[Federal Register Volume 85, Number 165 (Tuesday, August 25, 2020)]
[Notices]
[Pages 52396-52399]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-18558]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89614; File No. SR-BX-2020-022]


Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend BX Pricing 
Schedule at Options 7, Section 2, and Options 7, Section 3

August 19, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on August 12, 2020, Nasdaq BX, Inc. (``BX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (the ``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 BX's Pricing Schedule at Options 7, 
Section 2, ``BX Options Market Fees and Rebates'' and Options 7, 
Section 3, ``BX Options Market--Ports and other Services.''
    The Exchange originally filed the proposed pricing changes on 
August 6, 2020 (SR-BX-2020-021). On August 12, 2020, the Exchange 
withdrew that filing and submitted this filing.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/bx/rules, 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

[[Page 52397]]

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 proposes to amend BX's Pricing Schedule at Options 7, 
Section 2, ``BX Options Market Fees and Rebates'' and Options 7, 
Section 3, ``BX Options Market--Ports and other Services.'' Each change 
is described below.
Options 7, Section 2
    The Exchange proposes to replace the term ``Penny Pilot Options'' 
or ``Non-Penny Pilot Options'' with ``Penny Symbols'' or ``Non-Penny 
Symbols.'' On April 1, 2020 the Commission approved the amendment to 
the OLPP to make permanent the Pilot Program (the ``OLPP Program'').\3\ 
The Exchange recently filed a proposal to amend BX Options 3, Section 3 
to conform the rule to Section 3.1 of the Plan for the Purpose of 
Developing and Implementing Procedures Designed to Facilitate the 
Listing and Trading of Standardized Options (the ``OLPP'').\4\ The 
Exchange's proposal amended BX Options 3, Section 3 to refer to a Penny 
Interval Program instead of a Penny Pilot Program.
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    \3\ See Securities Exchange Act Release No. 88532 (April 1, 
2020), 85 FR 19545 (April 7, 2020) (File No. 4-443) (``Approval 
Order'').
    \4\ See Securities Exchange Act Release No. 89169 (June 26, 
2020), 85 FR 39949 (July 2, 2020) (SR-BX-2020-013).
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Options 7, Section 3
    In connection with a technology migration, Participants may request 
new SQF Ports,\5\ SQF Purge Ports,\6\ FIX DROP Port,\7\ CTI Ports,\8\ 
BX Depth Ports \9\ and BX TOP Ports \10\ from August 10, 2020 through 
September 30, 2020, which are duplicative of the type and quantity of 
their current ports, at no additional cost to allow for testing of the 
new ports and allow for continuous connection to the match engine 
during the transition period.\11\ For example, a BX Participant with 3 
SQF Ports, 1 SQF Purge Port, 1 FIX DROP Port, 1 CTI Port, 2 BX Depth 
Ports and 1 BX TOP Port on October 1, 2020 could request 3 new SQF 
Ports, 1 new SQF Purge Port, 1 new FIX DROP Port, 1 new CTI Port, 2 new 
BX Depth Ports and 1 new BX TOP Port from August 10, 2020 through 
September 30, 2020 at no additional cost. The BX Participant would be 
assessed only for the legacy market ports, in this case 3 SQF Ports, 1 
SQF Purge Port, 1 FIX DROP Port, 1 CTI Port, 2 BX Depth Ports and 1 BX 
TOP Port from August 10, 2020 through September 30, 2020 and would not 
be assessed for the new ports, which are duplicative of the current 
ports. A Participant may acquire any additional legacy ports from 
August 10, 2020 through September 30, 2020 and would be assessed the 
charges indicated in the current Pricing Schedule. The migration does 
not require a Participant to acquire any additional ports, rather the 
migration requires a new port to replace any existing ports provided 
the Participant desired to maintain the same number of ports.\12\ A BX 
Market Maker quoting on BX only requires 1 SQF Port.\13\ A Participant 
may also obtain any number of order and execution ports, such as a SQF 
Purge Ports, FIX DROP Ports and CTI Ports and any number of data ports, 
such as BX Depth and BX TOP Ports. The number of ports obtained by a 
Participant is dependent on Participant's business needs.
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    \5\ ``Specialized Quote Feed'' or ``SQF'' is an interface that 
allows Market Makers to connect, send, and receive messages related 
