Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Equity 7, Section 118 To Establish an Enhanced Market Quality Program, 59763-59766 [2021-23438]
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Federal Register / Vol. 86, No. 206 / Thursday, October 28, 2021 / Notices
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[FR Doc. 2021–23654 Filed 10–26–21; 4:15 pm]
BILLING CODE 7710–12–P
[Release No. 34–93405; File No. SR–BX–
2021–047]
Self-Regulatory Organizations; Nasdaq
BX, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Equity 7,
Section 118 To Establish an Enhanced
Market Quality Program
jspears on DSK121TN23PROD with NOTICES1
October 22, 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 October
12, 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.
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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17:34 Oct 27, 2021
The Exchange proposes to amend
Equity 7, Section 118 to establish an
Enhanced Market Quality Program, 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
SECURITIES AND EXCHANGE
COMMISSION
1 15
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
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The Exchange proposes to establish
an Enhanced Market Quality Program
that is similar to a program that exists
(with proposed amendments) on its
sister exchange, Nasdaq PHLX, LLC.3
The Enhanced Market Quality Program
is intended to provide supplemental
incentives to members that meet certain
quality standards in acting as market
makers for securities on the Exchange.
It rewards members that make a
significant contribution to market
quality by providing liquidity at the
national best bid and offer (‘‘NBBO’’) in
a large number of securities for a
significant portion of the day.
Specifically, the Exchange proposes to
make a lump sum payment at the end
of each month (a ‘‘Fixed Payment’’) to
a member to the extent that the member,
through one or more of its MPIDs,
quotes at the NBBO for at least a
threshold percentage of the time during
Market Hours in an average number of
securities per day during the month
(satisfying the ‘‘NBBO requirement’’), as
3 See Securities Exchange Act Release No. 34–
92754 (August 25, 2021), 86 FR 48789 (August 31,
2021) (SR–Phlx–2021–47). The proposal reflects
changes to this program that Nasdaq PHLX, LLC is
proposing concurrently with this rule filing.
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59763
specified below.4 On a daily basis, the
Exchange will determine the number of
securities in which each of a member’s
MPIDs satisfied the NBBO requirement.
The Exchange will aggregate all of a
member’s MPIDs to determine the
number of securities for purposes of the
NBBO requirement.
The Exchange proposes to limit the
applicability of the Program to the top
1,500 securities in each of Tapes A and
B, as determined by their total value
traded during the second month prior to
the current month (e.g., for October
2021, the measurement period for
determining the list will be August
2021).5 In doing so, the Exchange seeks
to target the Program at securities in
Tapes A and B that are most in demand
among market participants and which
trade extensively, so that an
improvement in quoting in those
securities would, in turn, stand improve
the attractiveness of the Exchange to
participants. The Exchange would
divide the 1,500 securities into three
equal groups (or ‘‘Classes’’) for each
Tape, with the top 500 ranked securities
placed in Class 3, the middle 500
ranked securities placed in Class 2, and
the lowest ranked 500 securities placed
in Class 1. The Exchange would assign
Fixed Payment amounts to each of the
three Classes in each Tape and in each
of the five Tiers, with these amounts
generally increasing from Class 1 to
Class 3, and from Tiers 1–5. Generally
speaking (with exceptions set forth in
the schedules below), this proposed
structure would provide the largest
Fixed Payments to those members that
meet the NBBO requirement in the
greatest number of qualifying securities
and those that trade most extensively,
and the lowest incentives to those
members that meet the NBBO
requirement in the fewest number of
qualifying securities and those that
trade least extensively.
The Program will be open to all
members. A member may but is not
4 For purposes of the Enhanced Market Quality
Program, a member will be deemed to quote at the
NBBO in a security if it quotes a displayed order
of at least 100 shares in the security and prices the
order at either the national best bid or the national
best offer or both the national best bid and offer for
the security. Additionally, for a particular Tape A
security to count towards the threshold for
qualifying for the Fixed Payment on a particular
day, and receiving the Fixed Payment, a member
has to quote such security at the NBBO for at least
30% of the time during Market Hours on that day.
