Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Equity 7, Section 118, 38418-38421 [2020-13772]

Download as PDF 38418 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Notices 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–NASDAQ–2020–030 and should be submitted on or before July 17, 2020. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.12 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–13770 Filed 6–25–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–89114; File No. SR–BX– 2020–011] Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Equity 7, Section 118 jbell on DSKJLSW7X2PROD with NOTICES June 22, 2020. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on June 10, 2020, 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 12 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 19:42 Jun 25, 2020 Jkt 250001 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 make certain changes to the Exchange’s transaction fees, at Equity 7, Section 118(a). 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. 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 3 See e.g., Securities Exchange Act Release No. 34–87271 (October 10, 2019), 84 FR 55621 (October 17, 2019) (SR–BX–2019–035); Securities Exchange Act Release No. 34–87093 (September 24, 2019), 84 FR 57530 (October 25, 2019) (SR–BX–2019–031); Securities Exchange Act Release No. 34–86120 (June 17, 2019); 84 FR 29270 (June 21, 2019) (SR– PO 00000 Frm 00063 Fmt 4703 Sfmt 4703 these changes have met with some success, the Exchange has yet to achieve the results it desires. Accordingly, the Exchange proposes to again revise its pricing schedule, in a further attempt to improve the attractiveness of the market to new and existing participants. The Exchange proposes to amend its existing $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% of total Consolidated Volume 4 during a month. The Exchange proposes to reduce the percentage of total Consolidated Volume needed to qualify for this charge, from 0.25% to 0.225% of total Consolidated Volume. Additionally, the Exchange proposes to allow a member to achieve the new volume threshold by including the removal of liquidity. By easing the volume requirements for this charge, which represents a discount off of the standard $0.0030 per share executed charge (for all other non-displayed orders), the Exchange intends to increase the number of members that seek to and do qualify for it, and thereby provide incentives for members to add liquidity to the Exchange. The proposed changes to ease the qualifying volume threshold for obtaining the $0.0028 per share executed charge and to include removing liquidity in the calculation of the new volume threshold, will benefit participants that are net adders and net takers of liquidity by enabling them to more easily qualify for the existing $0.0028 per share executed discounted charge. Those participants that act as net adders of liquidity to the Exchange will benefit directly from the proposed change that would apply to orders that add liquidity to the Exchange. Those participants that act as net removers of liquidity will also benefit from the proposed amendment as their liquidity removal activity will be tied to achieving the $0.0028 discounted charge. Any ensuing increase in liquidity adding and removing activity BX–2019–019); Securities Exchange Act Release No. 34–85912 (May 22, 2019); 84 FR 24834 (May 29, 2019) (SR–BX–2019–013). 4 As used in this rule, the term ‘‘Consolidated Volume’’ shall mean 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 shall be excluded from both total Consolidated Volume and the member’s trading activity. As used in this rule, ‘‘price improvement’’ shall mean instances when the accepted price of an order differs from the executed price of an order. E:\FR\FM\26JNN1.SGM 26JNN1 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Notices will improve the overall quality of the market, to the benefit of all members. 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. jbell on DSKJLSW7X2PROD with NOTICES 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,5 in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,6 in particular, in that it provides for the equitable allocation of reasonable dues, fees and other charges among members and issuers and other persons using any facility, and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. The 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 changes to its schedule of credits and fees are reasonable in several respects. As a threshold matter, the Exchange is subject to significant competitive forces in the market for equity securities transaction services that constrain its pricing determinations in that market. The fact that this market is competitive has long been recognized by the courts. In NetCoalition v. Securities and Exchange Commission, the D.C. Circuit stated as follows: ‘‘[n]o one disputes that competition for order flow is ‘fierce.’ . . . As the SEC explained, ‘[i]n the U.S. national market system, buyers and sellers of securities, and the 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’. . ..’’ 7 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 5 15 U.S.C. 78f(b). U.S.C. 78f(b)(4) and (5). 7 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)). 