Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange's Transaction Fees and Credits at Equity 7, Section 118(a), 36989-36993 [2019-16093]

Download as PDF Federal Register / Vol. 84, No. 146 / Tuesday, July 30, 2019 / Notices expenses to LCH SA in offering the relevant clearing services. C. Clearing Agency’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others Written comments relating to the proposed rule change have not been solicited or received but a consultation has been conducted with and feedback sought from CDSClear members. No comment or question has been received following this consultation. LCH SA will notify the Commission of any written comments received by LCH SA. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing proposed rule change has become effective upon filing pursuant to Section 19(b)(3)(A) 11 of the Act and Rule 19b–4(f)(2) 12 thereunder because it establishes a fee or other charge imposed by LCH SA on its Clearing Members. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such proposed rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. jspears on DSK3GMQ082PROD with NOTICES 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: • 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– LCH SA–2019–004 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–LCH SA–2019–004. 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 such filings will also be available for inspection and copying at the principal office of LCH SA and on LCH SA’s website at https://www.lch.com/ resources/rules-and-regulations/ proposed-rule-changes-0. 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–LCH SA–2019–004 and should be submitted on or before August 20, 2019. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.13 Jill M. Peterson, Assistant Secretary. [FR Doc. 2019–16094 Filed 7–29–19; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–86447; File No. SR–BX– 2019–026] Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange’s Transaction Fees and Credits at Equity 7, Section 118(a) July 24, 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 July 11, 2019, Nasdaq BX, Inc. (‘‘BX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule 13 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 11 15 U.S.C. 78s(b)(3)(A). 12 17 CFR 240.19b–4(f)(2). VerDate Sep<11>2014 16:42 Jul 29, 2019 1 15 Jkt 247001 PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 36989 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 transaction fees and 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 generally pays credits to members that take liquidity and charges fees to members that provide liquidity. Currently, the Exchange has a schedule, at Equity 7, Section 118(a), which consists of several different credits that it provides for orders in securities priced at $1 or more per share that access liquidity on the Exchange and several different charges that it assesses for orders in such securities that add liquidity on the Exchange. As a result of a recent rule change,3 the Exchange presently offers a different system of credits and charges for orders in securities in Tapes A and C than it does for orders in securities in Tape B. The recent changes that the Exchange made to its credits and charges for orders in securities in Tape B, including 3 See Securities Exchange Act Release No. 34– 85912 (May 22, 2019); 84 FR 24834 (May 29, 2019) (SR–BX–2019–013). E:\FR\FM\30JYN1.SGM 30JYN1 36990 Federal Register / Vol. 84, No. 146 / Tuesday, July 30, 2019 / Notices increases in the liquidity removal credits offered for such orders, have proven to be successful in increasing liquidity removal activity on the Exchange and in making the Exchange a more attractive market for Tape B securities. The Exchange now proposes to replicate this success for orders in securities in Tapes A and C while also building on it with respect to orders in securities in Tape B. Specifically, the Exchange proposes to replace, in large part, its existing schedule of credits and charges with a new schedule that is simpler, flatter, and which offers members more robust incentives to increase their liquidity removal activity in securities in all Tapes. Description of the Changes jspears on DSK3GMQ082PROD with NOTICES Credits for Accessing Liquidity Through the Exchange The Exchange proposes to eliminate its schedule of existing credits (except as described below) and replace it with a new schedule of credits for orders in securities in all Tapes that remove liquidity from the Exchange (the ‘‘New Credits’’). Generally speaking, the proposed New Credits will be higher than the existing credits,4 higher than the existing credits for the same qualifying criteria,5 or they will have qualifying criteria which will be more readily achievable than the existing credits. The Exchange believes that higher overall credits will incentivize members to increase their liquidity removal activity in securities in all Tapes. In certain instances, moreover, the availability of the proposed New Credits will also be tied to the level of 4 Whereas the highest credit under the existing schedule is $0.0026 per share executed for orders in securities in Tape B and $0.0018 per share executed for orders in securities in Tapes A and C, the top credit in the proposed schedule for orders in securities in all Tapes is $0.0027 per share executed. The Exchange notes that, whereas under the existing schedule, the Exchange provides a $0.0024 per share executed credit for orders in securities in Tape B that access liquidity (excluding orders with Midpoint pegging and excluding orders that receive price improvement and execute against an order with a non-displayed price) entered by members that add at least an average daily volume of 50,000 shares to the Exchange during a month, the proposed schedule will provide a lower credit of $0.0015 per share executed for the same level of activity. 