Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange's Credits at Equity 7, Section 118(a), 29270-29273 [2019-13116]
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Federal Register / Vol. 84, No. 120 / Friday, June 21, 2019 / Notices
would acknowledge the purpose of the
proposed liquidation cost model as
distinct from the STANS methodology
by using the proposed liquidation cost
model as a floor on a Clearing Member’s
margin requirements.
OCC’s proposal would be tailored to
the particular attributes of products in a
Clearing Member’s portfolio. As
described above, OCC would use the
proposed model to calculate two riskbased liquidation costs for each
portfolio: (1) The Vega LC and (2) the
Delta LC. The Commission believes,
therefore, that the adoption of the
proposed liquidation cost model
designed to produce margin levels
commensurate with the risks of
liquidating a Clearing Member’s
portfolio is consistent with Exchange
Act Rule 17Ad–22(e)(6)(i).24
IV. Conclusion
On the basis of the foregoing, the
Commission finds that the Proposed
Rule Change is consistent with the
requirements of the Exchange Act, and
in particular, the requirements of
Section 17A of the Exchange Act 25 and
the rules and regulations thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Exchange Act,26
that the Proposed Rule Change (SR–
OCC–2019–004) be, and hereby is,
approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
Vanessa A. Countryman,
Acting Secretary.
[FR Doc. 2019–13113 Filed 6–20–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[SEC File No. 270–339, OMB Control No.
3235–0382]
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Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
24 17
CFR 240.17Ad–22(e)(6)(i).
25 In approving this Proposed Rule Change, the
Commission has considered the proposed rules’
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
26 15 U.S.C. 78s(b)(2).
27 17 CFR 200.30–3(a)(12).
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(44 U.S.C. 3501 et seq.), the Securities
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(‘‘Commission’’) has submitted to the
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request for extension of the previously
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Schedule 14D–9F (17 CFR 240.14d–
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Dated: June 18, 2019.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–13279 Filed 6–20–19; 8:45 am]
BILLING CODE 8011–01–P
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–86120; File No. SR–BX–
2019–019]
Self-Regulatory Organizations; Nasdaq
BX, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend the
Exchange’s Credits at Equity 7,
Section 118(a)
June 17, 2019.
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 June 4,
2019, 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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
Exchange’s credits 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
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 Exchange operates on the ‘‘takermaker’’ model, whereby it pays credits
to members that take liquidity and
1 15
2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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charges fees to members that provide
liquidity. Under Equity 7, Section
118(a), the Exchange describes the
charges and credits applied for the use
of the order execution and routing
services of the Exchange System by
members for all securities priced at $1
or more per share that it trades. As
described below, the Exchange is
amending the qualification criteria of a
credit provided to members for entering
Orders that access liquidity in the BX
System.
Description of the Change
The purpose of the proposed rule
change is to reduce the qualification
criteria required to receive a credit for
entering an Order in a Tape A or C
security that accesses liquidity in the
BX System. Specifically, the Exchange
currently provides a credit of $0.0015
per share executed for Tape A and C
securities 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 Nondisplayed price) entered by a member
that accesses liquidity equal to or
exceeding 0.070% of total Consolidated
Volume during month. The Exchange is
proposing to decrease the Consolidated
Volume requirement from 0.070% to
0.065%.3
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Applicability to and Impact on
Participants 4
The proposed reduction in the
qualification criteria is not targeted at or
expected to be limited in its
3 The Exchange calculates Consolidated Volume
on a monthly basis to determine qualification for
the credit. Because the Exchange is filing this on the
second trading day of the month of June 2019, it
will apply qualification for the tier based on
0.070% of total Consolidated Volume for the single
trading day during which this proposed change was
not in effect. The Exchange will apply the proposed
0.065% criteria for the remaining trading days
during the month. As a consequence, qualification
for the credit will be determined by a weighted
combination of the two levels of Consolidated
Volume based on the number of trading days the
particular requirement is in effect.
4 On May 21, 2019, the SEC Division of Trading
and Markets (the ‘‘Division’’) issued fee filing
guidance titled ‘‘Staff Guidance on SRO Rule
Filings Relating to Fees’’ (‘‘Guidance’’). Within the
Guidance, the Division noted, among other things,
that the purpose discussion should address ‘‘how
the fee may apply differently (e.g., additional cost
vs. additional discount) to different types of market
participants (e.g., market makers, institutional
brokers, retail brokers, vendors, etc.) and different
sizes of market participants.’’ See Guidance
(available at https://www.sec.gov/tm/staff-guidancesro-rule-filings-fees). The Guidance also suggests
that the purpose discussion should include
numerical examples. Where possible, the Exchange
is including numerical examples. In addition, the
Exchange is providing data to the Commission in
support of its arguments herein. The Guidance
covers all aspects of a fee filing, which the
Exchange has addressed throughout this filing.