6 15 VerDate Sep<11>2014 19:42 Jun 25, 2020 Jkt 250001 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.’’ 8 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.9 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.10 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 changes to the schedule of charges to assist members in more easily qualifying for the discounted $0.0028 charge by reducing the percentage threshold and including the removal of liquidity. The Exchange believes the proposal is reasonable because it adjusts the incentives to members in order to increase their liquidity adding and removing activity on the Exchange. An increase in liquidity adding and removing activity on the Exchange will, in turn, improve the quality of the Nasdaq BX market and increase its attractiveness to existing and 8 Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005). 9 See CBOE EDGA Fee Schedule, at https:// markets.cboe.com/us/equities/membership/fee_ schedule/edga/; NYSE National Fee Schedule, at https://www.nyse.com/publicdocs/nyse/regulation/ nyse/NYSE_National_Schedule_of_Fees.pdf. 10 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. PO 00000 Frm 00064 Fmt 4703 Sfmt 4703 38419 prospective participants. Generally, the proposed amendments to the charges will be comparable to, if not favorable to, those that its competitors provide.11 The Exchange notes that those participants that are dissatisfied with the proposed fees are free to shift their order flow to competing venues that offer them lower fees. The Proposal Is an Equitable Allocation of Fees The Exchange believes its proposed amended qualification requirements for the discounted charge will be fairly allocated among its market participants. It is equitable for the Exchange to lower the volume threshold and increase the types of activities that count toward qualifying for discounted charges to participants whose orders add liquidity to the Exchange as a means of incentivizing increased liquidity adding activity on the Exchange. It is also equitable to tie the receipt of the discounted charge to the member engaging in a threshold volume of combined liquidity adding and removing activity on the Exchange. An increase in overall liquidity adding and removing activity on the Exchange will improve the quality of the Nasdaq BX market and increase its attractiveness to existing and prospective participants. Any participant that is dissatisfied with the proposed amended fees is free to shift their order flow to competing venues that provide more favorable pricing or less stringent qualifying criteria. 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. 11 See E:\FR\FM\26JNN1.SGM n. 9, supra. 26JNN1 38420 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Notices The Exchange intends for its 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. Both net removers and net adders of liquidity to the Exchange stand to benefit directly from the proposed changes. Moreover, to the extent that the proposed changes increase liquidity adding and removing activity on the Exchange, this will improve market quality and the attractiveness of the Nasdaq BX market, to the benefit of all existing and prospective participants. Furthermore, any participant that is dissatisfied with the proposed amended fees is free to shift their order flow to competing venues that provide more favorable pricing or less stringent qualifying criteria. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. jbell on DSKJLSW7X2PROD with 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 lower charge. Moreover, members are free to trade on other venues to the extent they believe that the credit provided or fees imposed 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 proposal 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 34 alternative trading systems. VerDate Sep<11>2014 19:42 Jun 25, 2020 Jkt 250001 The Exchange notes that it operates in a highly competitive market in which market participants can readily favor competing venues if they deem fee levels at a particular venue to be excessive, or rebate opportunities available at other venues to be more favorable. In such an environment, the Exchange must continually adjust its fees and credits to remain competitive with other exchanges and with alternative trading systems that have been exempted from compliance with the statutory standards applicable to exchanges. Because competitors are free to modify their own fees and credits in response, and because market participants may readily adjust their order routing practices, the Exchange believes that the degree to which fee and credit changes in this market may impose any burden on competition is extremely limited. The proposed amendments to the schedule of 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 has less than 17% 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 41% of industry volume for the month of May 2020. The Exchange intends for the proposed changes to its schedule of fees, 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. PO 00000 C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act.12 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– BX–2020–011 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–2020–011. 