Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange's Pricing Schedule, at Equity 7, Section 118(a), 57530-57534 [2019-23277]
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Federal Register / Vol. 84, No. 207 / Friday, October 25, 2019 / Notices
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. To the
contrary, the Exchange understands that
FINRA and other national securities
exchanges will also file similar
proposals to extend their respective
clearly erroneous execution pilot
programs. Thus, the proposed rule
change will help to ensure consistency
across market centers without
implicating any competitive issues.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No comments were solicited or
received on the proposed rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(iii) of the Act 14 and
subparagraph (f)(6) of Rule 19b–4
thereunder.15
A proposed rule change filed under
Rule 19b–4(f)(6) 16 normally does not
become operative prior to 30 days after
the date of the filing. However, Rule
19b–4(f)(6)(iii) 17 permits the
Commission to designate a shorter time
if such action is consistent with the
protection of investors and the public
interest. The Exchange has asked the
Commission to waive the 30-day
operative delay so that the proposed
rule change may become effective and
operative immediately upon filing. The
Commission believes that waiving the
30-day operative delay is consistent
with the protection of investors and the
public interest, as it will allow the
current clearly erroneous execution
pilot program to continue
uninterrupted, without any changes,
while the Exchange and the other
national securities exchanges consider a
permanent proposal for clearly
14 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
16 17 CFR 240.19b–4(f)(6).
17 17 CFR 240.19b–4(f)(6)(iii).
15 17
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erroneous execution reviews. For this
reason, the Commission hereby waives
the 30-day operative delay and
designates the proposed rule change as
operative upon filing.18
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.
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–CboeBYX–2019–018 and
should be submitted on or before
November 15, 2019.
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Eduardo A. Aleman,
Deputy Secretary.
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–
CboeBYX–2019–018 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
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–CboeBYX–2019–018. 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
18 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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[FR Doc. 2019–23269 Filed 10–24–19; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–87093; File No. SR–BX–
2019–031]
Self-Regulatory Organizations; Nasdaq
BX, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend the
Exchange’s Pricing Schedule, at
Equity 7, Section 118(a)
September 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
September 12, 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 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
19 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 84, No. 207 / Friday, October 25, 2019 / Notices
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.
Over the course of the last few
months, the Exchange has experimented
with various reformulations of its
pricing schedule with the aim of
increasing activity on the Exchange,
improving market quality, and
increasing market share.3 Although
these changes have met with some
success, the Exchange has yet to achieve
the results it desires. Accordingly, the
Exchange proposes to again restate its
pricing schedule, in large part, in a
further attempt to improve the
attractiveness of the market to new and
existing participants.
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
3 See Securities Exchange Act Release No. 34–
86120 (June 17, 2019); 84 FR 29270 (June 21, 2019)
(SR–BX–2019–026) [sic]; Securities Exchange Act
Release No. 34–85912 (May 22, 2019); 84 FR 24834
(May 29, 2019) (SR–BX–2019–013).
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securities that remove liquidity from the
Exchange (the ‘‘New Credits’’).
Generally speaking, the proposed New
Credits will be higher than the existing
credits for orders in Tapes A and B and
lower than the existing credits for orders
in securities in Tape C.4 The Exchange
believes that higher overall credits will
incentivize members to increase their
liquidity removal activity in securities
in Tapes A and B. Although credits for
removal orders for securities in Tape C
will be lower generally than they are
now, the availability of the proposed
New Credits will be tied to the level of
a member’s liquidity taking activity for
orders in securities in Tape C; this
proposal is aligned with the Exchange’s
objective to encourage an increase in
liquidity in securities in Tape C
(together with lower charges for adding
liquidity in securities in Tape C, as
discussed below).
Specifically, the Exchange proposes to
adopt the following New Credits:
• A $0.0031 per share executed credit
for orders in securities in Tapes A and
B and a $0.0017 per share executed
credit for orders in securities in Tape 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 a
member that: (i) Accesses liquidity
equal to or exceeding 0.225% of total
Consolidated Volume during a month;
(ii) accesses liquidity in Securities in
Tape C equal to or exceeding 0.045% of
total Consolidated Volume during a
month; and (iii) adds liquidity equal to
or exceeding an average daily volume of
50,000 shares in a month.