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applicability to a specific segment(s) of
market participants nor will it apply
differently to different types of market
participants. Non-members cannot
qualify for the credit.5 The proposed
change will lower the threshold
required to achieve a better remove rate
and therefore will make it more
achievable for more members.6
Consequently, the proposed change will
not negatively impact members that do
not qualify because their credit
opportunities will remain unchanged.
Moreover, the proposed fee is a
reduction in costs for members that
access quotes on the Exchange, because
in the absence of the proposed change
members would receive a lower rebate,
resulting in a higher cost for transacting
on the Exchange. Based on April 2019
volumes, the existing tier represents a
minimum of 4.387 million shares
removed. Based on past experience
administering similar pricing proposals,
the Exchange estimates that multiple
members of various types would be
reasonably positioned to meet the
amended tier.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,7 in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5)
of the Act,8 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
proposal is also consistent with Section
11A of the Act relating to the
establishment of the national market
system for securities. Moreover, the
Exchange believes that its proposal
complies with Commission guidance on
SRO fee filings that the Commission
Staff issued on May 21, 2019.9
The Proposal Is Reasonable
The Exchange’s proposed reduction to
the qualification requirement is
reasonable in several respects. As a
threshold matter, the Exchange is
subject to significant competitive forces
in the market for equity securities
5 Id.
6 As substantiated by data provided to the
Commission.
7 15 U.S.C. 78f(b).
8 15 U.S.C. 78f(b)(4) and (5).
9 See Guidance, supra note 4. Although the
Exchange believes that this filing complies with the
Guidance, the Exchange does not concede that the
standards set forth in the Guidance are consistent
with the Exchange Act and reserves its right to
challenge those standards through administrative
and judicial review, as appropriate.
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29271
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 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’ . . . .’’ 10
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. These competing pricing
schedules, moreover, are presently
comparable to if not more generous than
those that the Exchange provides.11
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.12 Separately, the Exchange
has provided the SEC staff multiple
examples of instances where pricing
10 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)).
11 The Exchange notes that NYSE National and
CBOE EDGA offer higher rebates for their members
accessing liquidity on their exchanges. CBOE EDGA
provides a standard rebate for liquidity removers of
$0.0024 per share executed (or higher if a member
qualifies for a volume tier), and NYSE National has
a range from a fee of $0.0005 per share executed to
a rebate of $0.0020 per share executed. In addition,
CBOE BYX offers a similar pricing schedule to
Nasdaq BX.
12 The Exchange perceives no regulatory,
structural, or cost impediments to market
participants shifting order flow away from it. See
Guidance, supra note 4. 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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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. The Exchange also believes
that the particular adjustment that it
proposes to its volume qualification
criteria for the $0.0015 per share
executed credit is a reasonable attempt
to achieve this end because this credit
tier is particularly important to the
Exchange’s customers. That is, this
credit is one for which several Exchange
members presently qualify and whose
orders comprise substantial remove
volume on the Exchange. It is also a
credit tier that has been endangered by
the recent decline in the Exchange’s
market share insofar as this decline has
made it more difficult for members to
achieve and maintain its total
Consolidated Volume requirement.
Finally, the Exchange believes that
adjusting the qualification criteria for
this particular credit will not only help
ensure that qualifying members will
continue to qualify for the credit, but it
also will render the credit readily
achievable for a broader group of
members. The Exchange estimates that
the proposal will provide multiple
members with a reasonable opportunity
to meet the adjusted tier.
The Proposal Is an Equitable Allocation
of Credits
The Exchange believes its proposal
allocates its rebates fairly among its
market participants. The Exchange is
not proposing to adjust the amount of
the credit, which will remain at the
$0.0015 per share executed level that
the Commission has already approved.
By proposing to lower the criteria to
qualify for the credit, the Exchange
intends to help ensure that those
members that currently qualify for it
will continue to do so even as the
Exchange’s market share has declined. It
also intends to broaden the base of
members who can qualify for it. Finally,
the Exchange intends that its proposal
will help to stem or reverse the loss in
market share that the Exchange is
experiencing.
