Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Section 7018(a) of the Exchange's Rules, 41121-41124 [2018-17742]
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Federal Register / Vol. 83, No. 160 / Friday, August 17, 2018 / Notices
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enforce written policies and procedures
reasonably designed to use margin
requirements to limit its credit
exposures to participants under normal
market conditions.
Moreover, as noted above, the
proposed rule change resulted from a
request by CPs for ICC to confirm it
treats Mark-to-Market Margin as
settlement payments. CPs therefore may
hesitate to post Mark-to-Market Margin
if ICC does not consistently treat such
margin as settlement payments. Thus,
the Commission believes the proposed
rule change would help ICC enforce
written policies and procedures
reasonably designed to use margin
requirements to limit its credit
exposures to participants under normal
market conditions.
Therefore, for the above reasons the
Commission finds that the proposed
rule change is consistent with Rule
17Ad–22(b)(2).35
C. Consistency With Rule 17Ad–22(d)(1)
Rule 17Ad–22(d)(1) requires that ICC
establish, implement, maintain and
enforce written policies and procedures
reasonably designed to provide for a
well-founded, transparent, and
enforceable legal framework for each
aspect of its activities in all relevant
jurisdictions.36
As discussed above, the proposed rule
change would revise Chapters 4, 8, and
20 of the ICC Rules to more clearly
characterize Mark-to-Market Margin
payments as settlement payments rather
than collateral. The proposed rule
change would also revise terminology to
further clarify the legal characterization
that payments of Mark-to-Market Margin
represent settlement rather than
collateral payments. These clarifying
changes are the result of ICC’s analysis
of the legal characterization of Mark-toMarket Margin payments, at the request
of its CPs.
Thus, ICC intends to treat Mark-toMarket Margin payments as settled
rather than collateral, and the
Commission believes that the proposed
rule change’s clarifications and
additions would help ensure that ICC’s
margin system operates consistently
with this intention. The Commission
further believes that the proposed rule
change would help ensure that the
margin system is operating consistently
for all CPs by confirming that all Markto-Market Margin would be treated as
settlement payments. In ensuring the
consistent treatment of Mark-to-Market
Margin, the Commission believes that
the proposed rule change would help
35 17
36 17
CFR 240.17Ad–22(b)(2).
CFR 240.17Ad–22(d)(1).
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ensure that the policies and procedures
underlying ICC’s margin system provide
a well-founded, transparent, and
enforceable legal framework.
Therefore, for the above reasons the
Commission finds that the proposed
rule change is consistent with Rule
17Ad–22(d)(1).37
IV. Conclusion
On the basis of the foregoing, the
Commission finds that the proposal is
consistent with the requirements of the
Act, and in particular, with the
requirements of Section 17A(b)(3)(F) of
the Act 38 and Rules 17Ad–22(b)(2) and
17Ad–22(d)(1) thereunder.39
It is therefore ordered pursuant to
Section 19(b)(2) of the Act 40 that the
proposed rule change (SR–ICC–2018–
006) be, and hereby is, approved.41
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.42
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2018–17741 Filed 8–16–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83833; File No. SR–BX–
2018–037]
Self-Regulatory Organizations; Nasdaq
BX, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Section
7018(a) of the Exchange’s Rules
August 13, 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 July 31,
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.
37 17
CFR 240.17Ad–22(d)(1).
U.S.C. 78q–1(b)(3)(F).
39 17 CFR 240.17Ad–22(b)(2), (d)(1).
40 15 U.S.C. 78s(b)(2).
41 In approving the proposed rule change, the
Commission considered the proposal’s impact on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
42 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
38 15
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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 Rule
7018(a), as described further below.
While these amendments are effective
upon filing, the Exchange has
designated the proposed amendments to
be operative on August 1, 2018.