5 For example, whereas the existing schedule provides a $0.0001 per share executed credit for orders in securities in Tapes A and C that access liquidity (excluding orders with Midpoint pegging and excluding orders that receive price improvement and execute against an order with a non-displayed price) entered by members that add at least an average daily volume of 50,000 shares to the Exchange during a month, the proposed schedule will provide a credit of $0.0015 per share executed for the same level of activity. VerDate Sep<11>2014 16:42 Jul 29, 2019 Jkt 247001 a member’s liquidity adding activity as a means of incentivizing liquidity adding activity even as the Exchange proposes to increase its charges for orders that add liquidity. Specifically, the Exchange proposes to adopt the following New Credits: • $0.0027 per share executed for orders that access liquidity (excluding orders with Midpoint pegging and excluding orders that receive price improvement and execute against an order with a Non-displayed price) entered by a member that: (i) Adds liquidity equal to or exceeding 0.03% of total Consolidated Volume 6 during a month; and (ii) accesses liquidity equal to or exceeding 0.25% of total Consolidated Volume during a month. • $0.0025 per share executed for orders that access liquidity (excluding orders with Midpoint pegging and excluding orders that receive price improvement and execute against an order with a Non-displayed price) entered by a member that accesses liquidity equal to or exceeding 0.07% of total Consolidated Volume during month. • $0.0015 per share executed credit for orders that access liquidity (excluding orders with Midpoint pegging and excluding orders that receive price improvement and execute against an order with a Non-displayed price) entered by a member that adds liquidity equal to or exceeding an average daily volume of 50,000 shares in a month. As noted above, the proposed New Credits will not supplant all of the existing credits. Instead, the Exchange proposes that the following existing credits will continue to apply to orders in securities in all Tapes: • $0.0000 per share executed for an order that receives price improvement and executes against an order with a Non-displayed price; and • $0.0000 per share executed for an order with Midpoint pegging that removes liquidity. The Exchange also proposes to continue charging a fee of $0.0003 per share executed for an order in securities in any Tape (excluding an order with midpoint pegging and excluding an order that receives price improvement 6 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. For purposes of calculating Consolidated Volume and the extent of a member’s trading activity the date of the annual reconstitution of the Russell Investments Indexes is excluded from both total Consolidated Volume and the member’s trading activity. See Equity 7, Section 118(a). PO 00000 Frm 00107 Fmt 4703 Sfmt 4703 and executes against an order with a non-displayed price) that removes liquidity from the Exchange and that is entered by a member that does not add at least an average daily volume of 50,000 shares to the Exchange during a month. Charges for Adding Liquidity to the Exchange As a means of offsetting the costs of providing the New Credits, the Exchange proposes to largely replace its existing schedule of charges with a new schedule of charges for displayed and non-displayed orders in securities in all Tapes that add liquidity to the Exchange (the ‘‘New Charges’’). Generally speaking, the proposed New Charges will be higher than the existing charges.7 Specifically, the Exchange proposes to delete all of the existing charges for providing liquidity through the Exchange (except as provided below) and replace them with the following New Charges: • $0.0025 per share executed charge for a displayed order entered by a member that adds liquidity equal to or exceeding 0.25% total Consolidated Volume during a month; • $0.0028 per share executed charge for a non-displayed order (other than orders with Midpoint pegging) entered by a member that adds liquidity equal to or exceeding 0.25% total Consolidated Volume during a month; • $0.0030 per share executed charge for all other non-displayed orders; and • $0.0029 per share executed charge for all other orders. The Exchange proposes that following existing charges will continue to apply to orders in securities in all Tapes: • $0.0005 per share executed for an order with Midpoint pegging entered by a member that adds 0.02% of total Consolidated Volume of non-displayed liquidity excluding a buy (sell) order that receives an execution price that is lower (higher) than the midpoint of the NBBO; • $0.0015 per share executed for an order with Midpoint pegging entered by entered by other member excluding a buy (sell) order that receives an execution price that is lower (higher) than the midpoint of the NBBO; 7 Whereas under the existing schedule, other than for midpoint pegging orders, the Exchange charges between $0.0014 and $0.0030 per share executed for orders in Tapes A and C and between $0.0026 and $0.0030 per share executed for orders in Tape B that add liquidity to the Exchange, the proposed schedule will charge fees ranging from $0.0025 to $0.0030 per share executed for orders in securities in all Tapes (entered by members that add designated volumes of liquidity). E:\FR\FM\30JYN1.SGM 30JYN1 Federal Register / Vol. 84, No. 146 / Tuesday, July 30, 2019 / Notices • $0.0024 per share executed for a buy (sell) order with Midpoint pegging