Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Equity 7, Section 118, 29314-29317 [2021-11403]

Download as PDF 29314 Federal Register / Vol. 86, No. 103 / Tuesday, June 1, 2021 / Notices investors and listed companies.’’ 14 The fact that this market is competitive has also 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’. . . .’’.15 Accordingly, the Exchange does not believe its proposed fee changes imposes any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange neither solicited nor received comments on the proposed rule change. 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) of the Act 16 and paragraph (f) of Rule 19b–4 17 thereunder. 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 necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission will institute proceedings to determine whether the proposed rule change should be approved or disapproved. IV. Solicitation of Comments jbell on DSKJLSW7X2PROD with NOTICES 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. 14 See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005). 15 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)). 16 15 U.S.C. 78s(b)(3)(A). 17 17 CFR 240.19b–4(f). VerDate Sep<11>2014 18:20 May 28, 2021 Jkt 253001 Comments may be submitted by any of the following methods: SECURITIES AND EXCHANGE COMMISSION Electronic Comments [Release No. 34–92000; File No. SR–BX– 2021–024] • 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– CboeBZX–2021–040 on the subject line. Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Equity 7, Section 118 May 25, 2021. 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–CboeBZX–2021–040. 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 20549–1090 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–CboeBZX–2021–040 and should be submitted on or before June 22, 2021. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.18 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2021–11406 Filed 5–28–21; 8:45 am] 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 May 19, 2021, 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: (i) The Exchange’s transaction 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://listingcenter.nasdaq.com/ rulebook/bx/rules, 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 BILLING CODE 8011–01–P 1 15 18 17 PO 00000 CFR 200.30–3(a)(12). Frm 00082 Fmt 4703 Sfmt 4703 2 17 E:\FR\FM\01JNN1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 01JNN1 jbell on DSKJLSW7X2PROD with NOTICES Federal Register / Vol. 86, No. 103 / Tuesday, June 1, 2021 / Notices 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. The Exchange proposes to add a new credit to this schedule of $0.0018 per share executed for orders in securities in Tape B that access liquidity (excluding orders with Midpoint pegging and excluding orders that receive price improvement and execute against an order with a Non-displayed price) entered by a member that: (i) Accesses at least 60% more liquidity in securities in Tape B, as a percentage of total Consolidated Volume during a month, than it did during April 2021; (ii) accesses liquidity in securities in Tape B equal to or exceeding 0.035% 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. Orders in securities in Tapes A and C will not be eligible for the new proposed credit. The Exchange intends for this new credit to reward members that remove significant volumes of Tape B liquidity from the Exchange and to encourage such members to further grow the extent to which they remove Tape B liquidity from the Exchange. The Exchange believes that any ensuing increase in the removal of Tape B liquidity from the Exchange will improve the quality of the Exchange’s market. In particular, the Exchange intends to encourage members to increase the extent to which they remove liquidity in securities in Tape B, as the Exchange believes that increased removal activity in securities in Tape B is most needed and likely to be most beneficial to market quality. The Exchange also notes that, like its other removal credit tiers, it proposes to tie the new proposed credit to the addition of at least an average daily volume of 50,000 shares of liquidity during the month. Doing so will help to incent members, not only to remove a significant amount of liquidity from the Exchange, but also to add a significant amount of liquidity as well. Any increase in liquidity adding activity that ensues from this credit will improve market quality, to the benefit of all participants. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) VerDate Sep<11>2014 18:20 May 28, 2021 Jkt 253001 of the Act,3 in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,4 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 is reasonable in several respects. As a threshold matter, the Exchange is subject to significant competitive forces in the market for equity securities transaction services that constrain its pricing determinations in that market. The fact that this market is competitive has long been recognized by the courts. In NetCoalition v. Securities and Exchange Commission, the D.C. Circuit stated as follows: ‘‘[n]o one disputes that competition for order flow is ‘fierce.’ . . . As the SEC explained, ‘[i]n the U.S. national market system, buyers and sellers of securities, and the broker-dealers that act as their order-routing agents, have a wide range of choices of where to route orders for execution’; [and] ‘no exchange can afford to take its market share percentages for granted’ because ‘no exchange possesses a monopoly, regulatory or otherwise, in the execution of order flow from broker dealers’. . . .’’ 