For a particular Tape B security to count towards
the threshold for qualifying for the Fixed Payment
on a particular day, and receiving the Fixed
Payment, a member has to quote such security at
the NBBO for at least 50% of the time during
Market Hours on that day.
5 The Exchange notes that a symbol that did not
trade during the measurement month will not be
eligible for inclusion in the list.
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required to be, a registered market
maker in any security; thus, the Program
will not by itself impose a two-sided
quotation obligation or convey any of
the benefits associated with being a
registered market maker. Accordingly,
the Program is designed to attract
liquidity both from traditional market
makers and from other firms that are
willing to commit capital to support
liquidity at the NBBO.
For securities in each of the three
Classes, the Exchange will determine
the amount of the Fixed Payment that it
pays to a qualifying member as follows.
First, the Exchange will determine the
number of securities in each Class for
which a member has met the NBBO
requirement during the month. The
Exchange will then determine whether
the number of securities in a particular
Class for which a member has satisfied
the NBBO requirement during the
month is sufficient to qualify it for a
Tier, and if so, it will determine the
highest Tier applicable to the member
with respect to that Class of securities.
Next, the Exchange will multiply the
average daily number of its qualifying
securities in the Class and Tier by the
applicable amounts applicable to that
Class and Tier, and [sic] the specified
lump sum, if applicable.
Under the proposal, a member that
qualifies for a Fixed Payment for
securities in each of Tapes A and B and
in multiple Classes within each Tape
will receive Fixed Payments covering
qualifying securities in both Tapes, and
within each Tape, each of the applicable
Classes, but within each Tape and Class,
a member may only qualify for one Tier
during a month.
The Exchange will pay the Fixed
Payment in addition to other rebates or
fees provided under Equity 7, Sections
118(a)–(f).
As of the outset of every month, the
Exchange will reevaluate and, as
applicable, update its lists of the
securities that it places in each Class,
and it will publish its updated lists on
its website as of the outset of the month
in which they will apply.
The Exchange proposes to set the
Tiers, Classes, and the Fixed Payments
as follows:
Tape A Securities
Tiers
Average daily number of
securities quoted at the
NBBO for at least 30% of the
time during Market Hours
during the month
1 .....................
0–24 .......................................
2 .....................
25–49 .....................................
3 .....................
50–149 ...................................
4 .....................
150–249 .................................
5 .....................
250 or greater ........................
Fixed payment for
securities in Tape A in
Class 1
Fixed payment for
securities in Tape A in
Class 2
Fixed payment for
securities in Tape A in
Class 3
$0 per qualified security per
month.
$0 per qualified security per
month.
$50 per qualified security per
month [sic].
$0 per qualified security per
month.
$0 per qualified security per
month.
$200 per qualified security
over 49 per month.
$5,000 + ($100 per qualified
security over 149) per
month.
$15,000 + ($150 per qualified
security over 249) per
month.
$20,000 + ($300 per qualified
security over 149) per
month.
$50,000 + ($350 per qualified
security over 249) per
month.
$0 per qualified security per
month.
$200 per qualified security
over 24 per month.
$5,000 + ($450 per qualified
security over 49) per
month.
$50,000 + ($600 per qualified
security over 149) per
month.
$50,000 + ($600 per qualified
security over 149) per
month.
Fixed payment for
securities in Tape B in
Class 2
Fixed payment for
securities in Tape B in
Class 3
$0 per qualified security per
month.
$0 per qualified security per
month.
$0 per qualified security per
month.
$0 per qualified security per
month.
$0 per qualified security per
month.
$25 per qualified security over
49 per month.
$2,500 + ($50 per qualified
security over 149) per
month.
$7,500 + ($150 per qualified
security over 249) per
month.
$0 per qualified security per
month.
$100 per qualified security
over 24 per month.
$2,500 + ($150 per qualified
security over 49) per
month.
$17,500 + ($300 per qualified
security over 149) per
month.
$17,500 + ($300 per qualified
security over 149) per
month.
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Tape B Securities
Tiers
Average daily number of
securities quoted at the
NBBO for at least 50% of the
time during Market Hours
during the month
1 .....................
0–24 .......................................
2 .....................
25–49 .....................................
3 .....................
50–149 ...................................
4 .....................