that receives an execution price that is lower (higher) than the midpoint of the NBBO; and • charges for entering BSTG, BSCN, BMOP, BTFY, BCRT, BDRK, BCST, and SCAR orders that execute in a venue other than the Nasdaq BX Equities System. Applicability to and Impact on Participants The proposed rule change is a broad restatement of the Exchange’s schedule of credits and charges. The Exchange has designed the restated schedule to increase liquidity removal activity on the Exchange for orders in securities in all Tapes and to thereby improve the overall quality and attractiveness of the Nasdaq BX market. The Exchange intends to accomplish this objective by providing overall higher credits to those participants that engage in large volumes of liquidity removal activity on the Exchange, while offsetting the costs of the higher credits by charging participants higher fees for adding liquidity to the Exchange. Those participants that act as net removers of liquidity from the Exchange will benefit directly from the proposed rule change through the receipts of higher credits. Those participants that act as net adders of liquidity to the Exchange will also benefit indirectly from any improvement in the overall quality of the market. However, net liquidity adders will bear the costs of higher fees for adding liquidity to the Exchange. The Exchange notes that its proposal is not otherwise targeted at or expected to be limited in its applicability to a specific segment(s) of market participants nor will it apply differently to different types of market participants. jspears on DSK3GMQ082PROD with NOTICES 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,8 in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,9 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 8 15 9 15 U.S.C. 78f(b). U.S.C. 78f(b)(4) and (5). VerDate Sep<11>2014 16:42 Jul 29, 2019 Jkt 247001 establishment of the national market system for securities. The Proposal Is Reasonable The Exchange’s proposed change to its schedule of credits and charges 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 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 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.’’ 11 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 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 Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) (‘‘Regulation NMS Adopting Release’’). PO 00000 Frm 00108 Fmt 4703 Sfmt 4703 36991 members achieving certain volume thresholds.12 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.13 Separately, the Exchange has provided the SEC staff with multiple examples of instances where pricing changes by BX and other exchanges have resulted in shifts in exchange market share. Within the foregoing context, the proposal represents a reasonable attempt by the Exchange to increase its liquidity and market share relative to its competitors. The Exchange has designed its proposed schedule of credits and charges to provide increased overall incentives to members to increase their liquidity removal activity on the Exchange, and to do so broadly in orders in securities in all Tapes. An increase in overall liquidity removal activity on the Exchange will, in turn, improve the quality of the Nasdaq BX market and increase its attractiveness to existing and prospective participants. Generally, the proposed New Credits will be comparable to, if not favorable to, those that its competitors provide.14 Meanwhile, the Exchange believes that it is reasonable to offset the costs of providing the New Credits by increasing its charges for members that add liquidity to the Exchange. Although the New Charges will be higher, in many cases, than the existing charges, the Exchange believes that the New Charges will continue to be comparable to liquidity adding charges imposed by its competitors.15 That said, the Exchange 12 CBOE EDGA provides a standard rebate for liquidity removers of $0.0024 per share executed (or $0.0026 per share executed if a member qualifies for a volume tier), and a standard charge of $0.0030 per share executed for liquidity adders (or between $0.0022 and $0.0026 if a member qualifies for a volume tier). NYSE National has a range of rebates from $0.0010 to $0.0020 per share executed for liquidity removers, and a range of charges from $0.0008 to $0.0027 per share executed for liquidity adders. CBOE BYX provides standard rebates for liquidity removers of $0.0005 per share executed and a range of tiered rebates from $0.0015 to $0.0017 per share executed for liquidity removers; it imposes standard charges ranging from $0.00190 to $0.0030 per share executed and tiered charges ranging from $0.0012 to $0.0014 per share executed for liquidity adders. 13 The Exchange perceives no regulatory, structural, or cost impediments to market participants shifting order flow away from it. In particular, the Exchange notes that these examples of shifts in liquidity and market share, along with many others, have occurred within the context of market participants’ existing duties of Best Execution and obligations under the Order Protection Rule under Regulation NMS. 14 See n. 12, supra. 