5 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.’’ 6 Numerous indicia demonstrate the competitive nature of this market. For 3 15 U.S.C. 78f(b). U.S.C. 78f(b)(4) and (5). 5 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 Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) (‘‘Regulation NMS Adopting Release’’). 4 15 PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 29315 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.7 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.8 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 believes that its proposal is reasonable to establish a new remove credit with a growth component tied to the removal of liquidity in securities in Tape B. The proposal will encourage members to increase the extent to which they remove Tape B liquidity from the Exchange, and it will reward members that do so in significant volumes. The Exchange believes that any ensuing increase in the removal of liquidity from the Exchange—and in particular, liquidity in securities in Tape B—will improve the quality of the Exchange’s market, and it will cause the Exchange to become more attractive to existing and prospective participants. The Exchange notes that it selected April 2021 as the baseline for the growth requirements because it is the month immediately preceding the establishment of the new tier. The Exchange also believes it is reasonable to tie the new proposed credit to the addition of at least an average daily volume of 50,000 shares of liquidity during the month. Doing so will help to incent members, not only to remove a significant amount of liquidity from the Exchange, but also to add a 7 See CBOE BYX Fee Schedule, at https:// markets.cboe.com/us/equities/membership/fee_ schedule/byx/; NYSE National Fee Schedule, at https://www.nyse.com/publicdocs/nyse/regulation/ nyse/NYSE_National_Schedule_of_Fees.pdf. 8 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. E:\FR\FM\01JNN1.SGM 01JNN1 29316 Federal Register / Vol. 86, No. 103 / Tuesday, June 1, 2021 / Notices significant amount of liquidity as well. Any increase in liquidity adding activity that ensues from this credit will improve market quality, to the benefit of all participants. The Exchange notes that it includes the same criteria in several of its existing remove credit tiers. The Exchange notes that those participants that are dissatisfied with the proposed credit are free to shift their order flow to competing venues that offer them higher credits or lower charges. jbell on DSKJLSW7X2PROD with NOTICES The Proposal Is an Equitable Allocation of Credits and Charges The Exchange believes that it is an equitable allocation of its credits to establish a new remove credit tier that is tied to the growth in removal of liquidity in securities in Tape B. The addition of this new proposed credit tier will encourage members to increase the extent to which they remove Tape B liquidity from the Exchange, and it will reward members that do so in significant volumes. The Exchange believes that any increase in the removal of liquidity from the Exchange that follows from the introduction of this new credit—and in particular, liquidity in securities in Tape B—will improve the quality of the Exchange’s market, and it will cause the Exchange to become more attractive to existing and prospective participants. The Exchange also believes it is an equitable allocation to tie the new proposed credit to the addition of at least an average daily volume of 50,000 shares of liquidity during the month. Doing so will help to incent members, not only to remove a significant amount of liquidity from the Exchange, but also to add a significant amount of liquidity as well. Any increase in liquidity adding activity that ensues from this credit will improve market quality, to the benefit of all participants. The Exchange notes that it includes the same criteria in several of its existing remove credit tiers. Any participant that is dissatisfied with the proposal is free to shift their order flow to competing venues that provide more generous pricing or less stringent qualifying criteria. The Proposed New Credit Is Not Unfairly Discriminatory The Exchange believes that its new proposed remove credit with a growth component is not unfairly discriminatory because it is aimed at encouraging the growth in removal of liquidity from the Exchange, which if successful, stands to improve the quality of the Exchange’s market, to the VerDate Sep<11>2014 18:20 May 28, 2021 Jkt 253001 benefit of all market participants. The Exchange notes that its proposal to offer the new credit to members with orders in securities in Tape B is fair because the Exchange observes that its market has a greater need for, and its market quality would benefit most from, growth in removal of liquidity in securities in Tape B. The Exchange has limited resources with which to apply to incentives, and it must allocate those limited resources in a manner that prioritizes areas of greatest need and potential effect. Any participant that is dissatisfied with the proposal is free to shift their order flow to competing venues that provide more generous 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 new proposed credit. Moreover, members are free to trade on other venues to the extent they believe