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaqbx.cchwallstreet.com/, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to amend the Exchange’s
transaction fees at Rule 7018 to (i) adjust
the volume threshold for a credit
associated with orders that access
liquidity that are entered by members
that access liquidity equal to or in
excess of a certain percentage of their
[sic] total Consolidated Volume 3 for a
month; and (ii) adding two credit tiers
for orders entered by members that,
during a given month, have a total
volume (accessing and providing
liquidity) equal to or exceeding 0.50%
of total Consolidated Volume, at least
20% more volume during that month (as
a percentage of Consolidated Volume)
than the member’s total volume in July
2018, and where at least 30% of that
20% increase in volume arises from
adding liquidity.
3 Pursuant to Rule 7018(a), the term
‘‘Consolidated Volume’’ means 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.
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First Change
The Exchange operates on the ‘‘takermaker’’ model, whereby it pays credits
to members that take liquidity and
charges fees to members that provide
liquidity. Currently, the Exchange offers
several different credits for orders that
access liquidity on the Exchange.
Among these credits, the Exchange pays
a credit of $0.0015 per share executed
for an order that accesses 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 that
accesses liquidity equal to or exceeding
0.075% of total Consolidated Volume
during a month. The Exchange proposes
to decrease the Consolidated Volume
threshold applicable to this credit to
0.065% of total Consolidated Volume
during a month. The Exchange recently
had increased this threshold to
0.075%,4 but it has since determined
that this level is too high. It now
proposes to recalibrate the threshold
downward to make it easier for firms to
reach the Consolidated Volume
threshold necessary to qualify for the
credit.
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Second Change
The Exchange presently offers several
credits for members whose orders
remove liquidity from the Exchange.
Among these credits, the Exchange
offers a $0.0018 per share executed
credit for orders that access liquidity in
securities in Tapes A and C (excluding
orders with Midpoint pegging and
excluding orders that receive price
improvement and execute against an
order with a Non-displayed price) that
are entered by a member that: (i)
Accesses liquidity equal to or exceeding
0.20% of total Consolidated Volume
during a month; and (ii) accesses 20%
more liquidity as a percentage of
Consolidated Volume than the member
accessed in May 2018. The Exchange
also offers a $0.0019 per share executed
credit for orders that access liquidity in
securities in Tape B (excluding orders
with Midpoint pegging and excluding
orders that receive price improvement
and execute against an order with a
Non-displayed price) that are entered by
a member that: (i) Accesses liquidity
equal to or exceeding 0.20% of total
Consolidated Volume during a month;
and (ii) accesses 20% more liquidity as
a percentage of Consolidated Volume
than the member accessed in May 2018.
4 See Securities Exchange Act Release No. 34–
83680 (July 20, 2018), 83 FR 35502 (July 26, 2018)
(SR–BX–2018–032).
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The Exchange now plans to add two
new tiers that will also entitle members
to receive credits of $0.0018 and
$0.0019 per share executed. The first of
these new tiers will offer a member a
$0.0018 per share executed credit for its
orders that access liquidity in securities
in Tapes A and C (excluding orders with
Midpoint pegging and excluding orders
that receive price improvement and
execute against an order with a Nondisplayed price) to the extent that the
member, during a given month: (i) Has
a total volume (including both
providing and accessing liquidity) that
is equal to or exceeds 0.20% [sic] of
total Consolidated Volume during that
month; (ii) has a total volume that is at
least 20% greater (as a percentage of
Consolidated Volume) than its total
volume in July 2018; and (iii) of the
20% or more increase in total volume
described above, at least 30% is
attributable to adding liquidity. The
second tier will offer a member a
$0.0019 per share executed credit for
orders that access liquidity in securities
in Tape B (excluding orders with
Midpoint pegging and excluding orders
that receive price improvement and
execute against an order with a Nondisplayed price) to members that satisfy
these same three conditions.
An example of how these two new
credits will work is as follows. Firm X
adds and removes 0.60% of total
Consolidated Volume in securities in
Tape A in July 2018. In August 2018,
Firm X adds and removes 0.72% of total
Consolidated Volume in securities in
the same Tape. The increase in total
volume as a percentage of total
Consolidated Volume from July to
August is 0.12%—which is an increase
of approximately [sic] 20%. If at least
30% of that 0.12% increase (0.036%) is
attributable to Firm X adding liquidity,
then Firm X will qualify for a $0.0018
per share executed credit for its orders
that access liquidity in securities in
Tape A (excluding orders with Midpoint
pegging and excluding orders that
receive price improvement and execute
against an order with a Non-displayed
price).