15 See id. E:\FR\FM\30JYN1.SGM 30JYN1 36992 Federal Register / Vol. 84, No. 146 / Tuesday, July 30, 2019 / Notices again notes that those participants that do not wish to pay the costs of increased charges are free to shift their order flow to competing venues that offer them lower charges. jspears on DSK3GMQ082PROD with NOTICES The Proposal Is an Equitable Allocation of Credits The Exchange believes its proposal will allocate its New Credits and New Charges fairly among its market participants. The proposal will flatten and simplify the Exchange’s schedule of credits and charges, including by reducing the number of credit and fee tiers and by eliminating tiers, such as growth tiers. Moreover, it is equitable for the Exchange to increase its overall credits to participants whose orders remove liquidity from the Exchange as a means of incentivizing increased liquidity removal activity and to do so broadly in orders in securities in all Tapes. An increase in overall liquidity removal activity on the Exchange will improve the quality of the Nasdaq BX market and increase its attractiveness to existing and prospective participants. Likewise, the Exchange believes it is equitable to increase its charges for orders entered by members that add liquidity to the Exchange as a means of offsetting the costs of providing the New Credits. Although participants that are net adders of liquidity to the Exchange will bear the costs of the New Charges, these participants will also benefit from any improvements in the quality and attractiveness of the market that the New Credits provide. Moreover, any participant that wishes to avoid paying higher charges for adding liquidity to the Exchange is free to shift their order flow to competing venues that charge lower fees. 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 VerDate Sep<11>2014 16:42 Jul 29, 2019 Jkt 247001 that increases liquidity, enhances price discovery, and improves the overall quality of the equity markets. 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. Although net removers of liquidity will benefit most from the proposed increase in credits and charges, this result is fair insofar as increased liquidity removal activity will help to improve market quality and the attractiveness of the Nasdaq BX market to all existing and prospective participants. And although net adders of liquidity to the Exchange will bear the costs of the proposed rule change, this too is fair because net adders of liquidity will also benefit from improvements in market quality. Moreover, any participant that does not wish to pay higher charges to add liquidity to the Exchange is free to shift its order flow to a competing venue. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. Intramarket Competition The Exchange does not believe that its proposal will place any category of Exchange participant at a competitive disadvantage. As noted above, all members of the Exchange will benefit from an increase in 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 higher credits. 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 its proposed modifications to its schedule of credits and charges will not impose a burden on competition because the Exchange’s execution PO 00000 Frm 00109 Fmt 4703 Sfmt 4703 services are completely voluntary and subject to extensive competition both from the other 12 live exchanges and from off-exchange venues, which include 32 alternative trading systems. The Exchange notes that it operates in a highly competitive market in which market participants can readily favor competing venues if they deem fee levels at a particular venue to be excessive, or rebate opportunities available at other venues to be more favorable. In such an environment, the Exchange must continually adjust its fees 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 restated schedule of credits and charges is reflective of this competition because, as a threshold issue, the Exchange is a relatively small market so its ability to burden intermarket competition is limited. In this regard, even the largest U.S. equities exchange by volume 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 37% of industry volume for the month of April 2019. The Exchange intends for the proposed changes, in the aggregate, to increase member incentives to remove liquidity from the Exchange while maintaining adequate incentives for members to continue to add meaningful levels of liquidity to the Exchange. The Exchange proposes to achieve these objectives by replacing the existing schedule of credits with a simpler, flatter, and more generous schedule of credits. It also intends to replace its existing schedule of charges with a schedule of New Charges to offset the costs of the New Credits. In the aggregate, all of these changes are procompetitive and reflective of the Exchange’s efforts to make it an attractive and vibrant venue to market participants. E:\FR\FM\30JYN1.SGM 30JYN1 Federal Register / Vol. 84, No. 146 / Tuesday, July 30, 2019 / Notices 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.16 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: jspears on DSK3GMQ082PROD with NOTICES 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–2019–026 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–2019–026. 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 16 15 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–2019–026 and should be submitted on or before August 20, 2019. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.17 Jill M. Peterson, Assistant Secretary. [FR Doc. 2019–16093 Filed 7–29–19; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [SEC File No. 270–601, OMB Control No. 3235–0673] Proposed Collection; 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 15c3–5 Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (‘‘PRA’’) (44 U.S.C. 3501 et seq.), the Securities and Exchange Commission (‘‘Commission’’) is soliciting comments on the existing collection of information provided for in Rule 15c3–5 (17 CFR 240.15c3–5) under the Securities U.S.C. 78s(b)(3)(A)(ii). VerDate Sep<11>2014 16:42 Jul 29, 2019 17 17 Jkt 247001 PO 00000 CFR 200.30–3(a)(12). Frm 00110 Fmt 4703 Sfmt 4703 36993 Exchange Act of 1934 (15 U.S.C. 78a et seq.) (‘‘Exchange Act’’). The Commission plans to submit this existing collection of information to the Office of Management and Budget (‘‘OMB’’) for extension and approval. Rule 15c3–5 under the Exchange Act requires brokers or dealers with access to trading directly on an exchange or alternative trading system (‘‘ATS’’), including those providing sponsored or direct market access to customers or other persons, to implement risk management controls and supervisory procedures reasonably designed to manage the financial, regulatory, and other risks of this business activity. The rule requires brokers or dealers to establish, document, and maintain certain risk management controls and supervisory procedures as well as regularly review such controls and procedures, and document the review, and remediate issues discovered to assure overall effectiveness of such controls and procedures. Each such broker or dealer is required to preserve a copy of its supervisory procedures and a written description of its risk management controls as part of its books and records in a manner consistent with Rule 17a–4(e)(7) under the Exchange Act. Such regular review is required to be conducted in accordance with written procedures and is required to be documented. The broker or dealer is required to preserve a copy of such written procedures, and documentation of each such review, as part of its books and records in a manner consistent with Rule 17a–4(e)(7) under the Exchange Act, and Rule 17a–4(b) under the Exchange Act, respectively. In addition, the Chief Executive Officer (or equivalent officer) is required to certify annually that the broker or dealer’s risk management controls and supervisory procedures comply with the rule, and that the broker-dealer conducted such review. Such certifications are required to be preserved by the broker or dealer as part of its books and records in a manner consistent with Rule 17a–4(b) under the Exchange Act. Compliance with Rule 15c3–5 is mandatory. Respondents consist of broker-dealers with access to trading directly on an exchange or ATS. The Commission estimates that there are currently 570 respondents. To comply with Rule 15c3–5, these respondents will spend a total of approximately 91,200 hours per year (160 hours per broker-dealer × 570 broker-dealers = 91,200 hours). At an average internal cost per burden hour of approximately $358.51, the resultant total related internal cost of compliance for these respondents is $32,696,340 per E:\FR\FM\30JYN1.SGM 30JYN1

Agencies

[Federal Register Volume 84, Number 146 (Tuesday, July 30, 2019)]
[Notices]
[Pages 36989-36993]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-16093]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86447; File No. SR-BX-2019-026]


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

July 24, 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 July 11, 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 transaction fees and 
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 
generally pays credits to members that take liquidity and charges fees 
to members that provide liquidity. Currently, the Exchange has a 
schedule, at Equity 7, Section 118(a), which consists of several 
different credits that it provides for orders in securities priced at 
$1 or more per share that access liquidity on the Exchange and several 
different charges that it assesses for orders in such securities that 
add liquidity on the Exchange.
    As a result of a recent rule change,\3\ the Exchange presently 
offers a different system of credits and charges for orders in 
securities in Tapes A and C than it does for orders in securities in 
Tape B. The recent changes that the Exchange made to its credits and 
charges for orders in securities in Tape B, including

[[Page 36990]]

increases in the liquidity removal credits offered for such orders, 
have proven to be successful in increasing liquidity removal activity 
on the Exchange and in making the Exchange a more attractive market for 
Tape B securities.
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    \3\ See Securities Exchange Act Release No. 34-85912 (May 22, 
2019); 84 FR 24834 (May 29, 2019) (SR-BX-2019-013).
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    The Exchange now proposes to replicate this success for orders in 
securities in Tapes A and C while also building on it with respect to 
orders in securities in Tape B. Specifically, the Exchange proposes to 
replace, in large part, its existing schedule of credits and charges 
with a new schedule that is simpler, flatter, and which offers members 
more robust incentives to increase their liquidity removal activity in 
securities in all Tapes.
Description of the Changes
Credits for Accessing Liquidity Through the Exchange
    The Exchange proposes to eliminate its schedule of existing credits 
(except as described below) and replace it with a new schedule of 
credits for orders in securities in all Tapes that remove liquidity 
from the Exchange (the ``New Credits''). Generally speaking, the 
proposed New Credits will be higher than the existing credits,\4\ 
higher than the existing credits for the same qualifying criteria,\5\ 
or they will have qualifying criteria which will be more readily 
achievable than the existing credits. The Exchange believes that higher 
overall credits will incentivize members to increase their liquidity 
removal activity in securities in all Tapes. In certain instances, 
moreover, the availability of the proposed New Credits will also be 
tied to the level of a member's liquidity adding activity as a means of 
incentivizing liquidity adding activity even as the Exchange proposes 
to increase its charges for orders that add liquidity.