The Exchange intends for the
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. The proposal
neither targets nor will it have a
disparate impact on any particular
category of market participant, and in
fact, will allow more market
participants to take advantage of the
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existing credit. The Exchange calibrated
the proposal to impact a broad swath of
members whose orders comprise
substantial remove volume so that it
would have a significant effect. The
Exchange expects that the proposal will
enable the multitude of members that
currently qualify for the credit tier to
continue to do so. Additionally, based
on May 2019 volume, the Exchange
estimates that the proposal will provide
multiple members with a reasonable
opportunity to meet the adjusted tier. As
to those members that do not presently
qualify for the credit tier, and will not
qualify for the adjusted tier, the
proposal will not adversely impact their
existing pricing or their ability to
qualify for other credit tiers.
The Proposed Fee 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 volumebased 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 cobranded 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.
Furthermore, the Exchange’s proposal
to adjust the qualification criteria for the
$0.0015 per share executed credit tier is
not unfairly discriminatory. The
Exchange intends for the 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. The proposal neither
targets nor will it have a disparate
impact on any particular category of
market participant. Instead, the
Exchange calibrated the proposal to
impact a broad swath of members whose
orders comprise substantial remove
volume so that it would have a
significant effect. The Exchange expects
that the proposal will enable the
multitude of existing members that
currently qualify for the credit tier to
continue to do so. Additionally, based
on May 2019 volume, the Exchange
estimates that the proposal will provide
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multiple members with a reasonable
opportunity to meet the adjusted tier. As
to those members that do not presently
qualify for the credit tier, and will not
qualify for the adjusted tier (although
they might in the future as their
business grows), the proposal will not
adversely impact their existing pricing
or their ability to qualify for other credit
tiers.
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
Addressing whether the proposed
change could place certain market
participants at a relative disadvantage
compared to other market participants,
the Exchange does not believe that
members that do not have the capacity
to provide the level of Consolidated
Volume required by the proposal are
disadvantaged. As noted above, all
members benefit from the removal of
liquidity by those that choose to meet
the tier qualification criteria. Members
may grow their businesses so that they
have the capacity to receive the credit.
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. The Exchange notes that the
tier structure is consistent with brokerdealer fee practices as well as the other
industries, as described above.
Intermarket Competition
Addressing whether the proposed fee
could impose a burden on competition
on other SROs that is not necessary or
appropriate, the Exchange believes that
the proposed change to the qualification
criteria for the credit for accessing
liquidity of Tape A and C does 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
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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 reduced criteria 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 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
comprised more than 38% of industry
volume for the month of April 2019.
In sum, 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.
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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.13
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
13 15
U.S.C. 78s(b)(3)(A)(ii).
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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.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Vanessa A. Countryman,
Acting Secretary.
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:
BILLING CODE 8011–01–P
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–2019–019 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–2019–019. 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 (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–2019–019 and should
be submitted on or before July 12, 2019.
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[FR Doc. 2019–13116 Filed 6–20–19; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
[SEC File No. 270–127, OMB Control No.
3235–0108]
Submission for OMB Review;
Comment Request
Upon Written Request Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736
Extension:
Rule 14f–1
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.), the Securities
and Exchange Commission
(‘‘Commission’’) has submitted to the
Office of Management and Budget this
request for extension of the previously
approved collection of information.
Under Exchange Act Rule 14f–1 (17
CFR 240.14f–1), if a person or persons
have acquired securities of an issuer in
a transaction subject to Sections 13(d) or
14(d) of the Exchange Act, and changes
a majority of the directors of the issuer
otherwise than at a meeting of security
holders, then the issuer must file with
the Commission and transmit to security
holders information related to the
change in directors within 10 days prior
to the date the new majority takes office
as directors. We estimate that it takes
approximately 18 burden hours to
provide the information required under
Rule 14f–1 and that the information is
filed by approximately 64 respondents
for a total annual burden of 1,152 hours
(18 hours per response × 64 responses).
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a currently valid
control number.
The public may view the background
documentation for this information
collection at the following website,
www.reginfo.gov. Comments should be
directed to: (i) Desk Officer for the
Securities and Exchange Commission,
Office of Information and Regulatory
Affairs, Office of Management and
Budget, Room 10102, New Executive
Office Building, Washington, DC 20503,
14 17
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CFR 200.30–3(a)(12).
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]]>Agencies
[Federal Register Volume 84, Number 120 (Friday, June 21, 2019)]
[Notices]
[Pages 29270-29273]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-13116]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86120; File No. SR-BX-2019-019]
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the
Exchange's Credits at Equity 7, Section 118(a)
June 17, 2019.
