exchange also assesses fees less than $0.0030 per share 
executed for orders with Midpoint pegging, which are non-displayed 
orders, if the member meets certain qualification criteria. See 
Equity 7, Section 118(a).
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    The Exchange believes that the proposed $0.0020 per share executed 
fee for non-displayed orders (other than orders with Midpoint pegging) 
is an equitable allocation and is not unfairly discriminatory because 
the Exchange will apply the same fee to all similarly situated members. 
Similar to the existing $0.0024 per share executed fee for non-
displayed orders (other than orders with Midpoint pegging), the 
proposed new fee requires that a member provide a certain level of 
total Consolidated Volume of non-displayed liquidity added. In addition 
to total Consolidated Volume, the proposed new fee also requires that a 
member qualify as a QMM under the proposed QMM Program, which requires 
that a member both quotes at the NBBO at least 25% of the time during 
regular market hours in an average of at least 400 securities per day 
during the month, and provides add volume of at least 0.125% total 
Consolidated Volume. Thus, not only must a member provide a certain 
level of total Consolidated Volume in non-displayed liquidity added, 
but it also must provide a certain level of total Consolidated Volume 
in both displayed and non-displayed liquidity added and quoting 
activity at the NBBO. The Exchange notes that any member may qualify as 
a QMM, and in turn also qualify for the proposed non-displayed fee, if 
the member chooses to provide the levels of liquidity and quoting at 
the NBBO required by the QMM Program and new fee qualification 
criteria. As a consequence, the Exchange believes that the proposed fee 
is an equitable allocation and not unfairly discriminatory.
Fourth Change
    The Exchange believes that the proposed $0.0016 per share executed 
fee of the QMM Program for displayed orders that provide liquidity is 
reasonable because it is similar to other fees assessed by the Exchange 
for displayed orders that provide liquidity. In addition to the 
proposed $0.0016 per share executed fee described above, the Exchange 
also has other fee tiers for displayed orders ranging from $0.0017 per 
share executed to $0.0013 per share executed. For example, the Exchange 
assesses a fee of $0.0017 per share executed for displayed orders 
entered by a member that adds liquidity equal to or exceeding 0.15% of 
total Consolidated Volume during a month. The proposed fee will provide 
another opportunity to members to be assessed a similar fee in return 
for certain levels of participation on the Exchange as measured by 
total Consolidated Volume. Unlike other fees currently assessed for 
displayed orders, the proposed QMM Program fee also requires a 
significant level of quoting at the NBBO. Thus, the proposed fee is set 
at a level that is reflective of the beneficial contributions of market 
participants that quote significantly at the NBBO and provide 
significant liquidity.
    The Exchange believes that the proposed $0.0016 per share executed 
fee and qualification criteria of the QMM Program are an equitable 
allocation and are not unfairly discriminatory because the Exchange 
will apply the same fee to all similarly situated members. Moreover, 
the proposed qualification criteria requires a member to provide a 
certain level of total Consolidated Volume in both displayed and non-
displayed liquidity added and to quote significantly at the NBBO. Any 
member may provide the level of total Consolidated Volume and quote at 
the NBBO at the levels required by the qualification criteria of the 
QMM Program. Similar to the other current fee qualification criteria, 
the QMM Program requires a member to provide a certain level of total 
Consolidated Volume to qualify. Unlike other current fee qualification 
criteria, the proposed QMM Program requires a member to quote at the 
NBBO at least 25% of the time during regular market hours in an average 
of at least 400 securities per day during the month. The Exchange notes 
that Nasdaq also has a QMM Program, in which Nasdaq members are 
required to quote at the NBBO at least 25% of the time during regular 
market hours.\13\ In contrast to the Exchange's proposal, Nasdaq 
requires a member to quote at the NBBO in an average of at least 1,000 
securities per day during the month. The Exchange believes that a lower 
requirement of 400 securities per day during the month is appropriate 
given the smaller size and volumes of the Exchange in comparison to 
Nasdaq. For these reasons, the Exchange believes that the proposed QMM 
Program fee and qualification criteria are an equitable allocation and 
are not unfairly discriminatory.
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    \13\ See Nasdaq Rule 7014(d)(2).
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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 changes to the fees assessed members 
for execution of all securities priced at $1 or more per share that it 
trades do 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 new fees provide opportunities to members to receive lower 
fees for transactions in both displayed and non-displayed orders. The 
fees are designed to provide incentive to members to improve the market 
by requiring certain levels of total Consolidated Volume to qualify for 
the fees. Similarly, the QMM Program fee provides members the 
opportunity to be assessed lower fees for transactions if they improve 
the market by providing both significant total Consolidated Volume and 
quoting at the NBBO meaningfully in a large number of securities. In 
sum, the proposed changes are designed to make the Exchange a more 
desirable venue on which to transact; however, 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.

[[Page 62651]]

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.\14\
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    \14\ 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-2018-057 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-2018-057. 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-2018-057 and should be submitted on 
or before December 26, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-26267 Filed 12-3-18; 8:45 am]
 BILLING CODE 8011-01-P