• A $0.0028 per share executed credit
for orders in securities in Tapes A and
B and a $0.0015 per share executed
credit for orders in securities in Tape C
that access liquidity (excluding orders
with Midpoint pegging and excluding
orders that receive price improvement
and execute against an order with a
4 Whereas the highest credit under the existing
schedule is $0.0027 per share executed for orders
in securities in Tapes A, B, and C, the top credit
in the proposed schedule for orders in securities in
Tapes A and B is $0.0031 per share executed. Under
the proposal, the highest credit available for orders
in Tape C will be $0.0017 per share executed.
The Exchange notes that, whereas under the
existing schedule, the Exchange provides a $0.0015
per share executed credit for orders in securities in
all Tapes 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 higher credit
of $0.0018 per share executed for orders in Tapes
A and B and a lower credit of $0.005 per share
executed for orders in Tape C.
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57531
Non-displayed price) entered by a
member that: (i) Accesses liquidity
equal to or exceeding 0.11% of total
Consolidated Volume during a month;
(ii) accesses liquidity in Securities in
Tape C equal to or exceeding 0.025% of
total Consolidated Volume during a
month; and (iii) adds liquidity equal to
or exceeding an average daily volume of
50,000 shares in a month.
• A $0.0026 per share executed credit
for orders in securities in Tapes A and
B and a $0.0010 per share executed
credit for orders in securities in Tape 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 a
member that: (i) Accesses liquidity
equal to or exceeding 0.08% of total
Consolidated Volume during a month;
(ii) accesses liquidity in Securities in
Tape C equal to or exceeding 0.020% of
total Consolidated Volume during a
month; and (iii) adds liquidity equal to
or exceeding an average daily volume of
50,000 shares in a month.
• A $0.0018 per share executed credit
for orders in securities in Tapes A and
B and a $0.0005 per share executed
credit for orders in securities in Tape 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 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 for orders 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. However, the Exchange
proposes to increase that fee, again for
orders in securities in all Tapes, from
$0.0003 to $0.0005 per share executed.
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Charges for Adding Liquidity to the
Exchange
Primarily as a means of encouraging
the addition of liquidity in securities in
Tape C, 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 that add liquidity to the
Exchange (the ‘‘New Charges’’).
Generally speaking, the range of the
proposed New Charges will be the same
as the existing charges for orders in
Tapes A and B and lower for orders in
Tape C (with new and different
qualifying volume thresholds for each
charge).5
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:
• A $0.0025 per share executed
charge for displayed orders in securities
in Tapes A and B that: Add liquidity
entered by a member that (i) adds
liquidity equal to or exceeding 0.17% of
total Consolidated Volume and (ii) adds
liquidity equal to or exceeding 0.025%
of total Consolidated Volume in
securities in Tape B during a month.
• A $0.0029 per share executed
charge for displayed orders in securities
in Tapes A and B that add liquidity
entered by a member that (i) adds
liquidity equal to or exceeding 0.08% of
total Consolidated Volume and (ii) adds
liquidity equal to or exceeding 0.020%
of total Consolidated Volume in
securities in Tape B during a month.
• A $0.0012 per share executed
charge for displayed orders in securities
in Tape C that add liquidity entered by
a member that (i) adds liquidity equal to
or exceeding 0.17% of total
Consolidated Volume and (ii) adds
liquidity equal to or exceeding 0.15% of
total Consolidated Volume in securities
in Tape C during a month.
• A $0.0014 per share executed
charge for displayed orders in securities
in Tape C that add liquidity entered by
a member that (i) adds liquidity equal to
or exceeding 0.12% of total
Consolidated Volume and (ii) adds
liquidity equal to or exceeding 0.07% of
total Consolidated Volume in securities
in Tape C during a month.
