[Federal Register Volume 85, Number 96 (Monday, May 18, 2020)]
[Notices]
[Pages 29766-29770]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-10518]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88857; File No. SR-BX-2020-008]


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

May 12, 2020.
    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 1, 2020, Nasdaq BX, Inc. (``BX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule

[[Page 29767]]

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 credits 
and fees, at Equity 7, Section 118(a), as described further below.
    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 Exchange operates on the ``taker-maker'' model, whereby it 
generally pays credits to members that take liquidity and charges fees 
to members that provide liquidity. Currently, the Exchange has a 
schedule, at Equity 7, Section 118(a), which consists of several 
different credits that it provides for orders in securities priced at 
$1 or more per share that access liquidity on the Exchange and several 
different charges that it assesses for orders in such securities that 
add liquidity on the Exchange.
    Over the course of the last few months, the Exchange has 
experimented with various reformulations of its pricing schedule with 
the aim of increasing activity on the Exchange, improving market 
quality, and increasing market share.\3\ Although these changes have 
met with some success, the Exchange has yet to achieve the results it 
desires. Accordingly, the Exchange proposes to again revise its pricing 
schedule, in large part, in a further attempt to improve the 
attractiveness of the market to new and existing participants.
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    \3\ See Securities Exchange Act Release No. 34-87271 (October 
10, 2019), 84 FR 55621 (October 17, 2019) (SR-BX-2019-035); 
Securities Exchange Act Release No. 34-87271 (September 24, 2019), 
84 FR 57530 (October 25, 2019) (SR-BX-2019-031); Securities Exchange 
Act Release No. 34-86120 (June 17, 2019); 84 FR 29270 (June 21, 
2019) (SR-BX-2019-026); Securities Exchange Act Release No. 34-85912 
(May 22, 2019); 84 FR 24834 (May 29, 2019) (SR-BX-2019-013).
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Description of the Changes
Credits for Accessing Liquidity through the Exchange
    The Exchange proposes to revise its schedule of credits to add one 
new credit. Specifically, the Exchange proposes to provide a $0.0027 
per share executed credit (for securities in Tapes A and B) and a 
$0.0026 per share executed credit (for securities in Tape C) for orders 
that access liquidity (excluding orders with Midpoint pegging and 
excluding orders that receive price improvement and execute against an 
order with a Non-displayed price) entered by a member: (i) Whose 
combined liquidity removing and adding activities equal to or exceed 
0.185% of total Consolidated Volume during a month; and (ii) adds 
liquidity equal to or exceeding an average daily volume of 50,000 
shares in a month. The Exchange believes that that the availability of 
the new credits will incentivize members that currently qualify for one 
of the lesser credits to increase their existing levels of liquidity 
adding and removal activities on the Exchange to attain it. In doing 
so, the Exchange intends to improve the overall quality and 
attractiveness of the Nasdaq BX market.
Charges for Adding Liquidity to the Exchange
    In addition to the above, the Exchange proposes to amend its 
existing schedule of charges for adding displayed liquidity to the 
Exchange.
    First, the Exchange proposes to amend its existing $0.0026 per 
share executed charge for displayed orders entered by a member that 
adds liquidity equal to or exceeding 0.15% of total Consolidated Volume 
during a month. The Exchange proposes to reduce the percentage of total 
Consolidated Volume needed to qualify for this charge, from 0.15% to 
0.11% total Consolidated Volume. By easing the volume requirements for 
this charge, which represents a discount off of the standard $0.0030 
per share executed charge (for all other orders), the Exchange intends 
to increase the number of members that seek to and do qualify for it, 
and thereby provide incentives for members to add liquidity to the 
Exchange.
    Second, the Exchange proposes to add to its schedule of charges a 
new $0.0025 per share executed charge for displayed orders entered by a 
member that adds liquidity equal to or exceeding 0.175% of total 
Consolidated Volume during a month. The Exchange proposes to add this 
new charge, which also represents a discount off of the standard 
charge, to provide a new incentive for members that already qualify for 
the $0.0026 per share executed charge to increase their volume of 
liquidity adding activity so as to qualify for the further discounted 
charge of $0.0025 per share executed.
Impact of the Changes
    Those participants that act as net removers of liquidity from the 
Exchange will benefit directly from the proposed addition of new 
credits that would apply to orders that remove liquidity from the 
Exchange. Those participants that act as net adders of liquidity will 
also benefit from the new credits insofar as they are tied to members 
achieving a threshold level of liquidity adding and removing activity 
on the Exchange; any ensuing increase in liquidity adding and removing 
activity will improve the overall quality of the market, to the benefit 
of all members.
    Meanwhile, the proposed changes to ease the qualifying volume 
threshold to qualify for the $0.0026 per share executed charge and to 
establish a new $0.0025 charge, will benefit participants that are net 
adders of liquidity by enabling them to more easily qualify for the 
existing $0.0026 per share executed discounted charge, and by providing 
members with an incentive to increase their liquidity adding activity 
to qualify for the new $0.0025 per share executed discounted charge. 
The Exchange notes that its proposal is not otherwise targeted at or 
expected to be limited in its applicability to a specific segment(s) of 
market participants nor will it apply differently to different types of 
market participants.
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