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 12 15 Frm 00065 Fmt 4703 Sfmt 4703 E:\FR\FM\26JNN1.SGM U.S.C. 78s(b)(3)(A)(ii). 26JNN1 Federal Register / Vol. 85, No. 124 / Friday, June 26, 2020 / Notices 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–2020–011 and should be submitted on or before July 17, 2020. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.13 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–13772 Filed 6–25–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–89118; File No. SR–IEX– 2020–08] Self-Regulatory Organizations: Investors Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend IEX Rule Series 11.600 (Consolidated Audit Trail Compliance Rule) jbell on DSKJLSW7X2PROD with NOTICES June 22, 2020. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on June 19, 2020, the Investors Exchange LLC (‘‘IEX’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of this proposed rule change is to amend the Rule 11.600 Series, the Compliance Rule regarding the CAT NMS Plan, to be consistent with certain exemptions from the CAT NMS Plan as well as to facilitate the retirement of certain existing regulatory systems. As described more fully below, the proposed rule change would make the following changes to the Compliance Rule: • Add additional data elements to the consolidated audit trail (‘‘CAT’’) U.S.C. 78s(b)(1). CFR 240.19b–4. 6 Unless otherwise specified, capitalized terms used in this rule filing are defined as set forth in the Compliance Rule. CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 5 17 1 15 19:42 Jun 25, 2020 II. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization 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 statement may be examined at the places specified in Item IV below. The self-regulatory organization has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. 4 15 13 17 VerDate Sep<11>2014 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change Pursuant to the provisions of Section 19(b)(1) of the Exchange Act,4 and Rule 19b–4 thereunder,5 IEX is filing with the Commission a proposed rule change to amend the Rule Series 11.600, the Exchange’s compliance rule (‘‘Compliance Rule’’) regarding the National Market System Plan Governing the Consolidated Audit Trail (the ‘‘CAT NMS Plan’’ or ‘‘Plan’’) 6 to be consistent with certain exemptions from the CAT NMS Plan as well as to facilitate the retirement of certain existing regulatory systems. A notice of the proposed rule change for publication in the Federal Register is attached [sic] hereto as Exhibit 1. The text of the proposed rule change is attached [sic] as Exhibit 5. The text of the proposed rule change is available at the Exchange’s website at www.iextrading.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. Jkt 250001 PO 00000 Frm 00066 Fmt 4703 Sfmt 4703 38421 reporting requirements for Industry Members to facilitate the retirement of the Financial Industry Regulatory Authority, Inc.’s (‘‘FINRA’’) Order Audit Trail System (‘‘OATS’’); • Add additional data elements related to OTC Equity Securities that FINRA currently receives from alternative trading systems (‘‘ATSs’’) that trade OTC Equity Securities for regulatory oversight purposes to the CAT reporting requirements for Industry Members; • Implement a phased approach for Industry Member reporting to the CAT (‘‘Phased Reporting’’); • To the extent that any Industry Member’s order handling or execution systems utilize time stamps in increments finer than milliseconds, revise the timestamp granularity requirement to require such Industry Member to record and report Industry Member Data to the Central Repository with time stamps in such finer increment up to nanoseconds; • Require Introducing Industry Members (as defined below) to comply with the requirements of the CAT NMS Plan applicable to Small Industry Members; • Revise the CAT reporting requirements so Industry Members would not be required to report to the Central Repository dates of birth, ‘‘individual tax payer identification number (‘‘ITIN’’)/social security number (‘‘SSN’’)’’ (collectively, referred to as ‘‘SSNs’’) or account numbers; and • Revise the CAT reporting requirements regarding cancelled trades and SRO-Assigned Market Participant Identifiers of clearing brokers, if applicable, in connection with order executions, as such information will be available from FINRA’s trade reports submitted to the CAT. i. CAT–OATS Data Gaps The Participants have worked to identify gaps between data reported to existing systems and data to be reported to the CAT to ‘‘ensure that by the time Industry Members are required to report to the CAT, the CAT will include all data elements necessary to facilitate the rapid retirement of duplicative systems.’’ 7 As a result of this process, the Participants identified several data elements that must be included in the CAT reporting requirements before existing systems can be retired. In 7 Letter from Participants to Brent J. Fields, Secretary, SEC, re: File Number 4–698; Notice of Filing of the National Market System Plan Governing the Consolidated Audit Trail (September 23, 2016) at 21 (‘‘Participants’ Response to Comments’’) (available at https://www.sec.gov/ comments/4-698/4698-32.pdf). E:\FR\FM\26JNN1.SGM 26JNN1