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 June 4, 2019, 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 credits 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 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 Exchange operates on the ``taker-maker'' model, whereby it pays
credits to members that take liquidity and
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charges fees to members that provide liquidity. Under Equity 7, Section
118(a), the Exchange describes the charges and credits applied for the
use of the order execution and routing services of the Exchange System
by members for all securities priced at $1 or more per share that it
trades. As described below, the Exchange is amending the qualification
criteria of a credit provided to members for entering Orders that
access liquidity in the BX System.
Description of the Change
The purpose of the proposed rule change is to reduce the
qualification criteria required to receive a credit for entering an
Order in a Tape A or C security that accesses liquidity in the BX
System. Specifically, the Exchange currently provides a credit of
$0.0015 per share executed for Tape A and C securities 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 0.070% of total Consolidated Volume
during month. The Exchange is proposing to decrease the Consolidated
Volume requirement from 0.070% to 0.065%.\3\
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\3\ The Exchange calculates Consolidated Volume on a monthly
basis to determine qualification for the credit. Because the
Exchange is filing this on the second trading day of the month of
June 2019, it will apply qualification for the tier based on 0.070%
of total Consolidated Volume for the single trading day during which
this proposed change was not in effect. The Exchange will apply the
proposed 0.065% criteria for the remaining trading days during the
month. As a consequence, qualification for the credit will be
determined by a weighted combination of the two levels of
Consolidated Volume based on the number of trading days the
particular requirement is in effect.
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Applicability to and Impact on Participants \4\
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\4\ On May 21, 2019, the SEC Division of Trading and Markets
(the ``Division'') issued fee filing guidance titled ``Staff
Guidance on SRO Rule Filings Relating to Fees'' (``Guidance'').
Within the Guidance, the Division noted, among other things, that
the purpose discussion should address ``how the fee may apply
differently (e.g., additional cost vs. additional discount) to
different types of market participants (e.g., market makers,
institutional brokers, retail brokers, vendors, etc.) and different
sizes of market participants.'' See Guidance (available at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees). The Guidance
also suggests that the purpose discussion should include numerical
examples. Where possible, the Exchange is including numerical
examples. In addition, the Exchange is providing data to the
Commission in support of its arguments herein. The Guidance covers
all aspects of a fee filing, which the Exchange has addressed
throughout this filing.
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The proposed reduction in the qualification criteria is not
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. Non-members
cannot qualify for the credit.\5\ The proposed change will lower the
threshold required to achieve a better remove rate and therefore will
make it more achievable for more members.\6\ Consequently, the proposed
change will not negatively impact members that do not qualify because
their credit opportunities will remain unchanged. Moreover, the
proposed fee is a reduction in costs for members that access quotes on
the Exchange, because in the absence of the proposed change members
would receive a lower rebate, resulting in a higher cost for
transacting on the Exchange. Based on April 2019 volumes, the existing
tier represents a minimum of 4.387 million shares removed. Based on
past experience administering similar pricing proposals, the Exchange
estimates that multiple members of various types would be reasonably
positioned to meet the amended tier.
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\5\ Id.
\6\ As substantiated by data provided to the Commission.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\7\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\8\ 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 proposal is also consistent with
Section 11A of the Act relating to the establishment of the national
market system for securities. Moreover, the Exchange believes that its
proposal complies with Commission guidance on SRO fee filings that the
Commission Staff issued on May 21, 2019.\9\
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(4) and (5).
\9\ See Guidance, supra note 4. Although the Exchange believes
that this filing complies with the Guidance, the Exchange does not
concede that the standards set forth in the Guidance are consistent
with the Exchange Act and reserves its right to challenge those
standards through administrative and judicial review, as
appropriate.
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The Proposal Is Reasonable
The Exchange's proposed reduction to the qualification requirement
is 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' . . . .'' \10\
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\10\ 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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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. These competing pricing
schedules, moreover, are presently comparable to if not more generous
than those that the Exchange provides.\11\
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\11\ The Exchange notes that NYSE National and CBOE EDGA offer
higher rebates for their members accessing liquidity on their
exchanges. CBOE EDGA provides a standard rebate for liquidity
removers of $0.0024 per share executed (or higher if a member
qualifies for a volume tier), and NYSE National has a range from a
fee of $0.0005 per share executed to a rebate of $0.0020 per share
executed. In addition, CBOE BYX offers a similar pricing schedule to
Nasdaq BX.