• A $0.0017 per share executed
charge for displayed orders in securities
5 Whereas under the existing pricing schedule,
other than for midpoint pegging orders, the
Exchange charges between $0.0025 and $0.0030 per
share executed for orders in securities in all Tapes,
the proposed schedule will charge fees ranging from
$0.0025 to $0.0030 per share executed for orders in
securities in Tapes A and B and $0.0012 to $0.0020
for orders in securities in Tape C.
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in Tape C that add liquidity entered by
a member that (i) adds liquidity equal to
or exceeding 0.08% of total
Consolidated Volume and (ii) adds
liquidity equal to or exceeding 0.025%
of total Consolidated Volume in
securities in Tape C during a month.
• A $0.0030 per share executed
charge for buy (sell) orders with
Midpoint pegging in securities in all
Tapes that receive an execution price
that is lower (higher) than the midpoint
of the NBBO.
• A $0.0030 per share executed
charge for all other orders in securities
in Tapes A and B.
• A $0.0020 per share executed
charge for all other orders in securities
in Tape C.
The Exchange proposes that following
existing charges will continue to apply
to orders in securities in all Tapes:
• A $0.0005 per share executed
charge for orders with Midpoint pegging
entered by a member that adds 0.02% of
total Consolidated Volume of nondisplayed liquidity excluding a buy
(sell) order that receives an execution
price that is lower (higher) than the
midpoint of the NBBO.
• A $0.0015 per share executed
charge for orders with Midpoint pegging
entered by other member excluding a
buy (sell) order that receives an
execution price that is lower (higher)
than the midpoint of the NBBO.
• A $0.0028 per share executed
charge for non-displayed orders (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.
• A $0.0030 per share executed
charge for all other non-displayed
orders.
• 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
specifically increase liquidity removal
activity on the Exchange for orders in
securities in Tapes A and B, to increase
liquidity adding activity in Tape C, 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 in securities in Tapes A
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and B and by charging lower overall fees
to those participants that add liquidity
to the Exchange in securities in Tape C.
Those participants that act as net
removers of liquidity from the Exchange
in securities in Tapes A and B 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
in securities in Tape C will also benefit
from lower charges and indirectly from
any improvement in the overall quality
of the market. However, net liquidity
adders in securities in Tapes A and B
and net removers of liquidity in
securities in Tape C will bear the costs
of these proposals. 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,6 in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5)
of the Act,7 in particular, in that it
provides for the equitable allocation of
reasonable dues, fees and other charges
among members and issuers and other
persons using any facility, and is not
designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers. The
proposal is also consistent with Section
11A of the Act relating to the
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’
6 15
7 15
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U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
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Federal Register / Vol. 84, No. 207 / Friday, October 25, 2019 / Notices
because ‘no exchange possesses a
monopoly, regulatory or otherwise, in
the execution of order flow from broker
dealers’ . . . .’’ 8
The Commission and the courts have
repeatedly expressed their preference
for competition over regulatory
intervention in determining prices,
products, and services in the securities
markets. In Regulation NMS, while
adopting a series of steps to improve the
current market model, the Commission
highlighted the importance of market
forces in determining prices and SRO
revenues and, also, recognized that
current regulation of the market system
‘‘has been remarkably successful in
promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ 9
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.10
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.11 Separately, the Exchange
has provided the SEC staff with
8 NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir.
2010) (quoting Securities Exchange Act Release No.
59039 (December 2, 2008), 73 FR 74770, 74782–83
(December 9, 2008) (SR–NYSEArca–2006–21)).
9 Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(‘‘Regulation NMS Adopting Release’’).
10 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 standard charge
of $0.0005 per share executed for liquidity removers
($0.0025–$0.0030 rebate if a member qualifies for a
volume tier) and a standard charge of $0.0028 per
share executed for liquidity adders (and a range of
charges from $0.0020–$0.0026 if a member qualifies
for a volume tier).
11 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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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 and adding activity on
the Exchange in securities in the three
Tapes. An increase in liquidity removal
and adding 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 and Charges will
be comparable to, if not favorable to,
those that its competitors provide.12
The Exchange notes that those
participants that are dissatisfied with
the New Charges or New Credits are free
to shift their order flow to competing
venues that offer them lower charges.