to quotes, Immediate-or-Cancel Orders, and auction responses into 
and from the Exchange. Features include the following: (1) Options 
symbol directory messages (e.g. underlying instruments); (2) system 
event messages (e.g., start of trading hours messages and start of 
opening); (3) trading action messages (e.g., halts and resumes); (4) 
execution messages; (5) quote messages; (6) Immediate-or-Cancel 
Order messages; (7) risk protection triggers and purge 
notifications; (8) opening imbalance messages; (9) auction 
notifications; and (10) auction responses. The SQF Purge Interface 
only receives and notifies of purge request from the Market Maker. 
Market Makers may only enter interest into SQF in their assigned 
options series. See Options 3, Section 7(d)(1)(B).
    \6\ The SQF Purge Interface only receives and notifies of purge 
request from the Market Maker. Market Makers may only enter interest 
into SQF in their assigned options series. See Options 3, Section 
7(d)(1)(B).
    \7\ FIX DROP is a real-time order and execution update message 
that is sent to a Participant after an order been received/modified 
or an execution has occurred and contains trade details specific to 
that Participant. The information includes, among other things, the 
following: (i) Executions; (ii) cancellations; (iii) modifications 
to an existing order and (iv) busts or post-trade corrections. See 
Options 3, Section 23(b)(3).
    \8\ Clearing Trade Interface (``CTI'') is a real-time clearing 
trade update message that is sent to a Participant after an 
execution has occurred and contains trade details specific to that 
Participant. The information includes, among other things, the 
following: (i) The Clearing Member Trade Agreement or ``CMTA'' or 
The Options Clearing Corporation or ``OCC'' number; (ii) Exchange 
badge or house number; (iii) the Exchange internal firm identifier; 
(iv) an indicator which will distinguish electronic and non-
electronically delivered orders; (v) liquidity indicators and 
transaction type for billing purposes; and (vi) capacity. See Option 
3, Section 23(b)(1).
    \9\ BX Depth of Market (``BX Depth'') is a data feed that 
provides full order and quote depth information for individual 
orders and quotes on the BX Options book, last sale information for 
trades executed on BX Options, and Order Imbalance Information as 
set forth in BX Options Rules Options 3, Section 8. The data 
provided for each options series includes the symbols (series and 
underlying security), put or call indicator, expiration date, the 
strike price of the series, and whether the option series is 
available for trading on BX and identifies if the series is 
available for closing transactions only. See Options 3, Section 
23(a)(1).
    \10\ BX Top of Market (``BX Top'') is a data feed that provides 
the BX Options Best Bid and Offer and last sale information for 
trades executed on BX Options. The data provided for each options 
series includes the symbols (series and underlying security), put or 
call indicator, expiration date, the strike price of the series, and 
whether the option series is available for trading on BX and 
identifies if the series is available for closing transactions only. 
See Options 3, Section 23(a)(1).
    \11\ Participants would contact Market Operations to acquire new 
duplicative ports.
    \12\ The migration is 1:1 and therefore would not require a 
Participant to acquire new ports, nor would it reduce the number of 
ports needed to connect.
    \13\ SQF Ports are utilized solely by Market Makers who are the 
only Participants permitted to quote on BX.
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    The proposal is not intended to impose any additional fees on any 
BX Participant. This proposal is intended to permit a BX Participant to 
migrate its current SQF Ports, SQF Purge Ports, FIX DROP Ports, CTI 
Ports, BX Depth Ports and BX TOP Ports at no additional cost from 
August 10, 2020 through September 30, 2020 to allow for continuous 
connection to the Exchange. BX will sunset legacy ports by October 1, 
2020. BX will assess Participants new SQF Ports, SQF Purge Ports, FIX 
DROP Ports, CTI Ports, BX Depth Ports and BX TOP Ports in October 2020.
    Currently, there is obsolete rule text within Options 7, Sections 
3(i) and 3(ii), which the Exchange proposes to replace with new rule 
text related to its current proposal to migrate technology. The 
obsolete rule text concerned a prior