150–249 .................................
$50 per qualified security over
149 per month.
5 .....................
250 or greater ........................
$5,000 + ($75 per qualified
security over 249) per
month.
The following are examples of the
operation of the proposed Enhanced
Market Quality Program.
Example 1: A member quotes an
average of 200 symbols a day in Tape A,
Class 2 in excess of the 30% NBBO
requirement to qualify for a Tier during
the month. Under the proposal, the
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Fixed payment for
securities in Tape B in
Class 1
member would qualify for a Fixed
Payment equal to the combination of
Tier 4, Class 2. The Fixed Payment due
to such member is calculated as follows:
51 (the number of symbols over 149)
times $300, which equals $15,300, plus
PO 00000
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Sfmt 4703
$20,000, for a total of $35,300 for the
month.
Example 2: A member meets the
NBBO requirements for an average of
200 symbols a day in Tape A, Class 2,
26 symbols a day in securities in Tape
A, Class 3, and 51 securities in Tape B,
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Class 2. In this scenario, the member
would qualify for three Fixed Payments.
• First, for the 200 Tape A, Class 2
securities for which the member meets
the NBBO requirement during the
month, the member would receive a
Fixed Payment equal to the combination
of Tier 4, Class 2. The Fixed Payment
due to such member is calculated as
follows: 51 (the number of symbols over
149) times $300, which equals $15,300,
plus $20,000, for a total of $35,300 for
the month.
• Second, for the 26 Tape A, Class 3
securities for which the member meets
the NBBO requirement during the
month, the member would receive a
Fixed Payment equal to the combination
of Tier 2, Class 3. The Fixed Payment
due to such member is calculated as
follows: 2 (the number of symbols over
24) times $200, which equals $400 for
the month.
• Third, for the 51 Tape B, Class 2
securities for which the member meets
the NBBO requirement during the
month, the member would receive a
Fixed Payment equal to the combination
of Tier 3, Class 2. The Fixed Payment
due to such member is calculated as
follows: 2 (the number of symbols over
49) times $25, which equals $50 for the
month.
• The total of all Fixed Payments due
to the member for the month will be
$35,750 ($35,300 + $400 + $50).
Through the use of this incentive
Program, the Exchange hopes to provide
improved trading conditions for all
market participants through narrower
bid-ask spreads and increased depth of
liquidity available at the inside market.
In addition, the Program reflects an
effort to use financial incentives to
encourage a wider variety of members to
make positive commitments to promote
market quality. The Exchange believes
that different members may respond to
different incentives, and therefore the
Enhanced Market Quality Program is
designed to promote market quality
through quoting activity. The Exchange
recognizes that while generally market
participants will provide quotes with
the intention of trading, market makers
and liquidity providers cannot control
when counter parties choose to interact
with those quotes and therefore the
Exchange believes it is beneficial to the
market to offer this incentive based on
quoting activity directly.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,6 in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5)
6 15
U.S.C. 78f(b).
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of the Act,7 in particular, in that it
provides for the equitable allocation of
reasonable dues, fees and other charges
among members and issuers and other
persons using any facility, and is not
designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.
The 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
Likewise, in NetCoalition v. Securities
and Exchange Commission 9
(‘‘NetCoalition’’) the D.C. Circuit stated
as follows: ‘‘[n]o one disputes that
competition for order flow is ‘fierce.’
. . . As the SEC explained, ‘[i]n the U.S.
national market system, buyers and
sellers of securities, and the brokerdealers that act as their order-routing
agents, have a wide range of choices of
where to route orders for execution’;
[and] ‘no exchange can afford to take its
market share percentages for granted’
because ‘no exchange possesses a
monopoly, regulatory or otherwise, in
the execution of order flow from broker
dealers’. . . .’’ 10
The Exchange believes that the
proposed Enhanced Market Quality
Program is reasonable because it is
similar to other incentive programs
offered by the Exchange for displayed
orders that provide liquidity, like the
Qualified Market Maker Program set
forth in Equity 7, Sections 118(f). The
proposed Fixed Payment will provide
an opportunity to members to receive an
additional credit in return for certain
levels of participation on the Exchange
as measured by quoting at the NBBO for
a significant portion of the day each
month. The proposed Fixed Payment is
set at a level that reflects the beneficial
contributions of market participants that
quote significantly at the NBBO in
7 15
U.S.C. 78f(b)(4) and (5).
Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(‘‘Regulation NMS Adopting Release’’).
9 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
2010).
10 Id. at 539 (quoting Securities Exchange Act
Release No. 59039 (December 2, 2008), 73 FR
74770, 74782–83 (December 9, 2008) (SR–
NYSEArca–2006–21)).
8 Securities
PO 00000
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59765
certain qualifying securities. The
Exchange believes that it is reasonable
to limit the universe of qualifying
securities to a list of 1,500 symbols that
traded most extensively on the
Exchange in Tapes A and B during
second month prior to the current
month, and to vary the amount of Fixed
Payments in relation to the relative
extent to which symbols on that list
trade, because improving the quality of
quotes for more popular symbols will do
more to enhance the attractiveness of
the Exchange than will improving quote
quality for thinly-traded symbols. Given
that the Exchange has finite resources to
allocate to incentive programs, it is
reasonable to allocate those resources in
a manner that is most likely to achieve
its intended objectives. The Exchange
notes that a competing exchange which
operates a similar incentive program
also targets its incentives to a select list
of symbols.11
The Exchange believes that it is
reasonable to limit applicability of the
proposed Fixed Payments to securities
in Tapes A and B, and to set the credits
higher for the Tape A securities, insofar
as the Exchange seeks to incentivize
members to quote at the NBBO on the
Exchange in such securities and
improve the market therefor.
The Exchange believes that the
proposed Fixed Payments set forth by
the Enhanced Market Quality Program
are an equitable allocation and are not
unfairly discriminatory because the
Exchange will offer the same Fixed
Payment rates to all similarly situated
members. Moreover, the proposed
qualification criteria requires a member
to quote significantly at the NBBO in
securities that trade extensively,
therefore contributing to market quality
in a meaningful way on the Exchange.
Any member may quote at the NBBO at
the level required by the qualification
criteria of the Enhanced Market Quality
Program. The Exchange notes that it has
a similar Qualified Market Maker
Program in which members are required
to quote at the NBBO more than a
certain amount of time during regular
11 Securities Exchange Act Release No. 34–92150
(June 10, 2021), 86 FR 32090, 32091 n.9 (June 16,
2021) (‘‘SR–MEMX–2021–07’’) (‘‘As proposed, the
term ‘DLI Target Securities’ means a list of
securities designated as such, the universe of which
will be determined by the Exchange and published
on the Exchange’s website. The Exchange
anticipates that the initial DLI Target Securities list
will include between 275 and 300 securities. The
DLI Target Securities list will always include at
least 75 securities and may be periodically updated
by the Exchange, provided that the Exchange will
not remove a security from the DLI Target Securities
list without at least 30 days’ prior notice to
Members as published on the Exchange’s website
(unless the security is no longer eligible for trading
on the Exchange).’’
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market hours.12 For these reasons, the
Exchange believes that the proposed
Enhanced Market Quality Program
Fixed Payments and qualification
criteria are an equitable allocation and
are not unfairly discriminatory.
The Exchange also believes that it is
equitable and not unfairly
discriminatory to apply the Enhanced
Market Quality Program only to Tape A
and Tape B securities, and then only to
the top 1,500 symbols in each Tape by
total value traded during the second
month prior to the current month, and
to set the Fixed Payment rates higher for
the Tape A securities than Tape B
securities, because the Exchange has
limited resources available to it for
incentive programs and the Exchange
believes that the most effective
application of such limited resources is
to improve the market quality for the
most actively traded Tape A and Tape
B securities, as proposed.
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. 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 fees to remain
competitive with other exchanges and
with alternative trading systems that
have been exempted from compliance
with the statutory standards applicable
to exchanges. Because competitors are
free to modify their own fees in
response, and because market
participants may readily adjust their
order routing practices, the Exchange
believes that the degree to which fee
changes in this market may impose any
burden on competition is extremely
limited.