[[Page 29768]]

designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. The proposal is also consistent with Section 11A 
of the Act relating to the establishment of the national market system 
for securities.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposal Is Reasonable
    The Exchange's proposed changes to its schedule of credits and fees 
are reasonable in several respects. As a threshold matter, the Exchange 
is subject to significant competitive forces in the market for equity 
securities transaction services that constrain its pricing 
determinations in that market. The fact that this market is competitive 
has long been recognized by the courts. In NetCoalition v. Securities 
and Exchange Commission, the D.C. Circuit stated as follows: ``[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'. . . .'' \6\
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    \6\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(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 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.'' \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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    Numerous indicia demonstrate the competitive nature of this market. 
For example, clear substitutes to the Exchange exist in the market for 
equity security transaction services. The Exchange is only one of 
several equity venues to which market participants may direct their 
order flow, and it represents a small percentage of the overall market. 
It is also only one of several taker-maker exchanges. Competing equity 
exchanges offer similar tiered pricing structures to that of the 
Exchange, including schedules of rebates and fees that apply based upon 
members achieving certain volume thresholds.\8\
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    \8\ See CBOE EDGA Fee Schedule, at https://markets.cboe.com/us/equities/membership/fee_schedule/edga/; NYSE National Fee Schedule, 
at https://www.nyse.com/publicdocs/nyse/regulation/nyse/NYSE_National_Schedule_of_Fees.pdf.
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    Within this environment, market participants can freely and often 
do shift their order flow among the Exchange and competing venues in 
response to changes in their respective pricing schedules.\9\ 
Separately, the Exchange has provided the SEC staff with multiple 
examples of instances where pricing changes by BX and other exchanges 
have resulted in shifts in exchange market share. Within the foregoing 
context, the proposal represents a reasonable attempt by the Exchange 
to increase its liquidity and market share relative to its competitors.
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    \9\ The Exchange perceives no regulatory, structural, or cost 
impediments to market participants shifting order flow away from it. 
In particular, the Exchange notes that these examples of shifts in 
liquidity and market share, along with many others, have occurred 
within the context of market participants' existing duties of Best 
Execution and obligations under the Order Protection Rule under 
Regulation NMS.
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    The Exchange has designed its proposed schedule of credits and 
charges to provide increased overall incentives to members to increase 
their liquidity removal and adding activity on the Exchange. An 
increase in liquidity removal and adding activity on the Exchange will, 
in turn, improve the quality of the Nasdaq BX market and increase its 
attractiveness to existing and prospective participants. Generally, the 
proposed new credit and amended and new charges will be comparable to, 
if not favorable to, those that its competitors provide.\10\
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    \10\ See n. 8, supra.
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    The Exchange notes that those participants that are dissatisfied 
with the proposed credits or fees are free to shift their order flow to 
competing venues that offer them higher credits or lower fees.
The Proposal Is an Equitable Allocation of Credits
    The Exchange believes its proposal will allocate its proposed new 
credits and amended and new charges fairly among its market 
participants. It is equitable for the Exchange to increase its credits 
to participants whose orders remove liquidity from the Exchange as a 
means of incentivizing increased liquidity removal activity on the 
Exchange as well as to tie the receipt of the credits to the member 
engaging in a threshold volume of combined liquidity removal and adding 
activity on the Exchange. Furthermore, it is equitable for the Exchange 
to propose higher credits for participants with orders in securities in 
Tapes A and B than it proposes for participants with orders in Tape C 
due to the Exchange's desire to specifically promote increased 
liquidity removal activity in securities in Tapes A and B. Likewise, it 
is equitable for the Exchange to reduce charges to participants whose 
orders add liquidity to the Exchange as a means of incentivizing 
liquidity adding activity. An increase in overall liquidity removal and 
addition activity on the Exchange will improve the quality of the 
Nasdaq BX market and increase its attractiveness to existing and 
prospective participants.
    Any participant that is dissatisfied with the proposed new credist 
or its amended or new charges is free to shift their order flow to 
competing venues that provide more favorable pricing or less stringent 
qualifying criteria.
The Proposed Credit Is Not Unfairly Discriminatory
    The Exchange believes that the proposal is not unfairly 
discriminatory. As an initial matter, the Exchange believes that 
nothing about its volume-based tiered pricing model is inherently 
unfair; instead, it is a rational pricing model that is well-
established and ubiquitous in today's economy among firms in various 
industries--from co-branded credit cards to grocery stores to cellular 
telephone data plans--that use it to reward the loyalty of their best 
customers that provide high levels of business activity and incent 
other customers to increase the extent of their business activity. It 
is also a pricing model that the Exchange and its competitors have long 
employed with the assent of the Commission. It is fair because it 
incentivizes customer activity that increases liquidity, enhances price 
discovery, and improves the overall quality of the equity markets.
    The Exchange intends for its proposal to improve market quality for 
all members on the Exchange and by extension attract more liquidity to 
the market, improving market wide quality and price discovery. Both net 
removers and net adders of liquidity to the Exchange stand to benefit 
directly from the proposed changes. Moreover, to the extent that the 
proposed changes increase liquidity addition and removal activity on 
the Exchange, this will improve market quality and the attractiveness 
of the Nasdaq BX market,