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    \4\ Whereas the highest credit under the existing schedule is 
$0.0026 per share executed for orders in securities in Tape B and 
$0.0018 per share executed for orders in securities in Tapes A and 
C, the top credit in the proposed schedule for orders in securities 
in all Tapes is $0.0027 per share executed.
     The Exchange notes that, whereas under the existing schedule, 
the Exchange provides a $0.0024 per share executed credit for orders 
in securities in Tape B that access liquidity (excluding orders with 
Midpoint pegging and excluding orders that receive price improvement 
and execute against an order with a non-displayed price) entered by 
members that add at least an average daily volume of 50,000 shares 
to the Exchange during a month, the proposed schedule will provide a 
lower credit of $0.0015 per share executed for the same level of 
activity.
    \5\ For example, whereas the existing schedule provides a 
$0.0001 per share executed credit for orders in securities in Tapes 
A and C that access liquidity (excluding orders with Midpoint 
pegging and excluding orders that receive price improvement and 
execute against an order with a non-displayed price) entered by 
members that add at least an average daily volume of 50,000 shares 
to the Exchange during a month, the proposed schedule will provide a 
credit of $0.0015 per share executed for the same level of activity.
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    Specifically, the Exchange proposes to adopt the following New 
Credits:
     $0.0027 per share executed for orders that access 
liquidity (excluding orders with Midpoint pegging and excluding orders 
that receive price improvement and execute against an order with a Non-
displayed price) entered by a member that: (i) Adds liquidity equal to 
or exceeding 0.03% of total Consolidated Volume \6\ during a month; and 
(ii) accesses liquidity equal to or exceeding 0.25% of total 
Consolidated Volume during a month.
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    \6\ 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. For purposes of calculating 
Consolidated Volume and the extent of a member's trading activity 
the date of the annual reconstitution of the Russell Investments 
Indexes is excluded from both total Consolidated Volume and the 
member's trading activity. See Equity 7, Section 118(a).
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     $0.0025 per share executed for orders that access 
liquidity (excluding orders with Midpoint pegging and excluding orders 
that receive price improvement and execute against an order with a Non-
displayed price) entered by a member that accesses liquidity equal to 
or exceeding 0.07% of total Consolidated Volume during month.
     $0.0015 per share executed credit for orders that access 
liquidity (excluding orders with Midpoint pegging and excluding orders 
that receive price improvement and execute against an order with a Non-
displayed price) entered by a member that adds liquidity equal to or 
exceeding an average daily volume of 50,000 shares in a month.
    As noted above, the proposed New Credits will not supplant all of 
the existing credits. Instead, the Exchange proposes that the following 
existing credits will continue to apply to orders in securities in all 
Tapes:
     $0.0000 per share executed for an order that receives 
price improvement and executes against an order with a Non-displayed 
price; and
     $0.0000 per share executed for an order with Midpoint 
pegging that removes liquidity.

The Exchange also proposes to continue charging a fee of $0.0003 per 
share executed for an order in securities in any Tape (excluding an 
order with midpoint pegging and excluding an order that receives price 
improvement and executes against an order with a non-displayed price) 
that removes liquidity from the Exchange and that is entered by a 
member that does not add at least an average daily volume of 50,000 
shares to the Exchange during a month.
Charges for Adding Liquidity to the Exchange
    As a means of offsetting the costs of providing the New Credits, 
the Exchange proposes to largely replace its existing schedule of 
charges with a new schedule of charges for displayed and non-displayed 
orders in securities in all Tapes that add liquidity to the Exchange 
(the ``New Charges''). Generally speaking, the proposed New Charges 
will be higher than the existing charges.\7\
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    \7\ Whereas under the existing schedule, other than for midpoint 
pegging orders, the Exchange charges between $0.0014 and $0.0030 per 
share executed for orders in Tapes A and C and between $0.0026 and 
$0.0030 per share executed for orders in Tape B that add liquidity 
to the Exchange, the proposed schedule will charge fees ranging from 
$0.0025 to $0.0030 per share executed for orders in securities in 
all Tapes (entered by members that add designated volumes of 
liquidity).
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    Specifically, the Exchange proposes to delete all of the existing 
charges for providing liquidity through the Exchange (except as 
provided below) and replace them with the following New Charges:
     $0.0025 per share executed charge for a displayed order 
entered by a member that adds liquidity equal to or exceeding 0.25% 
total Consolidated Volume during a month;
     $0.0028 per share executed charge for a non-displayed 
order (other than orders with Midpoint pegging) entered by a member 
that adds liquidity equal to or exceeding 0.25% total Consolidated 
Volume during a month;
     $0.0030 per share executed charge for all other non-
displayed orders; and
     $0.0029 per share executed charge for all other orders.