In this instance, the proposed
Program will not impose a burden on
competition because the Exchange’s
execution services are completely
voluntary and subject to extensive
competition both from other exchanges
and from off-exchange venues. The
proposed Program will provide
members with the opportunity to
receive incentive payments if they
improve the market by providing
12 See Qualified Market Maker Program, Equity 7,
Section 118(f).
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significant quoting at the NBBO in a
large number of securities, while
limiting the universe of such securities
to those which the Exchange believes
will do most to improve market quality.
In terms of intra-market 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 because the Program
is open to all members on the same
terms.
In sum, the proposed Program is
designed to improve the quality of the
Exchange for securities that are likely to
attract the greatest trading interest;
however, if the changes proposed herein
are unattractive to market participants,
it is likely that the Exchange will lose
market share as a result. Accordingly,
the Exchange does not believe that the
proposed changes will impair the ability
of members or competing order
execution venues to maintain their
competitive standing in the financial
markets.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act.13
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
13 15
PO 00000
U.S.C. 78s(b)(3)(A)(ii).
Frm 00073
Fmt 4703
Sfmt 9990
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–2021–047 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–2021–047. 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–2021–047 and should
be submitted on or before November 18,
2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–23438 Filed 10–27–21; 8:45 am]
BILLING CODE 8011–01–P
14 17
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[Federal Register Volume 86, Number 206 (Thursday, October 28, 2021)]
[Notices]
[Pages 59763-59766]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-23438]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93405; File No. SR-BX-2021-047]
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Equity 7,
Section 118 To Establish an Enhanced Market Quality Program
October 22, 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 October 12, 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Equity 7, Section 118 to establish
an Enhanced Market Quality Program, 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 proposes to establish an Enhanced Market Quality
Program that is similar to a program that exists (with proposed
amendments) on its sister exchange, Nasdaq PHLX, LLC.\3\ The Enhanced
Market Quality Program is intended to provide supplemental incentives
to members that meet certain quality standards in acting as market
makers for securities on the Exchange. It rewards members that make a
significant contribution to market quality by providing liquidity at
the national best bid and offer (``NBBO'') in a large number of
securities for a significant portion of the day.
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\3\ See Securities Exchange Act Release No. 34-92754 (August 25,
2021), 86 FR 48789 (August 31, 2021) (SR-Phlx-2021-47). The proposal
reflects changes to this program that Nasdaq PHLX, LLC is proposing
concurrently with this rule filing.
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Specifically, the Exchange proposes to make a lump sum payment at
the end of each month (a ``Fixed Payment'') to a member to the extent
that the member, through one or more of its MPIDs, quotes at the NBBO
for at least a threshold percentage of the time during Market Hours in
an average number of securities per day during the month (satisfying
the ``NBBO requirement''), as specified below.\4\ On a daily basis, the
Exchange will determine the number of securities in which each of a
member's MPIDs satisfied the NBBO requirement. The Exchange will
aggregate all of a member's MPIDs to determine the number of securities
for purposes of the NBBO requirement.
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\4\ For purposes of the Enhanced Market Quality Program, a
member will be deemed to quote at the NBBO in a security if it
quotes a displayed order of at least 100 shares in the security and
prices the order at either the national best bid or the national
best offer or both the national best bid and offer for the security.
Additionally, for a particular Tape A security to count towards the
threshold for qualifying for the Fixed Payment on a particular day,
and receiving the Fixed Payment, a member has to quote such security
at the NBBO for at least 30% of the time during Market Hours on that
day. For a particular Tape B security to count towards the threshold
for qualifying for the Fixed Payment on a particular day, and
receiving the Fixed Payment, a member has to quote such security at
the NBBO for at least 50% of the time during Market Hours on that
day.