The Exchange proposes to add these
credits to provide new and stronger
incentive for members to increase their
total volume of activity on the
Exchange, provided that at least a
certain percentage of that increase in
total volume arises from adding
liquidity. The Exchange also proposes a
higher credit for increasing volume in
Tape B than it does in Tapes A or C to
specifically target Tape B securities,
where the Exchange has seen less
activity than it has in Tape A and C
securities.
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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.
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
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 costbased 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
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 brokerdealers 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 Although the court
5 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
7 Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(‘‘Regulation NMS Adopting Release’’).
8 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
2010).
9 See NetCoalition, at 534–535.
10 Id. at 537.
11 Id. at 539 (quoting Securities Exchange Act
Release No. 59039 (December 2, 2008), 73 FR
6 15
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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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First Change
The Exchange believes that it is
reasonable to decrease the Consolidated
Volume threshold on its credit for
orders that access liquidity (excluding
orders with Midpoint pegging and
excluding orders that receive price
improvement and execute against an
order with Midpoint pegging [sic])
entered by members that access
liquidity equal to or exceeding 0.075%
of total Consolidated Volume during a
month. The Exchange must, from time
to time, assess the effectiveness of its
credits in achieving their intended
objectives and adjust the levels of such
credits based on the Exchange’s
observations of market participant
behavior. In this instance, the Exchange
recently had increased the Consolidated
Volume threshold to provide a stronger
incentive to market participants to
improve the market, but the Exchange
has since determined that this increase
was too high and that the threshold
needs to be recalibrated downward to
0.065% to ensure that firms can
continue to qualify for the credit. The
Exchange believes that the proposed
decrease is equitable and is not unfairly
discriminatory because it will apply to
all similarly situated member firms.
Second Change
Likewise, the Exchange believes that
its proposal is reasonable to add new
credits for orders that access liquidity
(excluding orders with Midpoint
pegging and those that receive price
improvement and execute against an
order with a non-displayed price) that
are entered by members that, in a given
month, remove and access [sic] liquidity
equal to or in excess of 0.50% of
Consolidated Volume during the month,
have a total volume (as a percentage of
Consolidated Volume) that is 20%
greater than it was in July 2018, and
where at least 30% of the 20% increase
in total volume (as a percentage of
Consolidated Volume) arises from
adding liquidity. This proposal is
reasonable because it will provide new
and stronger incentive for members to
improve the market by both adding and
removing liquidity from the Exchange. It
will also incent them to increase the
extent of this activity on the Exchange
relative to their activity levels as of July
2018. The Exchange believes it is
reasonable, equitable, and not unfairly
74770, 74782–83 (December 9, 2008) (SR–
NYSEArca–2006–21)).
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discriminatory to propose a higher
credit to members that increase volume
in securities in Tape B than those that
do so in securities in Tapes A and C
because the Exchange has experienced
less activity in Tape B securities relative
to Tapes A and C securities and it
wishes to specifically target increased
activity with respect to Tape B
securities. The Exchange also believes
that these proposals are equitable and
not unfairly discriminatory because they
will apply to all similarly situated
member firms.
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 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 or credit changes in this
market may impose any burden on
competition is extremely limited.
In this instance, the Exchange’s
proposals to add to or modify its credits
do not impose a burden on competition
because these proposals are reflective of
the Exchange’s overall efforts to provide
greater incentives to market participants
that it believes will improve the market,
to the benefit of all participants. The
Exchange does not believe that any of
the proposed changes will impair the
ability of members or competing order
execution venues to maintain their
competitive standing in the financial
markets. Moreover, because there are
numerous competitive alternatives to
the use of the Exchange, it is likely that
BX will lose market share as a result of
the changes if they are unattractive to
market participants.