Agencies

[Federal Register Volume 85, Number 124 (Friday, June 26, 2020)]
[Notices]
[Pages 38418-38421]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-13772]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89114; File No. SR-BX-2020-011]


Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Equity 7, 
Section 118

June 22, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 10, 2020, 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to make certain changes to the Exchange's 
transaction fees, at Equity 7, Section 118(a).
    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.
    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 revise its pricing 
schedule, in a further attempt to improve the attractiveness of the 
market to new and existing participants.
---------------------------------------------------------------------------

    \3\ See e.g., Securities Exchange Act Release No. 34-87271 
(October 10, 2019), 84 FR 55621 (October 17, 2019) (SR-BX-2019-035); 
Securities Exchange Act Release No. 34-87093 (September 24, 2019), 
84 FR 57530 (October 25, 2019) (SR-BX-2019-031); Securities Exchange 
Act Release No. 34-86120 (June 17, 2019); 84 FR 29270 (June 21, 
2019) (SR-BX-2019-019); 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 proposes to amend its existing $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% of total Consolidated Volume \4\ during a month. The 
Exchange proposes to reduce the percentage of total Consolidated Volume 
needed to qualify for this charge, from 0.25% to 0.225% of total 
Consolidated Volume. Additionally, the Exchange proposes to allow a 
member to achieve the new volume threshold by including the removal of 
liquidity. By easing the volume requirements for this charge, which 
represents a discount off of the standard $0.0030 per share executed 
charge (for all other non-displayed orders), the Exchange intends to 
increase the number of members that seek to and do qualify for it, and 
thereby provide incentives for members to add liquidity to the 
Exchange.
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    \4\ As used in this rule, the term ``Consolidated Volume'' shall 
mean 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 shall be excluded from both total Consolidated 
Volume and the member's trading activity. As used in this rule, 
``price improvement'' shall mean instances when the accepted price 
of an order differs from the executed price of an order.
---------------------------------------------------------------------------

    The proposed changes to ease the qualifying volume threshold for 
obtaining the $0.0028 per share executed charge and to include removing 
liquidity in the calculation of the new volume threshold, will benefit 
participants that are net adders and net takers of liquidity by 
enabling them to more easily qualify for the existing $0.0028 per share 
executed discounted charge. Those participants that act as net adders 
of liquidity to the Exchange will benefit directly from the proposed 
change that would apply to orders that add liquidity to the Exchange. 
Those participants that act as net removers of liquidity will also 
benefit from the proposed amendment as their liquidity removal activity 
will be tied to achieving the $0.0028 discounted charge. Any ensuing 
increase in liquidity adding and removing activity

[[Page 38419]]

