[Federal Register Volume 87, Number 207 (Thursday, October 27, 2022)]
[Notices]
[Pages 65109-65111]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-23353]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96125; File No. SR-BX-2022-019]


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

October 21, 2022.
    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 October 11, 2022, 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 and 
credits at Equity 7, section 118(e).
    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 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.\3\ Currently, the Exchange has a 
schedule, at Equity 7, section 118(e), which consists of several 
different credits and fees for Retail Orders \4\ and Retail Price 
Improvement Orders \5\ under Rule 4780 (Retail Price Improvement 
Program).
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    \3\ The Exchange initially filed the proposed pricing changes on 
October 3, 2022 (SR-BX-2022-018). The instant filing replaces SR-BX-
2022-018, which was withdrawn on October 11, 2022.
    \4\ Retail Orders shall mean an order type with a Non-Display 
Order Attribute submitted to the Exchange by a Retail Member 
Organization (as defined in Rule 4780). A Retail Order must be 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 Rule 4702(b)(6).
    \5\ Retail Price Improving (``RPI'') Orders shall mean 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. A Retail Price Improving Order may be entered in price 
increments of $0.001. RPI Orders collectively may be referred to as 
``RPI Interest.'' See Rule 4702(b)(5).
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    The purpose of the proposed rule change is to amend the Exchange's 
schedule of fees and credits, at Equity 7, section 118(e). 
Specifically, the Exchange proposes to (1) amend the qualifying 
criteria for an existing fee for RPI Orders that provide liquidity; and 
(2) eliminate an existing credit for Retail Orders that access 
liquidity.
    Currently, the Exchange charges a $0.0018 per share executed fee 
for RPI Orders entered by a member that (i) quotes RPI Orders in at 
least 2,500 symbols on average per day and (ii) provides liquidity 
through RPI Orders equal to or exceeding an average daily volume of 
2,500,000 shares. The Exchange charges a fee of $0.0025 per share 
executed for all other RPI Orders that provide liquidity. The Exchange 
proposes to amend the $0.0018 fee by decreasing the number of quoted 
symbols needed to qualify for the fee from 2,500 to 1,200 on average 
per day. The Exchange hopes that the less strict qualifying criteria 
will encourage member organizations to increase liquidity providing 
activity on RPI Orders on the Exchange. If the proposal is effective in 
achieving this purpose, then the quality of the Exchange's market will 
improve, particularly with respect to RPI and retail orders to the 
benefit of all participants, especially those who submit RPI and Retail 
Orders.
    Currently, the Exchange provides certain credits for Retail Orders 
that provide liquidity. The Exchange

[[Page 65110]]

proposes to eliminate its credit of $0.0010 per share executed for 
Retail Orders with an accepted price greater than or equal to $10,000 
that access liquidity provided by a Retail Price Improvement Order by 
reducing the credit from $0.0010 to $0.0000. The proposed $0.0000 
credit per share executed (for Retail Orders with an accepted price 
greater than or equal to $10,000 that access liquidity provided by a 
Retail Price Improvement Order) reflects that such qualifying Orders 
would receive no credits, including from elsewhere in the fee schedule. 
The Exchange has limited resources at its disposal to devote to 
incentives and it periodically reassesses the allocation of those 
resources when they prove to be ineffective.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with section 
6(b) of the Act,\6\ in general, and furthers the objectives of sections 
6(b)(4) and 6(b)(5) of the Act,\7\ 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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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange's proposed changes to its schedule of fees and credits 
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'. . . .'' \8\
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    \8\ 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.'' \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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    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. 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.
    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. As such, the 
proposal represents a reasonable attempt by the Exchange to increase 
its liquidity and market share relative to its competitors.
    The Exchange believes it is reasonable and equitable to amend the 
$0.0018 per share executed fee for RPI Orders by lowering the number of 
symbols in which a member most quote in RPI Orders on average during 
the day to qualify for it. As discussed above, the Exchange's goal is 
to increase liquidity adding activity in RPI Orders on its platform. It 
is reasonable and equitable to address this need by easing the 
qualification requirements as an incentive for members to increase 
their liquidity activity in RPI Orders on the Exchange. If the proposal 
is effective in achieving this purpose, then the quality of the 
Exchange's market will improve, particularly with respect to RPI and 
Retail orders to the benefit of all participants, especially those who 
submit RPI and Retail Orders.
    In addition, the Exchange believes it is reasonable and equitable 
to eliminate the credit of $0.0010 per share executed for Retail Orders 
with an accepted price greater than or equal to $10,000 that access 
liquidity provided by a Retail Price Improvement Order because the 
incentive was not effective in achieving its intended effect. The 
Exchange has limited resources at its disposal to devote to incentives 
and it periodically reassesses the allocation of those resources when 
they prove to be ineffective.
    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 that submit RPI and Retail Orders on the Exchange and by 
extension attract more liquidity to the market, improving market wide 
quality and price discovery. Although net adders of liquidity for RPI 
Orders will benefit most from the proposal, this result is fair insofar 
as increased liquidity adding activity in RPI Orders will help to 
improve market quality and the attractiveness of the Exchange to all 
existing and prospective retail participants.
    Any participant that is dissatisfied with the proposal is free to 
shift their order flow to competing venues that provide more generous 
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 member organizations of the Exchange will benefit from 
any increase in market activity that the proposal effectuates. Member 
organizations may modify their businesses so that they can meet the 
required thresholds and pay lower

[[Page 65111]]

charges. Moreover, members are free to trade on other venues to the 
extent they believe that the fees assessed, and credits provided, 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.
Intermarket Competition
    The Exchange believes that its proposed modifications to its 
schedule of fees and credits 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 live exchanges and 
from off-exchange venues, which include alternative trading systems 
that trade national market system stock. 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.
    The proposed changes are 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 only has 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 comprises more than 40% of industry 
volume in recent months.
    In sum, the Exchange intends for the proposed changes to its fees 
and credits, in the aggregate, to increase member incentives to engage 
in the addition of liquidity on the Exchange. 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.\10\
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    \10\ 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-2022-019 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-2022-019. 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 offices 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-2022-019, and should be submitted on 
or before November 17, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-23353 Filed 10-26-22; 8:45 am]
BILLING CODE 8011-01-P