Likewise, the Exchange’s proposed
credits and credit amendments do not
impose a burden on competition
because the Exchange’s execution
services are completely voluntary and
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41123
subject to extensive competition both
from other exchanges and from offexchange venues. Again, if the proposed
credits 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 proposal 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.12
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 (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
BX–2018–037 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–2018–037. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
12 15
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U.S.C. 78s(b)(3)(A)(ii).
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comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://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–2018–037 and should
be submitted on or before September 7,
2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2018–17742 Filed 8–16–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83830; File No. SR–ISE–
2018–66]
Self-Regulatory Organizations; Nasdaq
ISE, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend the
Exchange’s Schedule of Fees Relating
to Crossing Orders and Responses to
Crossing Orders in Index Options on
the Nasdaq 100 Reduced Value Index
August 13, 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 August 1,
2018, Nasdaq ISE, LLC (‘‘ISE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
Exchange’s Schedule of Fees to provide
further explanation on how the
Exchange charges Crossing Orders and
Responses to Crossing Orders in index
options on the Nasdaq 100 Reduced
Value Index (‘‘NQX’’).
The text of the proposed rule change
is available on the Exchange’s website at
https://ise.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 recently adopted
transaction fees and rebates for adding
or removing liquidity from ISE (i.e.,
maker/taker fees and rebates) in NQX
options, which apply to executions in
both the regular and complex order
book, according to the following
schedule: 3
Maker
fee/rebate
Market participant
Market Maker ...........................................................................................................................................................
Market Maker (for orders sent by Electronic Access Members) .............................................................................
Non-Nasdaq ISE Market Maker (FarMM) ...............................................................................................................
Firm Proprietary/Broker-Dealer ................................................................................................................................
Professional Customer ............................................................................................................................................
Priority Customer .....................................................................................................................................................
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In SR–ISE–2018–61, the Exchange
stated that the above pricing would
apply to all executions in NQX,
including Non-Priority Customer 4
Crossing Orders 5 in NQX. The
Exchange now proposes to clarify that
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$0.00
0.00
0.25
0.25
0.25
0.00
the taker fee applies to Crossing Orders
(i.e., both the originating and contra side
of the order) in NQX as well as
responses to such orders by noting the
following in Section III.B: ‘‘Fee will also
apply to the originating and contra side
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 83639
(July 16, 2018) (SR–ISE–2018–61).
4 ‘‘Non-Priority Customers’’ include Market
Makers, Non-Nasdaq ISE Market Makers, Firm
1 15
($0.25)
(0.25)
0.25
0.25
0.25
0.00
Taker
fee/rebate
of Crossing Orders, and to Responses to
Crossing Orders.’’ 6
The Exchange does not seek to amend
the manner in which Crossing Orders in
NQX and responses thereto are
currently charged, rather the Exchange
Proprietary/Broker-Dealers, and Professional
Customers.
5 A ‘‘Crossing Order’’ is an order executed in the
Exchange’s Facilitation Mechanism, Solicited Order
Mechanism, Price Improvement Mechanism (PIM)
or submitted as a Qualified Contingent Cross order.
For purposes of the fee schedule, orders executed
in the Block Order Mechanism are also considered
Crossing Orders.
6 ‘‘Responses to Crossing Order’’ is any contraside interest submitted after the commencement of
an auction in the Exchange’s Facilitation
Mechanism, Solicited Order Mechanism, Block
Order Mechanism or PIM.
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]]>Agencies
[Federal Register Volume 83, Number 160 (Friday, August 17, 2018)]
[Notices]
[Pages 41121-41124]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-17742]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-83833; File No. SR-BX-2018-037]
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Section
7018(a) of the Exchange's Rules
August 13, 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 July 31, 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
Rule 7018(a), as described further below.
While these amendments are effective upon filing, the Exchange has
designated the proposed amendments to be operative on August 1, 2018.