[[Page 52398]]

technology migration in 2019 which has already occurred and, therefore, 
the current rule text is no longer necessary.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\14\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\15\ 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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    \14\ 15 U.S.C. 78f(b).
    \15\ 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.'' \16\
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    \16\ 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 
\17\ (``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.\18\ 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.'' \19\
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    \17\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \18\ See NetCoalition, at 534-535.
    \19\ 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'. . . .'' \20\ 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.
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    \20\ 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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Options 7, Section 2
    The Exchange's proposal to replace the term ``Penny Pilot Options'' 
or ``Non-Penny Pilot Options'' with ``Penny Symbols'' or ``Non-Penny 
Symbols'' is reasonable, equitable and not unfairly discriminatory. 
This amendment seeks to conform the name of the program which governs 
the listing of certain standardized options.
Options 7, Section 3
    The proposed amendments to Options 7, Section 3 are reasonable 
because they will permit BX Participants to migrate to new technology 
without a pricing impact. Specifically, the proposal is intended to 
permit BX Participants to migrate their SQF Ports, SQF Purge Ports, FIX 
DROP Ports, CTI Ports, BX Depth Ports and BX TOP Ports to new 
technology at no additional cost from August 10, 2020 through September 
30, 2020. This proposal, which offers duplicative ports to Participants 
at no cost, will allow Participants to test and maintain continuous 
connection to the Exchange from August 10, 2020 through September 30, 
2020. BX will sunset legacy ports by October 1, 2020. BX will assess 
Participants new SQF Ports, SQF Purge Ports, FIX DROP Ports, CTI Ports, 
BX Depth Ports and BX TOP Ports in October 2020.
    The proposed amendments to Options 7, Section 3 are equitable and 
not unfairly discriminatory. The Exchange does not require a BX 
Participant to obtain more than one SQF Port.\21\ In addition, a BX 
Participant may also obtain any number of order and execution ports, 
such as a SQF Purge Ports, FIX DROP Ports and CTI Ports and any number 
of data ports, such as BX Depth and BX TOP Ports to meet its individual 
business needs.\22\ This proposal is not intended to have a pricing 
impact to any BX Participant.
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    \21\ See note 12 above. One SQF Port would allow a BX Market 
Maker to quote in all of its assigned options series.
    \22\ See note 11 above.
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    The Exchange's proposal to remove current rule text and replace it 
with new rule text is reasonable, equitable and not unfairly 
discriminatory, as the current rule text refers to a technology 
migration from 2019 and is obsolete.

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.
Intermarket Competition
    The proposal does not impose an undue burden on intermarket 
competition. The Exchange believes its proposal remains competitive 
with other options markets and will offer market participants with 
another choice of where to transact options. 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 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.
Intramarket Competition
Options 7, Section 2
    The Exchange's proposal to replace the term ``Penny Pilot Options'' 
or ``Non-Penny Pilot Options'' with ``Penny Symbols'' or ``Non-Penny 
Symbols'' does not impose an undue burden on competition. This 
amendment seeks to conform the name of the program which governs the 
listing of certain standardized options.
Options 7, Section 3
    The proposal does not impose an undue burden on intra-market 
competition. The Exchange does not require a BX Participant to obtain 
more than one SQF Port.\23\ In addition, a BX Participant may also 
obtain any number of order and execution ports, such as a SQF Purge 
Ports, FIX DROP Ports and CTI Ports and any number of data ports, such 
as BX Depth Ports and BX TOP Ports to meet its individual business 
needs.\24\ This proposal is not intended

[[Page 52399]]

to have a pricing impact to any BX Participant.
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    \23\ See note 12 above. One SQF Port would allow a BX Market 
Maker to quote in all of its assigned options series.
    \24\ See note 11 above.
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    The Exchange's proposal to remove current rule text and replace it 
with new rule text does not impose an undue burden on competition, as 
the current rule text refers to a technology migration from 2019 and is 
obsolete.

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.\25\
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    \25\ 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-2020-022 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-2020-022. 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 such 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-2020-022, and should be submitted on 
or before September 15, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-18558 Filed 8-24-20; 8:45 am]
BILLING CODE 8011-01-P