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The Exchange proposes to limit the applicability of the Program to
the top 1,500 securities in each of Tapes A and B, as determined by
their total value traded during the second month prior to the current
month (e.g., for October 2021, the measurement period for determining
the list will be August 2021).\5\ In doing so, the Exchange seeks to
target the Program at securities in Tapes A and B that are most in
demand among market participants and which trade extensively, so that
an improvement in quoting in those securities would, in turn, stand
improve the attractiveness of the Exchange to participants. The
Exchange would divide the 1,500 securities into three equal groups (or
``Classes'') for each Tape, with the top 500 ranked securities placed
in Class 3, the middle 500 ranked securities placed in Class 2, and the
lowest ranked 500 securities placed in Class 1. The Exchange would
assign Fixed Payment amounts to each of the three Classes in each Tape
and in each of the five Tiers, with these amounts generally increasing
from Class 1 to Class 3, and from Tiers 1-5. Generally speaking (with
exceptions set forth in the schedules below), this proposed structure
would provide the largest Fixed Payments to those members that meet the
NBBO requirement in the greatest number of qualifying securities and
those that trade most extensively, and the lowest incentives to those
members that meet the NBBO requirement in the fewest number of
qualifying securities and those that trade least extensively.
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\5\ The Exchange notes that a symbol that did not trade during
the measurement month will not be eligible for inclusion in the
list.
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The Program will be open to all members. A member may but is not
[[Page 59764]]
required to be, a registered market maker in any security; thus, the
Program will not by itself impose a two-sided quotation obligation or
convey any of the benefits associated with being a registered market
maker. Accordingly, the Program is designed to attract liquidity both
from traditional market makers and from other firms that are willing to
commit capital to support liquidity at the NBBO.
For securities in each of the three Classes, the Exchange will
determine the amount of the Fixed Payment that it pays to a qualifying
member as follows. First, the Exchange will determine the number of
securities in each Class for which a member has met the NBBO
requirement during the month. The Exchange will then determine whether
the number of securities in a particular Class for which a member has
satisfied the NBBO requirement during the month is sufficient to
qualify it for a Tier, and if so, it will determine the highest Tier
applicable to the member with respect to that Class of securities.
Next, the Exchange will multiply the average daily number of its
qualifying securities in the Class and Tier by the applicable amounts
applicable to that Class and Tier, and [sic] the specified lump sum, if
applicable.
Under the proposal, a member that qualifies for a Fixed Payment for
securities in each of Tapes A and B and in multiple Classes within each
Tape will receive Fixed Payments covering qualifying securities in both
Tapes, and within each Tape, each of the applicable Classes, but within
each Tape and Class, a member may only qualify for one Tier during a
month.
The Exchange will pay the Fixed Payment in addition to other
rebates or fees provided under Equity 7, Sections 118(a)-(f).
As of the outset of every month, the Exchange will reevaluate and,
as applicable, update its lists of the securities that it places in
each Class, and it will publish its updated lists on its website as of
the outset of the month in which they will apply.
The Exchange proposes to set the Tiers, Classes, and the Fixed
Payments as follows:
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Tape A Securities
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Average daily
number of
securities quoted
at the NBBO for at Fixed payment for Fixed payment for Fixed payment for
Tiers least 30% of the securities in Tape securities in Tape securities in Tape
time during Market A in Class 1 A in Class 2 A in Class 3
Hours during the
month
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1............................... 0-24.............. $0 per qualified $0 per qualified $0 per qualified
security per security per security per
month. month. month.
2............................... 25-49............. $0 per qualified $0 per qualified $200 per qualified
security per security per security over 24
month. month. per month.
3............................... 50-149............ $50 per qualified $200 per qualified $5,000 + ($450 per
security per security over 49 qualified
month [sic]. per month. security over 49)
per month.
4............................... 150-249........... $5,000 + ($100 per $20,000 + ($300 $50,000 + ($600
qualified per qualified per qualified
security over security over security over
149) per month. 149) per month. 149) per month.
5............................... 250 or greater.... $15,000 + ($150 $50,000 + ($350 $50,000 + ($600
per qualified per qualified per qualified
security over security over security over
249) per month. 249) per month. 149) per month.
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Tape B Securities
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Average daily
number of
securities quoted
at the NBBO for at Fixed payment for Fixed payment for Fixed payment for
Tiers least 50% of the securities in Tape securities in Tape securities in Tape
time during Market B in Class 1 B in Class 2 B in Class 3
Hours during the
month
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1............................... 0-24.............. $0 per qualified $0 per qualified $0 per qualified
security per security per security per
month. month. month.
2............................... 25-49............. $0 per qualified $0 per qualified $100 per qualified
security per security per security over 24
month. month. per month.