    The Exchange proposes that following existing charges will continue 
to apply to orders in securities in all Tapes:
     $0.0005 per share executed for an order with Midpoint 
pegging entered by a member that adds 0.02% of total Consolidated 
Volume of non-displayed liquidity excluding a buy (sell) order that 
receives an execution price that is lower (higher) than the midpoint of 
the NBBO;
     $0.0015 per share executed for an order with Midpoint 
pegging entered by entered by other member excluding a buy (sell) order 
that receives an execution price that is lower (higher) than the 
midpoint of the NBBO;

[[Page 36991]]

     $0.0024 per share executed for a buy (sell) order with 
Midpoint pegging that receives an execution price that is lower 
(higher) than the midpoint of the NBBO; and
     charges for entering BSTG, BSCN, BMOP, BTFY, BCRT, BDRK, 
BCST, and SCAR orders that execute in a venue other than the Nasdaq BX 
Equities System.
Applicability to and Impact on Participants
    The proposed rule change is a broad restatement of the Exchange's 
schedule of credits and charges. The Exchange has designed the restated 
schedule to increase liquidity removal activity on the Exchange for 
orders in securities in all Tapes and to thereby improve the overall 
quality and attractiveness of the Nasdaq BX market. The Exchange 
intends to accomplish this objective by providing overall higher 
credits to those participants that engage in large volumes of liquidity 
removal activity on the Exchange, while offsetting the costs of the 
higher credits by charging participants higher fees for adding 
liquidity to the Exchange.
    Those participants that act as net removers of liquidity from the 
Exchange will benefit directly from the proposed rule change through 
the receipts of higher credits. Those participants that act as net 
adders of liquidity to the Exchange will also benefit indirectly from 
any improvement in the overall quality of the market. However, net 
liquidity adders will bear the costs of higher fees for adding 
liquidity to the Exchange. The Exchange notes that its proposal is not 
otherwise targeted at or expected to be limited in its applicability to 
a specific segment(s) of market participants nor will it apply 
differently to different types of market participants.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\8\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\9\ 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.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposal Is Reasonable
    The Exchange's proposed change to its schedule of credits and 
charges 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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    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.'' \11\
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    \11\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    Numerous indicia demonstrate the competitive nature of this market. 
For example, clear substitutes to the Exchange exist in the market for 
equity security transaction services. The Exchange is only one of 
several equity venues to which market participants may direct their 
order flow, and it represents a small percentage of the overall market. 
It is also only one of several taker-maker exchanges. Competing equity 
exchanges offer similar tiered pricing structures to that of the 
Exchange, including schedules of rebates and fees that apply based upon 
members achieving certain volume thresholds.\12\
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    \12\ CBOE EDGA provides a standard rebate for liquidity removers 
of $0.0024 per share executed (or $0.0026 per share executed if a 
member qualifies for a volume tier), and a standard charge of 
$0.0030 per share executed for liquidity adders (or between $0.0022 
and $0.0026 if a member qualifies for a volume tier). NYSE National 
has a range of rebates from $0.0010 to $0.0020 per share executed 
for liquidity removers, and a range of charges from $0.0008 to 
$0.0027 per share executed for liquidity adders. CBOE BYX provides 
standard rebates for liquidity removers of $0.0005 per share 
executed and a range of tiered rebates from $0.0015 to $0.0017 per 
share executed for liquidity removers; it imposes standard charges 
ranging from $0.00190 to $0.0030 per share executed and tiered 
charges ranging from $0.0012 to $0.0014 per share executed for 
liquidity adders.
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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.\13\ 
Separately, the Exchange has provided the SEC staff with multiple 
examples of instances where pricing changes by BX and other exchanges 
have resulted in shifts in exchange market share. Within the foregoing 
context, the proposal represents a reasonable attempt by the Exchange 
to increase its liquidity and market share relative to its competitors.
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    \13\ The Exchange perceives no regulatory, structural, or cost 
impediments to market participants shifting order flow away from it. 
In particular, the Exchange notes that these examples of shifts in 
liquidity and market share, along with many others, have occurred 
within the context of market participants' existing duties of Best 
Execution and obligations under the Order Protection Rule under 
Regulation NMS.