The Proposal Is an Equitable Allocation
of Credits and Charges
The Exchange believes its proposal
will allocate its New Credits and New
Charges fairly among its market
participants. It is equitable for the
Exchange to increase its credits to
participants whose orders remove
liquidity from the Exchange as a means
of incentivizing increased liquidity
removal activity. Likewise, it is
equitable for the Exchange to reduce
charges to participants whose orders
add liquidity to the Exchange as a
means of incentivizing liquidity adding
activity. An increase in overall liquidity
removal and addition activity on the
Exchange will improve the quality of
the Nasdaq BX market and increase its
attractiveness to existing and
prospective participants.
Likewise, it is equitable for the
Exchange to specifically increase overall
credits for orders that remove liquidity
from the Exchange in Tapes A and B as
a means of increasing liquidity removal
activity in those Tapes, and to
specifically lower overall charges for
orders that add liquidity to the
Exchange in Tape C as a means of
increasing liquidity adding activity in
Tape C. Again, the Exchange intends for
these changes to improve the overall
quality and attractiveness of the Nasdaq
BX market.
Although under the proposal, certain
participants will pay higher charges or
attain lower credits than they do now,
12 See
PO 00000
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57533
those participants will also benefit from
any improvements in the quality and
attractiveness of the market that the
New Credits and New Charges provide.
Moreover, any participant that wishes to
avoid paying higher charges or receiving
lower credits is free to shift their order
flow to competing venues that provide
more favorable pricing.
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.
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 in Tapes A and B
and net adders of liquidity in Tape C
will benefit most from the proposal, this
result is fair insofar as increased activity
in securities in these Tapes will help to
improve market quality and the
attractiveness of the Nasdaq BX market
to all existing and prospective
participants. And although certain
participants will bear the costs of the
proposed rule change through higher
charges or lower credits, this too is fair
because these participants will also
benefit from improvements in market
quality. Moreover, any participant that
does not wish to pay higher charges or
receive lower credits 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.
E:\FR\FM\25OCN1.SGM
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57534
Federal Register / Vol. 84, No. 207 / Friday, October 25, 2019 / Notices
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 any increase in market activity that
the proposal effectuates. Members may
grow or modify their businesses so that
they can receive the higher credits or
pay lower charges. Moreover, members
are free to trade on other venues to the
extent they believe that the fees assessed
and credits provided are not attractive.
As one can observe by looking at any
market share chart, price competition
between exchanges is fierce, with
liquidity and market share moving
freely between exchanges in reaction to
fee and credit changes. 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.
VerDate Sep<11>2014
18:04 Oct 24, 2019
Jkt 250001
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 July
2019.
The Exchange intends for the
proposed changes, in the aggregate, to
increase member incentives to engage in
the removal and addition of liquidity on
the Exchange. These changes are
procompetitive and reflective of the
Exchange’s efforts to make it an
attractive and vibrant venue to market
participants.
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
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.
13 15
PO 00000
U.S.C. 78s(b)(3)(A)(ii).
Frm 00153
Fmt 4703
Sfmt 9990
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
BX–2019–031 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–2019–031. 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–2019–031 and should
be submitted on or before November 15,
2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–23277 Filed 10–24–19; 8:45 am]
BILLING CODE 8011–01–P
14 17
E:\FR\FM\25OCN1.SGM
CFR 200.30–3(a)(12).
25OCN1
]]>Agencies
[Federal Register Volume 84, Number 207 (Friday, October 25, 2019)]
[Notices]
[Pages 57530-57534]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-23277]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87093; File No. SR-BX-2019-031]
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the
Exchange's Pricing Schedule, at Equity 7, Section 118(a)
September 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 September 12, 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
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
[[Page 57531]]
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.
Over the course of the last few months, the Exchange has
experimented with various reformulations of its pricing schedule with
the aim of increasing activity on the Exchange, improving market
quality, and increasing market share.\3\ Although these changes have
met with some success, the Exchange has yet to achieve the results it
desires. Accordingly, the Exchange proposes to again restate its
pricing schedule, in large part, in a further attempt to improve the
attractiveness of the market to new and existing participants.