The text of the proposed rule change is available on the Exchange's
website at https://nasdaqbx.cchwallstreet.com/, at the principal office
of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to amend the Exchange's
transaction fees at Rule 7018 to (i) adjust the volume threshold for a
credit associated with orders that access liquidity that are entered by
members that access liquidity equal to or in excess of a certain
percentage of their [sic] total Consolidated Volume \3\ for a month;
and (ii) adding two credit tiers for orders entered by members that,
during a given month, have a total volume (accessing and providing
liquidity) equal to or exceeding 0.50% of total Consolidated Volume, at
least 20% more volume during that month (as a percentage of
Consolidated Volume) than the member's total volume in July 2018, and
where at least 30% of that 20% increase in volume arises from adding
liquidity.
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\3\ Pursuant to Rule 7018(a), the term ``Consolidated Volume''
means 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.
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[[Page 41122]]
First Change
The Exchange operates on the ``taker-maker'' model, whereby it pays
credits to members that take liquidity and charges fees to members that
provide liquidity. Currently, the Exchange offers several different
credits for orders that access liquidity on the Exchange. Among these
credits, the Exchange pays a credit of $0.0015 per share executed for
an order that accesses 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 that
accesses liquidity equal to or exceeding 0.075% of total Consolidated
Volume during a month. The Exchange proposes to decrease the
Consolidated Volume threshold applicable to this credit to 0.065% of
total Consolidated Volume during a month. The Exchange recently had
increased this threshold to 0.075%,\4\ but it has since determined that
this level is too high. It now proposes to recalibrate the threshold
downward to make it easier for firms to reach the Consolidated Volume
threshold necessary to qualify for the credit.
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\4\ See Securities Exchange Act Release No. 34-83680 (July 20,
2018), 83 FR 35502 (July 26, 2018) (SR-BX-2018-032).
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Second Change
The Exchange presently offers several credits for members whose
orders remove liquidity from the Exchange. Among these credits, the
Exchange offers a $0.0018 per share executed credit for orders that
access liquidity in securities in Tapes A and C (excluding orders with
Midpoint pegging and excluding orders that receive price improvement
and execute against an order with a Non-displayed price) that are
entered by a member that: (i) Accesses liquidity equal to or exceeding
0.20% of total Consolidated Volume during a month; and (ii) accesses
20% more liquidity as a percentage of Consolidated Volume than the
member accessed in May 2018. The Exchange also offers a $0.0019 per
share executed credit for orders that access liquidity in securities in
Tape B (excluding orders with Midpoint pegging and excluding orders
that receive price improvement and execute against an order with a Non-
displayed price) that are entered by a member that: (i) Accesses
liquidity equal to or exceeding 0.20% of total Consolidated Volume
during a month; and (ii) accesses 20% more liquidity as a percentage of
Consolidated Volume than the member accessed in May 2018.
The Exchange now plans to add two new tiers that will also entitle
members to receive credits of $0.0018 and $0.0019 per share executed.
The first of these new tiers will offer a member a $0.0018 per share
executed credit for its orders that access liquidity in securities in
Tapes A and C (excluding orders with Midpoint pegging and excluding
orders that receive price improvement and execute against an order with
a Non-displayed price) to the extent that the member, during a given
month: (i) Has a total volume (including both providing and accessing
liquidity) that is equal to or exceeds 0.20% [sic] of total
Consolidated Volume during that month; (ii) has a total volume that is
at least 20% greater (as a percentage of Consolidated Volume) than its
total volume in July 2018; and (iii) of the 20% or more increase in
total volume described above, at least 30% is attributable to adding
liquidity. The second tier will offer a member a $0.0019 per share
executed credit for orders that access liquidity in securities in Tape
B (excluding orders with Midpoint pegging and excluding orders that
receive price improvement and execute against an order with a Non-
displayed price) to members that satisfy these same three conditions.
An example of how these two new credits will work is as follows.