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    The Exchange has designed its proposed schedule of credits and 
charges to provide increased overall incentives to members to increase 
their liquidity removal activity on the Exchange, and to do so broadly 
in orders in securities in all Tapes. An increase in overall liquidity 
removal activity on the Exchange will, in turn, improve the quality of 
the Nasdaq BX market and increase its attractiveness to existing and 
prospective participants. Generally, the proposed New Credits will be 
comparable to, if not favorable to, those that its competitors 
provide.\14\
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    \14\ See n. 12, supra.
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    Meanwhile, the Exchange believes that it is reasonable to offset 
the costs of providing the New Credits by increasing its charges for 
members that add liquidity to the Exchange. Although the New Charges 
will be higher, in many cases, than the existing charges, the Exchange 
believes that the New Charges will continue to be comparable to 
liquidity adding charges imposed by its competitors.\15\ That said, the 
Exchange

[[Page 36992]]

again notes that those participants that do not wish to pay the costs 
of increased charges are free to shift their order flow to competing 
venues that offer them lower charges.
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    \15\ See id.
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The Proposal Is an Equitable Allocation of Credits
    The Exchange believes its proposal will allocate its New Credits 
and New Charges fairly among its market participants. The proposal will 
flatten and simplify the Exchange's schedule of credits and charges, 
including by reducing the number of credit and fee tiers and by 
eliminating tiers, such as growth tiers.
    Moreover, it is equitable for the Exchange to increase its overall 
credits to participants whose orders remove liquidity from the Exchange 
as a means of incentivizing increased liquidity removal activity and to 
do so broadly in orders in securities in all Tapes. An increase in 
overall liquidity removal activity on the Exchange will improve the 
quality of the Nasdaq BX market and increase its attractiveness to 
existing and prospective participants.
    Likewise, the Exchange believes it is equitable to increase its 
charges for orders entered by members that add liquidity to the 
Exchange as a means of offsetting the costs of providing the New 
Credits. Although participants that are net adders of liquidity to the 
Exchange will bear the costs of the New Charges, these participants 
will also benefit from any improvements in the quality and 
attractiveness of the market that the New Credits provide. Moreover, 
any participant that wishes to avoid paying higher charges for adding 
liquidity to the Exchange is free to shift their order flow to 
competing venues that charge lower fees.
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.
    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. Although 
net removers of liquidity will benefit most from the proposed increase 
in credits and charges, this result is fair insofar as increased 
liquidity removal activity will help to improve market quality and the 
attractiveness of the Nasdaq BX market to all existing and prospective 
participants. And although net adders of liquidity to the Exchange will 
bear the costs of the proposed rule change, this too is fair because 
net adders of liquidity will also benefit from improvements in market 
quality. Moreover, any participant that does not wish to pay higher 
charges to add liquidity to the Exchange is free to shift its order 
flow to a competing venue.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
Intramarket Competition
    The Exchange does not believe that its proposal will place any 
category of Exchange participant at a competitive disadvantage. As 
noted above, all members of the Exchange will benefit from an increase 
in 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 higher credits. 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 its proposed modifications to its schedule of 
credits and charges will not impose a burden on competition because the 
Exchange's execution services are completely voluntary and subject to 
extensive competition both from the other 12 live exchanges and from 
off-exchange venues, which include 32 alternative trading systems. The 
Exchange notes that it operates in a highly competitive market in which 
market participants can readily favor competing venues if they deem fee 
levels at a particular venue to be excessive, or rebate opportunities 
available at other venues to be more favorable. In such an environment, 
the Exchange must continually adjust its fees 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 restated schedule of credits and charges is reflective 
of this competition because, as a threshold issue, the Exchange is a 
relatively small market so its ability to burden intermarket 
competition is limited. In this regard, even the largest U.S. equities 
exchange by volume 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 37% of industry volume for the month of April 
2019.
    The Exchange intends for the proposed changes, in the aggregate, to 
increase member incentives to remove liquidity from the Exchange while 
maintaining adequate incentives for members to continue to add 
meaningful levels of liquidity to the Exchange. The Exchange proposes 
to achieve these objectives by replacing the existing schedule of 
credits with a simpler, flatter, and more generous schedule of credits. 
It also intends to replace its existing schedule of charges with a 
schedule of New Charges to offset the costs of the New Credits.
    In the aggregate, all of these changes are procompetitive and 
reflective of the Exchange's efforts to make it an attractive and 
vibrant venue to market participants.

[[Page 36993]]

    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.\16\
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    \16\ 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-2019-026 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-2019-026. 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-2019-026 and should be submitted on 
or before August 20, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-16093 Filed 7-29-19; 8:45 am]
 BILLING CODE 8011-01-P
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