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 34-86120 (June 17,
2019); 84 FR 29270 (June 21, 2019) (SR-BX-2019-026) [sic];
Securities Exchange Act Release No. 34-85912 (May 22, 2019); 84 FR
24834 (May 29, 2019) (SR-BX-2019-013).
---------------------------------------------------------------------------
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 that remove liquidity from the
Exchange (the ``New Credits''). Generally speaking, the proposed New
Credits will be higher than the existing credits for orders in Tapes A
and B and lower than the existing credits for orders in securities in
Tape C.\4\ The Exchange believes that higher overall credits will
incentivize members to increase their liquidity removal activity in
securities in Tapes A and B. Although credits for removal orders for
securities in Tape C will be lower generally than they are now, the
availability of the proposed New Credits will be tied to the level of a
member's liquidity taking activity for orders in securities in Tape C;
this proposal is aligned with the Exchange's objective to encourage an
increase in liquidity in securities in Tape C (together with lower
charges for adding liquidity in securities in Tape C, as discussed
below).
---------------------------------------------------------------------------
\4\ Whereas the highest credit under the existing schedule is
$0.0027 per share executed for orders in securities in Tapes A, B,
and C, the top credit in the proposed schedule for orders in
securities in Tapes A and B is $0.0031 per share executed. Under the
proposal, the highest credit available for orders in Tape C will be
$0.0017 per share executed.
The Exchange notes that, whereas under the existing schedule,
the Exchange provides a $0.0015 per share executed credit for orders
in securities in all Tapes 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 higher credit of $0.0018 per share executed for
orders in Tapes A and B and a lower credit of $0.005 per share
executed for orders in Tape C.
---------------------------------------------------------------------------
Specifically, the Exchange proposes to adopt the following New
Credits:
A $0.0031 per share executed credit for orders in
securities in Tapes A and B and a $0.0017 per share executed credit for
orders in securities in Tape 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 a member that: (i) Accesses liquidity equal to or exceeding
0.225% of total Consolidated Volume during a month; (ii) accesses
liquidity in Securities in Tape C equal to or exceeding 0.045% of total
Consolidated Volume during a month; and (iii) adds liquidity equal to
or exceeding an average daily volume of 50,000 shares in a month.
A $0.0028 per share executed credit for orders in
securities in Tapes A and B and a $0.0015 per share executed credit for
orders in securities in Tape 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 a member that: (i) Accesses liquidity equal to or exceeding
0.11% of total Consolidated Volume during a month; (ii) accesses
liquidity in Securities in Tape C equal to or exceeding 0.025% of total
Consolidated Volume during a month; and (iii) adds liquidity equal to
or exceeding an average daily volume of 50,000 shares in a month.
A $0.0026 per share executed credit for orders in
securities in Tapes A and B and a $0.0010 per share executed credit for
orders in securities in Tape 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 a member that: (i) Accesses liquidity equal to or exceeding
0.08% of total Consolidated Volume during a month; (ii) accesses
liquidity in Securities in Tape C equal to or exceeding 0.020% of total
Consolidated Volume during a month; and (iii) adds liquidity equal to
or exceeding an average daily volume of 50,000 shares in a month.
A $0.0018 per share executed credit for orders in
securities in Tapes A and B and a $0.0005 per share executed credit for
orders in securities in Tape 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 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 for orders 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.
However, the Exchange proposes to increase that fee, again for orders
in securities in all Tapes, from $0.0003 to $0.0005 per share executed.
[[Page 57532]]
Charges for Adding Liquidity to the Exchange
Primarily as a means of encouraging the addition of liquidity in
securities in Tape C, 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 that add liquidity to
the Exchange (the ``New Charges''). Generally speaking, the range of
the proposed New Charges will be the same as the existing charges for
orders in Tapes A and B and lower for orders in Tape C (with new and
different qualifying volume thresholds for each charge).\5\
---------------------------------------------------------------------------
\5\ Whereas under the existing pricing schedule, other than for
midpoint pegging orders, the Exchange charges between $0.0025 and
$0.0030 per share executed for orders in securities in all Tapes,
the proposed schedule will charge fees ranging from $0.0025 to
$0.0030 per share executed for orders in securities in Tapes A and B
and $0.0012 to $0.0020 for orders in securities in Tape C.