that the credit proposed is 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. Intermarket Competition In terms of inter-market competition, the Exchange notes that it operates in a highly competitive market in which market participants can readily favor competing venues if they deem fee levels at a particular venue to be excessive, or rebate opportunities available at other venues to be more favorable. In such an environment, the Exchange must continually adjust its credits and 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 credits and fees in response, and because market participants may readily adjust their order routing practices, the Exchange PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 believes that the degree to which credit changes in this market may impose any burden on competition is extremely limited. The proposed new credit 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 March 2021. In sum, if the change proposed herein is 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 change 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.9 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 9 15 E:\FR\FM\01JNN1.SGM U.S.C. 78s(b)(3)(A)(ii). 01JNN1 Federal Register / Vol. 86, No. 103 / Tuesday, June 1, 2021 / Notices change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments [Release No. 34–92012; File No. SR– NASDAQ–2021–043] • 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–2021–024 on the subject line. Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange’s Transaction Credits at Equity 7, Section 118(a) Paper Comments May 25, 2021. • 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–2021–024. 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–2021–024 and should be submitted on or before June 22, 2021. jbell on DSKJLSW7X2PROD with NOTICES SECURITIES AND EXCHANGE COMMISSION For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.10 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2021–11403 Filed 5–28–21; 8:45 am] 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 May 19, 2021, The Nasdaq Stock Market LLC (‘‘Nasdaq’’ 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 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://listingcenter.nasdaq.com/ rulebook/nasdaq/rules, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of the proposed rule change is to amend the Exchange’s BILLING CODE 8011–01–P 1 15 10 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 18:20 May 28, 2021 2 17 Jkt 253001 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00085 Fmt 4703 Sfmt 4703 29317 schedule of credits, at Equity 7, Section 118(a). Specifically, the Exchange proposes to (1) amend an existing credit of $0.0030 per share executed for members that add at least a certain threshold volume of liquidity in securities in Tape B; (2) amend an existing credit of $0.00295 per share executed for members that add at least a certain threshold volume of liquidity in securities in Tape C and in ‘‘Designated Retail Orders’’ 3 for securities in any Tape; (3) amend an existing credit of $0.0027 per share for members that meet specified volume requirements on both Nasdaq and the Nasdaq Options Market (‘‘NOM’’) when adding liquidity; and (4) amend an existing credit of $0.0025 per share executed for orders that are routed using the ‘‘SCAR’’ routing option 4 and which ultimately execute on Nasdaq BX, Inc. (‘‘BX’’). Amend Existing Credit for Adding Liquidity in Tape B Securities First, the Exchange proposes to amend an existing credit of $0.0030 per share executed to a member with shares of liquidity provided in all securities through one or more of its Nasdaq Market Center MPIDs that represent 1.30% or more of Consolidated Volume 5 during the month, which includes shares of liquidity provided with respect to securities that are listed on exchanges other than Nasdaq or NYSE (‘‘Tape B Securities’’) that represent 0.40% or more of Consolidated Volume. The Exchange proposes to lower the liquidity adding threshold for the credit 3 Pursuant to Equity 7, Section 118, a ‘‘Designated Retail Order’’ is an agency or riskless principal order that meets the criteria of FINRA Rule 5320.03 and that originates from a natural person and is submitted to Nasdaq by a member that designates it pursuant to this section, provided that no change is made to the terms of the order with respect to price or side of market and the order does not originate from a trading algorithm or any other computerized methodology. 4 Pursuant to Equity 4, Section 4758(a)(1)(A)(xv), ‘‘SCAR’’ is a routing option under which orders will check the System for available shares and simultaneously route to BX and Nasdaq PSX in accordance with the System routing table. If shares remain unexecuted after routing, they are posted on the book or cancelled. Once on the book, should the order subsequently be locked or crossed by another market center, the System will not route the order to the locking or crossing market center. 5 Equity 7, Section 118(a) defines ‘‘Consolidated Volume’’ to 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 is excluded from both total Consolidated Volume and the member’s trading activity. E:\FR\FM\01JNN1.SGM 01JNN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 86, Number 103 (Tuesday, June 1, 2021)]
[Notices]
[Pages 29314-29317]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-11403]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92000; File No. SR-BX-2021-024]