[[Page 29769]]

to the benefit of all existing and prospective participants.
    Furthermore, it is not unfairly discriminatory for the Exchange to 
propose higher credits for participants with orders in securities in 
Tapes A and B than it proposes for participants with orders in Tape C 
because the Exchange seeks to promote increased liquidity removal 
activity specifically in securities in Tapes A and B.
    Moreover, any participant that is dissatisfied with the proposed 
new credits or proposed amended or new charges is free to shift their 
order flow to competing venues that provide more favorable pricing or 
less stringent qualifying criteria.

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.
Intramarket Competition
    The Exchange does not believe that its proposal will place any 
category of Exchange participant at a competitive disadvantage. As 
noted above, all members of the Exchange will benefit from any increase 
in market activity that the proposal effectuates. Members may grow or 
modify their businesses so that they can receive the higher credits or 
lower charge. Moreover, members are free to trade on other venues to 
the extent they believe that the credit provided or fees imposed are 
not attractive. As one can observe by looking at any market share 
chart, price competition between exchanges is fierce, with liquidity 
and market share moving freely between exchanges in reaction to fee and 
credit changes. The Exchange notes that the tier structure is 
consistent with broker-dealer fee practices as well as the other 
industries, as described above.
Intermarket Competition
    Addressing whether the proposal could impose a burden on 
competition on other SROs that is not necessary or appropriate, the 
Exchange believes that its proposed modifications to its schedule of 
credits and charges will not impose a burden on competition because the 
Exchange's execution services are completely voluntary and subject to 
extensive competition both from the other 12 live exchanges and from 
off-exchange venues, which include 32 alternative trading systems. 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 and credits 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 and credits in response, and because market participants may 
readily adjust their order routing practices, the Exchange believes 
that the degree to which fee and credits changes in this market may 
impose any burden on competition is extremely limited.
    The proposed restated schedule of credits and charges is reflective 
of this competition because, as a threshold issue, the Exchange is a 
relatively small market so its ability to burden intermarket 
competition is limited. In this regard, even the largest U.S. equities 
exchange by volume has less than 17-18% market share, which in most 
markets could hardly be categorized as having enough market power to 
burden competition. Moreover, as noted above, price competition between 
exchanges is fierce, with liquidity and market share moving freely 
between exchanges in reaction to fee and credit changes. This is in 
addition to free flow of order flow to and among off-exchange venues 
which comprised more than 37% of industry volume for the month of March 
2019.
    The Exchange intends for the proposed changes to its schedule of 
credits and fees, in the aggregate, to increase member incentives to 
engage in the removal and addition of liquidity on the Exchange. These 
changes are procompetitive and reflective of the Exchange's efforts to 
make it an attractive and vibrant venue to market participants.
    In sum, if the changes 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 
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.\11\
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    \11\ 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 No. SR-BX-2020-008 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 No. SR-BX-2020-008. 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,

[[Page 29770]]

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 No. SR-BX-2020-008, and should be 
submitted on or before June 8, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-10518 Filed 5-15-20; 8:45 am]
 BILLING CODE 8011-01-P