---------------------------------------------------------------------------
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:
A $0.0025 per share executed charge for displayed orders
in securities in Tapes A and B that: Add liquidity entered by a member
that (i) adds liquidity equal to or exceeding 0.17% of total
Consolidated Volume and (ii) adds liquidity equal to or exceeding
0.025% of total Consolidated Volume in securities in Tape B during a
month.
A $0.0029 per share executed charge for displayed orders
in securities in Tapes A and B that add liquidity entered by a member
that (i) adds liquidity equal to or exceeding 0.08% of total
Consolidated Volume and (ii) adds liquidity equal to or exceeding
0.020% of total Consolidated Volume in securities in Tape B during a
month.
A $0.0012 per share executed charge for displayed orders
in securities in Tape C that add liquidity entered by a member that (i)
adds liquidity equal to or exceeding 0.17% of total Consolidated Volume
and (ii) adds liquidity equal to or exceeding 0.15% of total
Consolidated Volume in securities in Tape C during a month.
A $0.0014 per share executed charge for displayed orders
in securities in Tape C that add liquidity entered by a member that (i)
adds liquidity equal to or exceeding 0.12% of total Consolidated Volume
and (ii) adds liquidity equal to or exceeding 0.07% of total
Consolidated Volume in securities in Tape C during a month.
A $0.0017 per share executed charge for displayed orders
in securities in Tape C that add liquidity entered by a member that (i)
adds liquidity equal to or exceeding 0.08% of total Consolidated Volume
and (ii) adds liquidity equal to or exceeding 0.025% of total
Consolidated Volume in securities in Tape C during a month.
A $0.0030 per share executed charge for buy (sell) orders
with Midpoint pegging in securities in all Tapes that receive an
execution price that is lower (higher) than the midpoint of the NBBO.
A $0.0030 per share executed charge for all other orders
in securities in Tapes A and B.
A $0.0020 per share executed charge for all other orders
in securities in Tape C.
The Exchange proposes that following existing charges will continue
to apply to orders in securities in all Tapes:
A $0.0005 per share executed charge for orders 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.
A $0.0015 per share executed charge for orders with
Midpoint pegging entered by other member excluding a buy (sell) order
that receives an execution price that is lower (higher) than the
midpoint of the NBBO.
A $0.0028 per share executed charge for non-displayed
orders (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.
A $0.0030 per share executed charge for all other non-
displayed orders.
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 specifically increase liquidity removal activity on the
Exchange for orders in securities in Tapes A and B, to increase
liquidity adding activity in Tape C, 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 in securities in Tapes A and B and by
charging lower overall fees to those participants that add liquidity to
the Exchange in securities in Tape C.
Those participants that act as net removers of liquidity from the
Exchange in securities in Tapes A and B 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 in
securities in Tape C will also benefit from lower charges and
indirectly from any improvement in the overall quality of the market.
However, net liquidity adders in securities in Tapes A and B and net
removers of liquidity in securities in Tape C will bear the costs of
these proposals. 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,\6\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\7\ in particular, in that it provides
for the equitable allocation of reasonable dues, fees and other charges
among members and issuers and other persons using any facility, and is
not designed to permit unfair discrimination between customers,
issuers, brokers, or dealers. The proposal is also consistent with
Section 11A of the Act relating to the establishment of the national
market system for securities.