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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.\12\
Separately, the Exchange has provided the SEC staff multiple examples
of instances where pricing
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changes by BX and other exchanges have resulted in shifts in exchange
market share.
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\12\ The Exchange perceives no regulatory, structural, or cost
impediments to market participants shifting order flow away from it.
See Guidance, supra note 4. 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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Within the foregoing context, the proposal represents a reasonable
attempt by the Exchange to increase its liquidity and market share
relative to its competitors. The Exchange also believes that the
particular adjustment that it proposes to its volume qualification
criteria for the $0.0015 per share executed credit is a reasonable
attempt to achieve this end because this credit tier is particularly
important to the Exchange's customers. That is, this credit is one for
which several Exchange members presently qualify and whose orders
comprise substantial remove volume on the Exchange. It is also a credit
tier that has been endangered by the recent decline in the Exchange's
market share insofar as this decline has made it more difficult for
members to achieve and maintain its total Consolidated Volume
requirement. Finally, the Exchange believes that adjusting the
qualification criteria for this particular credit will not only help
ensure that qualifying members will continue to qualify for the credit,
but it also will render the credit readily achievable for a broader
group of members. The Exchange estimates that the proposal will provide
multiple members with a reasonable opportunity to meet the adjusted
tier.
The Proposal Is an Equitable Allocation of Credits
The Exchange believes its proposal allocates its rebates fairly
among its market participants. The Exchange is not proposing to adjust
the amount of the credit, which will remain at the $0.0015 per share
executed level that the Commission has already approved. By proposing
to lower the criteria to qualify for the credit, the Exchange intends
to help ensure that those members that currently qualify for it will
continue to do so even as the Exchange's market share has declined. It
also intends to broaden the base of members who can qualify for it.
Finally, the Exchange intends that its proposal will help to stem or
reverse the loss in market share that the Exchange is experiencing.
The Exchange intends for the 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. The
proposal neither targets nor will it have a disparate impact on any
particular category of market participant, and in fact, will allow more
market participants to take advantage of the existing credit. The
Exchange calibrated the proposal to impact a broad swath of members
whose orders comprise substantial remove volume so that it would have a
significant effect. The Exchange expects that the proposal will enable
the multitude of members that currently qualify for the credit tier to
continue to do so. Additionally, based on May 2019 volume, the Exchange
estimates that the proposal will provide multiple members with a
reasonable opportunity to meet the adjusted tier. As to those members
that do not presently qualify for the credit tier, and will not qualify
for the adjusted tier, the proposal will not adversely impact their
existing pricing or their ability to qualify for other credit tiers.
The Proposed Fee 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.
Furthermore, the Exchange's proposal to adjust the qualification
criteria for the $0.0015 per share executed credit tier is not unfairly
discriminatory. The Exchange intends for the 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. The proposal neither targets nor will it have a disparate
impact on any particular category of market participant. Instead, the
Exchange calibrated the proposal to impact a broad swath of members
whose orders comprise substantial remove volume so that it would have a
significant effect. The Exchange expects that the proposal will enable
the multitude of existing members that currently qualify for the credit
tier to continue to do so. Additionally, based on May 2019 volume, the
Exchange estimates that the proposal will provide multiple members with
a reasonable opportunity to meet the adjusted tier. As to those members
that do not presently qualify for the credit tier, and will not qualify
for the adjusted tier (although they might in the future as their
business grows), the proposal will not adversely impact their existing
pricing or their ability to qualify for other credit tiers.
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
Addressing whether the proposed change could place certain market
participants at a relative disadvantage compared to other market
participants, the Exchange does not believe that members that do not
have the capacity to provide the level of Consolidated Volume required
by the proposal are disadvantaged. As noted above, all members benefit
from the removal of liquidity by those that choose to meet the tier
qualification criteria. Members may grow their businesses so that they
have the capacity to receive the credit. 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. 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 proposed fee could impose a burden on
competition on other SROs that is not necessary or appropriate, the
Exchange believes that the proposed change to the qualification
criteria for the credit for accessing liquidity of Tape A and C does
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
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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 reduced criteria 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 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 comprised more than 38% of industry
volume for the month of April 2019.
In sum, 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.\13\
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\13\ 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-2019-019 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-2019-019. 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 (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-2019-019 and should be submitted on
or before July 12, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Acting Secretary.
[FR Doc. 2019-13116 Filed 6-20-19; 8:45 am]
BILLING CODE 8011-01-P