will improve the overall quality of the market, to the benefit of all 
members. 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,\5\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\6\ in particular, in that it provides 
for the equitable allocation of reasonable dues, fees and other charges 
among members and issuers and other persons using any facility, and is 
not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers. The proposal is also consistent with 
Section 11A of the Act relating to the establishment of the national 
market system for securities.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposal Is Reasonable
    The Exchange's proposed changes to its schedule of credits and fees 
are reasonable in several respects. As a threshold matter, the Exchange 
is subject to significant competitive forces in the market for equity 
securities transaction services that constrain its pricing 
determinations in that market. The fact that this market is competitive 
has long been recognized by the courts. In NetCoalition v. Securities 
and Exchange Commission, the D.C. Circuit stated as follows: ``[n]o one 
disputes that competition for order flow is `fierce.' . . . As the SEC 
explained, `[i]n the U.S. national market system, buyers and sellers of 
securities, and the broker-dealers that act as their order-routing 
agents, have a wide range of choices of where to route orders for 
execution'; [and] `no exchange can afford to take its market share 
percentages for granted' because `no exchange possesses a monopoly, 
regulatory or otherwise, in the execution of order flow from broker 
dealers'. . ..'' \7\
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    \7\ 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.'' \8\
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    \8\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496, 37499 (June 29, 2005).
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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.\9\
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    \9\ See CBOE EDGA Fee Schedule, at https://markets.cboe.com/us/equities/membership/fee_schedule/edga/; NYSE National Fee Schedule, 
at https://www.nyse.com/publicdocs/nyse/regulation/nyse/NYSE_National_Schedule_of_Fees.pdf.
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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.\10\ 
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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    \10\ 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 changes to the schedule of 
charges to assist members in more easily qualifying for the discounted 
$0.0028 charge by reducing the percentage threshold and including the 
removal of liquidity. The Exchange believes the proposal is reasonable 
because it adjusts the incentives to members in order to increase their 
liquidity adding and removing activity on the Exchange. An increase in 
liquidity adding and removing 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 amendments to the charges will be comparable to, if not 
favorable to, those that its competitors provide.\11\
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    \11\ See n. 9, supra.
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    The Exchange notes that those participants that are dissatisfied 
with the proposed fees are free to shift their order flow to competing 
venues that offer them lower fees.
The Proposal Is an Equitable Allocation of Fees
    The Exchange believes its proposed amended qualification 
requirements for the discounted charge will be fairly allocated among 
its market participants. It is equitable for the Exchange to lower the 
volume threshold and increase the types of activities that count toward 
qualifying for discounted charges to participants whose orders add 
liquidity to the Exchange as a means of incentivizing increased 
liquidity adding activity on the Exchange. It is also equitable to tie 
the receipt of the discounted charge to the member engaging in a 
threshold volume of combined liquidity adding and removing activity on 
the Exchange. An increase in overall liquidity adding and removing 
activity on the Exchange will improve the quality of the Nasdaq BX 
market and increase its attractiveness to existing and prospective 
participants.
    Any participant that is dissatisfied with the proposed amended fees 
is free to shift their order flow to competing venues that provide more 
favorable pricing or less stringent qualifying criteria.
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.

[[Page 38420]]

    The Exchange intends for its 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. Both net 
removers and net adders of liquidity to the Exchange stand to benefit 
directly from the proposed changes. Moreover, to the extent that the 
proposed changes increase liquidity adding and removing activity on the 
Exchange, this will improve market quality and the attractiveness of 
the Nasdaq BX market, to the benefit of all existing and prospective 
participants.
    Furthermore, any participant that is dissatisfied with the proposed 
amended fees is free to shift their order flow to competing venues that 
provide more favorable pricing or less stringent qualifying criteria.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
Intramarket Competition
    The Exchange does not believe that its proposal will place any 
category of Exchange participant at a competitive disadvantage. As 
noted above, all 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 lower charge. 
Moreover, members are free to trade on other venues to the extent they 
believe that the credit provided or fees imposed 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 proposal 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 34 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 and credits to remain 
competitive with other exchanges and with alternative trading systems 
that have been exempted from compliance with the statutory standards 
applicable to exchanges. Because competitors are free to modify their 
own fees and credits in response, and because market participants may 
readily adjust their order routing practices, the Exchange believes 
that the degree to which fee and credit changes in this market may 
impose any burden on competition is extremely limited.
    The proposed amendments to the schedule of 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 has less than 17% 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 41% of industry volume for the month of May 
2020.
    The Exchange intends for the proposed changes to its schedule of 
fees, 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.\12\
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    \12\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-BX-2020-011 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-2020-011. 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

[[Page 38421]]

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-2020-011 and should be 
submitted on or before July 17, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-13772 Filed 6-25-20; 8:45 am]
BILLING CODE 8011-01-P
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