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

May 25, 2021.
    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 May 19, 2021, 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: (i) The Exchange's transaction 
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://listingcenter.nasdaq.com/rulebook/bx/rules, 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

[[Page 29315]]

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.
    The Exchange proposes to add a new credit to this schedule of 
$0.0018 per share executed for orders in securities in Tape B that 
access liquidity (excluding orders with Midpoint pegging and excluding 
orders that receive price improvement and execute against an order with 
a Non-displayed price) entered by a member that: (i) Accesses at least 
60% more liquidity in securities in Tape B, as a percentage of total 
Consolidated Volume during a month, than it did during April 2021; (ii) 
accesses liquidity in securities in Tape B equal to or exceeding 0.035% 
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. Orders in securities in Tapes A and C will not be eligible for 
the new proposed credit.
    The Exchange intends for this new credit to reward members that 
remove significant volumes of Tape B liquidity from the Exchange and to 
encourage such members to further grow the extent to which they remove 
Tape B liquidity from the Exchange. The Exchange believes that any 
ensuing increase in the removal of Tape B liquidity from the Exchange 
will improve the quality of the Exchange's market. In particular, the 
Exchange intends to encourage members to increase the extent to which 
they remove liquidity in securities in Tape B, as the Exchange believes 
that increased removal activity in securities in Tape B is most needed 
and likely to be most beneficial to market quality.
    The Exchange also notes that, like its other removal credit tiers, 
it proposes to tie the new proposed credit to the addition of at least 
an average daily volume of 50,000 shares of liquidity during the month. 
Doing so will help to incent members, not only to remove a significant 
amount of liquidity from the Exchange, but also to add a significant 
amount of liquidity as well. Any increase in liquidity adding activity 
that ensues from this credit will improve market quality, to the 
benefit of all participants.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\3\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\4\ 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.
---------------------------------------------------------------------------

    \3\ 15 U.S.C. 78f(b).
    \4\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

The Proposal Is Reasonable
    The Exchange's proposed change to its schedule of credits is 
reasonable in several respects. As a threshold matter, the Exchange is 
subject to significant competitive forces in the market for equity 
securities transaction services that constrain its pricing 
determinations in that market. The fact that this market is competitive 
has long been recognized by the courts. In NetCoalition v. Securities 
and Exchange Commission, the D.C. Circuit stated as follows: ``[n]o one 
disputes that competition for order flow is `fierce.' . . . As the SEC 
explained, `[i]n the U.S. national market system, buyers and sellers of 
securities, and the broker-dealers that act as their order-routing 
agents, have a wide range of choices of where to route orders for 
execution'; [and] `no exchange can afford to take its market share 
percentages for granted' because `no exchange possesses a monopoly, 
regulatory or otherwise, in the execution of order flow from broker 
dealers'. . . .'' \5\
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    \5\ 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.'' \6\
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    \6\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    Numerous indicia demonstrate the competitive nature of this market. 
For example, clear substitutes to the Exchange exist in the market for 
equity security transaction services. The Exchange is only one of 
several equity venues to which market participants may direct their 
order flow, and it represents a small percentage of the overall market. 
It is also only one of several taker-maker exchanges. Competing equity 
exchanges offer similar tiered pricing structures to that of the 
Exchange, including schedules of rebates and fees that apply based upon 
members achieving certain volume thresholds.\7\
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    \7\ See CBOE BYX Fee Schedule, at https://markets.cboe.com/us/equities/membership/fee_schedule/byx/; 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.\8\ 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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    \8\ 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 believes that its proposal is reasonable to establish 
a new remove credit with a growth component tied to the removal of 
liquidity in securities in Tape B. The proposal will encourage members 
to increase the extent to which they remove Tape B liquidity from the 
Exchange, and it will reward members that do so in significant volumes. 
The Exchange believes that any ensuing increase in the removal of 
liquidity from the Exchange--and in particular, liquidity in securities 
in Tape B--will improve the quality of the Exchange's market, and it 
will cause the Exchange to become more attractive to existing and 
prospective participants. The Exchange notes that it selected April 
2021 as the baseline for the growth requirements because it is the 
month immediately preceding the establishment of the new tier.
    The Exchange also believes it is reasonable to tie the new proposed 
credit to the addition of at least an average daily volume of 50,000 
shares of liquidity during the month. Doing so will help to incent 
members, not only to remove a significant amount of liquidity from the 
Exchange, but also to add a