3............................... 50-149............ $0 per qualified $25 per qualified $2,500 + ($150 per
security per security over 49 qualified
month. per month. security over 49)
per month.
4............................... 150-249........... $50 per qualified $2,500 + ($50 per $17,500 + ($300
security over 149 qualified per qualified
per month. security over security over
149) per month. 149) per month.
5............................... 250 or greater.... $5,000 + ($75 per $7,500 + ($150 per $17,500 + ($300
qualified qualified per qualified
security over security over security over
249) per month. 249) per month. 149) per month.
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The following are examples of the operation of the proposed
Enhanced Market Quality Program.
Example 1: A member quotes an average of 200 symbols a day in Tape
A, Class 2 in excess of the 30% NBBO requirement to qualify for a Tier
during the month. Under the proposal, the member would qualify for a
Fixed Payment equal to the combination of Tier 4, Class 2. The Fixed
Payment due to such member is calculated as follows: 51 (the number of
symbols over 149) times $300, which equals $15,300, plus $20,000, for a
total of $35,300 for the month.
Example 2: A member meets the NBBO requirements for an average of
200 symbols a day in Tape A, Class 2, 26 symbols a day in securities in
Tape A, Class 3, and 51 securities in Tape B,
[[Page 59765]]
Class 2. In this scenario, the member would qualify for three Fixed
Payments.
First, for the 200 Tape A, Class 2 securities for which
the member meets the NBBO requirement during the month, the member
would receive a Fixed Payment equal to the combination of Tier 4, Class
2. The Fixed Payment due to such member is calculated as follows: 51
(the number of symbols over 149) times $300, which equals $15,300, plus
$20,000, for a total of $35,300 for the month.
Second, for the 26 Tape A, Class 3 securities for which
the member meets the NBBO requirement during the month, the member
would receive a Fixed Payment equal to the combination of Tier 2, Class
3. The Fixed Payment due to such member is calculated as follows: 2
(the number of symbols over 24) times $200, which equals $400 for the
month.
Third, for the 51 Tape B, Class 2 securities for which the
member meets the NBBO requirement during the month, the member would
receive a Fixed Payment equal to the combination of Tier 3, Class 2.
The Fixed Payment due to such member is calculated as follows: 2 (the
number of symbols over 49) times $25, which equals $50 for the month.
The total of all Fixed Payments due to the member for the
month will be $35,750 ($35,300 + $400 + $50).
Through the use of this incentive Program, the Exchange hopes to
provide improved trading conditions for all market participants through
narrower bid-ask spreads and increased depth of liquidity available at
the inside market. In addition, the Program reflects an effort to use
financial incentives to encourage a wider variety of members to make
positive commitments to promote market quality. The Exchange believes
that different members may respond to different incentives, and
therefore the Enhanced Market Quality Program is designed to promote
market quality through quoting activity. The Exchange recognizes that
while generally market participants will provide quotes with the
intention of trading, market makers and liquidity providers cannot
control when counter parties choose to interact with those quotes and
therefore the Exchange believes it is beneficial to the market to offer
this incentive based on quoting activity directly.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\6\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\7\ in particular, in that it provides
for the equitable allocation of reasonable dues, fees and other charges
among members and issuers and other persons using any facility, and is
not designed to permit unfair discrimination between customers,
issuers, brokers, or dealers.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(4) and (5).
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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) (``Regulation NMS Adopting
Release'').