Firm X adds and removes 0.60% of total Consolidated Volume in
securities in Tape A in July 2018. In August 2018, Firm X adds and
removes 0.72% of total Consolidated Volume in securities in the same
Tape. The increase in total volume as a percentage of total
Consolidated Volume from July to August is 0.12%--which is an increase
of approximately [sic] 20%. If at least 30% of that 0.12% increase
(0.036%) is attributable to Firm X adding liquidity, then Firm X will
qualify for a $0.0018 per share executed credit for its orders that
access liquidity in securities in Tape A (excluding orders with
Midpoint pegging and excluding orders that receive price improvement
and execute against an order with a Non-displayed price).
The Exchange proposes to add these credits to provide new and
stronger incentive for members to increase their total volume of
activity on the Exchange, provided that at least a certain percentage
of that increase in total volume arises from adding liquidity. The
Exchange also proposes a higher credit for increasing volume in Tape B
than it does in Tapes A or C to specifically target Tape B securities,
where the Exchange has seen less activity than it has in Tape A and C
securities.
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 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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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\ Although the court
[[Page 41123]]
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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\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 it is reasonable to decrease the
Consolidated Volume threshold on its credit for orders that access
liquidity (excluding orders with Midpoint pegging and excluding orders
that receive price improvement and execute against an order with
Midpoint pegging [sic]) entered by members that access liquidity equal
to or exceeding 0.075% of total Consolidated Volume during a month. The
Exchange must, from time to time, assess the effectiveness of its
credits in achieving their intended objectives and adjust the levels of
such credits based on the Exchange's observations of market participant
behavior. In this instance, the Exchange recently had increased the
Consolidated Volume threshold to provide a stronger incentive to market
participants to improve the market, but the Exchange has since
determined that this increase was too high and that the threshold needs
to be recalibrated downward to 0.065% to ensure that firms can continue
to qualify for the credit. The Exchange believes that the proposed
decrease is equitable and is not unfairly discriminatory because it
will apply to all similarly situated member firms.
Second Change
Likewise, the Exchange believes that its proposal is reasonable to
add new credits for orders that access liquidity (excluding orders with
Midpoint pegging and those that receive price improvement and execute
against an order with a non-displayed price) that are entered by
members that, in a given month, remove and access [sic] liquidity equal
to or in excess of 0.50% of Consolidated Volume during the month, have
a total volume (as a percentage of Consolidated Volume) that is 20%
greater than it was in July 2018, and where at least 30% of the 20%
increase in total volume (as a percentage of Consolidated Volume)
arises from adding liquidity. This proposal is reasonable because it
will provide new and stronger incentive for members to improve the
market by both adding and removing liquidity from the Exchange. It will
also incent them to increase the extent of this activity on the
Exchange relative to their activity levels as of July 2018. The
Exchange believes it is reasonable, equitable, and not unfairly
discriminatory to propose a higher credit to members that increase
volume in securities in Tape B than those that do so in securities in
Tapes A and C because the Exchange has experienced less activity in
Tape B securities relative to Tapes A and C securities and it wishes to
specifically target increased activity with respect to Tape B
securities. The Exchange also believes that these proposals are
equitable and not unfairly discriminatory because they will apply to
all similarly situated member firms.
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 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 or credit changes in this market may impose any burden on
competition is extremely limited.
In this instance, the Exchange's proposals to add to or modify its
credits do not impose a burden on competition because these proposals
are reflective of the Exchange's overall efforts to provide greater
incentives to market participants that it believes will improve the
market, to the benefit of all participants. The Exchange does not
believe that any of the proposed changes will impair the ability of
members or competing order execution venues to maintain their
competitive standing in the financial markets. Moreover, because there
are numerous competitive alternatives to the use of the Exchange, it is
likely that BX will lose market share as a result of the changes if
they are unattractive to market participants.
Likewise, the Exchange's proposed credits and credit amendments 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. Again, if the
proposed credits 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 proposal 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.\12\
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\12\ 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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-BX-2018-037 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-2018-037. This file
number should be included on the subject line if email is used. To help
the Commission process and review your
[[Page 41124]]
comments more efficiently, please use only one method. The Commission
will post all comments on the Commission's internet website (https://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-
2018-037 and should be submitted on or before September 7, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2018-17742 Filed 8-16-18; 8:45 am]
BILLING CODE 8011-01-P