[[Page 29316]]

significant amount of liquidity as well. Any increase in liquidity 
adding activity that ensues from this credit will improve market 
quality, to the benefit of all participants. The Exchange notes that it 
includes the same criteria in several of its existing remove credit 
tiers.
    The Exchange notes that those participants that are dissatisfied 
with the proposed credit are free to shift their order flow to 
competing venues that offer them higher credits or lower charges.
The Proposal Is an Equitable Allocation of Credits and Charges
    The Exchange believes that it is an equitable allocation of its 
credits to establish a new remove credit tier that is tied to the 
growth in removal of liquidity in securities in Tape B. The addition of 
this new proposed credit tier will encourage members to increase the 
extent to which they remove Tape B liquidity from the Exchange, and it 
will reward members that do so in significant volumes. The Exchange 
believes that any increase in the removal of liquidity from the 
Exchange that follows from the introduction of this new credit--and in 
particular, liquidity in securities in Tape B--will improve the quality 
of the Exchange's market, and it will cause the Exchange to become more 
attractive to existing and prospective participants.
    The Exchange also believes it is an equitable allocation to tie the 
new proposed credit to the addition of at least an average daily volume 
of 50,000 shares of liquidity during the month. Doing so will help to 
incent members, not only to remove a significant amount of liquidity 
from the Exchange, but also to add a significant amount of liquidity as 
well. Any increase in liquidity adding activity that ensues from this 
credit will improve market quality, to the benefit of all participants. 
The Exchange notes that it includes the same criteria in several of its 
existing remove credit tiers.
    Any participant that is dissatisfied with the proposal is free to 
shift their order flow to competing venues that provide more generous 
pricing or less stringent qualifying criteria.
The Proposed New Credit Is Not Unfairly Discriminatory
    The Exchange believes that its new proposed remove credit with a 
growth component is not unfairly discriminatory because it is aimed at 
encouraging the growth in removal of liquidity from the Exchange, which 
if successful, stands to improve the quality of the Exchange's market, 
to the benefit of all market participants. The Exchange notes that its 
proposal to offer the new credit to members with orders in securities 
in Tape B is fair because the Exchange observes that its market has a 
greater need for, and its market quality would benefit most from, 
growth in removal of liquidity in securities in Tape B. The Exchange 
has limited resources with which to apply to incentives, and it must 
allocate those limited resources in a manner that prioritizes areas of 
greatest need and potential effect.
    Any participant that is dissatisfied with the proposal is free to 
shift their order flow to competing venues that provide more generous 
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 new proposed 
credit. Moreover, members are free to trade on other venues to the 
extent they believe that the credit proposed is 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.
Intermarket Competition
    In terms of inter-market competition, the Exchange notes that it 
operates in a highly competitive market in which market participants 
can readily favor competing venues if they deem fee levels at a 
particular venue to be excessive, or rebate opportunities available at 
other venues to be more favorable. In such an environment, the Exchange 
must continually adjust its credits and 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 credits and 
fees in response, and because market participants may readily adjust 
their order routing practices, the Exchange believes that the degree to 
which credit changes in this market may impose any burden on 
competition is extremely limited.
    The proposed new credit 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 March 2021.
    In sum, if the change proposed herein is 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 
change 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.\9\
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    \9\ 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

[[Page 29317]]

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-2021-024 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-2021-024. 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-2021-024 and should be submitted on 
or before June 22, 2021.
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    \10\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-11403 Filed 5-28-21; 8:45 am]
BILLING CODE 8011-01-P

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