---------------------------------------------------------------------------
\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
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'
[[Page 57533]]
because `no exchange possesses a monopoly, regulatory or otherwise, in
the execution of order flow from broker dealers' . . . .'' \8\
---------------------------------------------------------------------------
\8\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
---------------------------------------------------------------------------
The Commission and the courts have repeatedly expressed their
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. In Regulation
NMS, while adopting a series of steps to improve the current market
model, the Commission highlighted the importance of market forces in
determining prices and SRO revenues and, also, recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \9\
---------------------------------------------------------------------------
\9\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
---------------------------------------------------------------------------
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.\10\
---------------------------------------------------------------------------
\10\ 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 standard charge of $0.0005 per share executed for liquidity
removers ($0.0025-$0.0030 rebate if a member qualifies for a volume
tier) and a standard charge of $0.0028 per share executed for
liquidity adders (and a range of charges from $0.0020-$0.0026 if a
member qualifies for a volume tier).
---------------------------------------------------------------------------
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.\11\
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.
---------------------------------------------------------------------------
\11\ 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.
---------------------------------------------------------------------------
The Exchange has designed its proposed schedule of credits and
charges to provide increased overall incentives to members to increase
their liquidity removal and adding activity on the Exchange in
securities in the three Tapes. An increase in liquidity removal and
adding 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 and
Charges will be comparable to, if not favorable to, those that its
competitors provide.\12\
---------------------------------------------------------------------------
\12\ See n. 10, supra.
---------------------------------------------------------------------------
The Exchange notes that those participants that are dissatisfied
with the New Charges or New Credits are free to shift their order flow
to competing venues that offer them lower charges.
The Proposal Is an Equitable Allocation of Credits and Charges
The Exchange believes its proposal will allocate its New Credits
and New Charges fairly among its market participants. It is equitable
for the Exchange to increase its credits to participants whose orders
remove liquidity from the Exchange as a means of incentivizing
increased liquidity removal activity. Likewise, it is equitable for the
Exchange to reduce charges to participants whose orders add liquidity
to the Exchange as a means of incentivizing liquidity adding activity.
An increase in overall liquidity removal and addition activity on the
Exchange will improve the quality of the Nasdaq BX market and increase
its attractiveness to existing and prospective participants.
Likewise, it is equitable for the Exchange to specifically increase
overall credits for orders that remove liquidity from the Exchange in
Tapes A and B as a means of increasing liquidity removal activity in
those Tapes, and to specifically lower overall charges for orders that
add liquidity to the Exchange in Tape C as a means of increasing
liquidity adding activity in Tape C. Again, the Exchange intends for
these changes to improve the overall quality and attractiveness of the
Nasdaq BX market.
Although under the proposal, certain participants will pay higher
charges or attain lower credits than they do now, those participants
will also benefit from any improvements in the quality and
attractiveness of the market that the New Credits and New Charges
provide. Moreover, any participant that wishes to avoid paying higher
charges or receiving lower credits is free to shift their order flow to
competing venues that provide more favorable pricing.
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 in Tapes A and B and net adders of liquidity
in Tape C will benefit most from the proposal, this result is fair
insofar as increased activity in securities in these Tapes will help to
improve market quality and the attractiveness of the Nasdaq BX market
to all existing and prospective participants. And although certain
participants will bear the costs of the proposed rule change through
higher charges or lower credits, this too is fair because these
participants will also benefit from improvements in market quality.
Moreover, any participant that does not wish to pay higher charges or
receive lower credits 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.
[[Page 57534]]
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 any increase
in market activity that the proposal effectuates. Members may grow or
modify their businesses so that they can receive the higher credits or
pay lower charges. Moreover, members are free to trade on other venues
to the extent they believe that the fees assessed and credits provided
are not attractive. As one can observe by looking at any market share
chart, price competition between exchanges is fierce, with liquidity
and market share moving freely between exchanges in reaction to fee and
credit changes. 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 July
2019.
The Exchange intends for the proposed changes, in the aggregate, to
increase member incentives to engage in the removal and addition of
liquidity on the Exchange. These changes are procompetitive and
reflective of the Exchange's efforts to make it an attractive and
vibrant venue to market participants.
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-2019-031 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-2019-031. 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-2019-031 and should be submitted on
or before November 15, 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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-23277 Filed 10-24-19; 8:45 am]
BILLING CODE 8011-01-P