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Likewise, in NetCoalition v. Securities and Exchange Commission \9\
(``NetCoalition'') the D.C. Circuit stated as follows: ``[n]o one
disputes that competition for order flow is `fierce.' . . . As the SEC
explained, `[i]n the U.S. national market system, buyers and sellers of
securities, and the broker-dealers that act as their order-routing
agents, have a wide range of choices of where to route orders for
execution'; [and] `no exchange can afford to take its market share
percentages for granted' because `no exchange possesses a monopoly,
regulatory or otherwise, in the execution of order flow from broker
dealers'. . . .'' \10\
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\9\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\10\ Id. at 539 (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 Exchange believes that the proposed Enhanced Market Quality
Program is reasonable because it is similar to other incentive programs
offered by the Exchange for displayed orders that provide liquidity,
like the Qualified Market Maker Program set forth in Equity 7, Sections
118(f). The proposed Fixed Payment will provide an opportunity to
members to receive an additional credit in return for certain levels of
participation on the Exchange as measured by quoting at the NBBO for a
significant portion of the day each month. The proposed Fixed Payment
is set at a level that reflects the beneficial contributions of market
participants that quote significantly at the NBBO in certain qualifying
securities. The Exchange believes that it is reasonable to limit the
universe of qualifying securities to a list of 1,500 symbols that
traded most extensively on the Exchange in Tapes A and B during second
month prior to the current month, and to vary the amount of Fixed
Payments in relation to the relative extent to which symbols on that
list trade, because improving the quality of quotes for more popular
symbols will do more to enhance the attractiveness of the Exchange than
will improving quote quality for thinly-traded symbols. Given that the
Exchange has finite resources to allocate to incentive programs, it is
reasonable to allocate those resources in a manner that is most likely
to achieve its intended objectives. The Exchange notes that a competing
exchange which operates a similar incentive program also targets its
incentives to a select list of symbols.\11\
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\11\ Securities Exchange Act Release No. 34-92150 (June 10,
2021), 86 FR 32090, 32091 n.9 (June 16, 2021) (``SR-MEMX-2021-07'')
(``As proposed, the term `DLI Target Securities' means a list of
securities designated as such, the universe of which will be
determined by the Exchange and published on the Exchange's website.
The Exchange anticipates that the initial DLI Target Securities list
will include between 275 and 300 securities. The DLI Target
Securities list will always include at least 75 securities and may
be periodically updated by the Exchange, provided that the Exchange
will not remove a security from the DLI Target Securities list
without at least 30 days' prior notice to Members as published on
the Exchange's website (unless the security is no longer eligible
for trading on the Exchange).''
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The Exchange believes that it is reasonable to limit applicability
of the proposed Fixed Payments to securities in Tapes A and B, and to
set the credits higher for the Tape A securities, insofar as the
Exchange seeks to incentivize members to quote at the NBBO on the
Exchange in such securities and improve the market therefor.
The Exchange believes that the proposed Fixed Payments set forth by
the Enhanced Market Quality Program are an equitable allocation and are
not unfairly discriminatory because the Exchange will offer the same
Fixed Payment rates to all similarly situated members. Moreover, the
proposed qualification criteria requires a member to quote
significantly at the NBBO in securities that trade extensively,
therefore contributing to market quality in a meaningful way on the
Exchange. Any member may quote at the NBBO at the level required by the
qualification criteria of the Enhanced Market Quality Program. The
Exchange notes that it has a similar Qualified Market Maker Program in
which members are required to quote at the NBBO more than a certain
amount of time during regular
[[Page 59766]]
market hours.\12\ For these reasons, the Exchange believes that the
proposed Enhanced Market Quality Program Fixed Payments and
qualification criteria are an equitable allocation and are not unfairly
discriminatory.
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\12\ See Qualified Market Maker Program, Equity 7, Section
118(f).
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The Exchange also believes that it is equitable and not unfairly
discriminatory to apply the Enhanced Market Quality Program only to
Tape A and Tape B securities, and then only to the top 1,500 symbols in
each Tape by total value traded during the second month prior to the
current month, and to set the Fixed Payment rates higher for the Tape A
securities than Tape B securities, because the Exchange has limited
resources available to it for incentive programs and the Exchange
believes that the most effective application of such limited resources
is to improve the market quality for the most actively traded Tape A
and Tape B securities, as proposed.
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. 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 fees to remain competitive with other exchanges and with
alternative trading systems that have been exempted from compliance
with the statutory standards applicable to exchanges. Because
competitors are free to modify their own fees in response, and because
market participants may readily adjust their order routing practices,
the Exchange believes that the degree to which fee changes in this
market may impose any burden on competition is extremely limited.
In this instance, the proposed Program will not impose a burden on
competition because the Exchange's execution services are completely
voluntary and subject to extensive competition both from other
exchanges and from off-exchange venues. The proposed Program will
provide members with the opportunity to receive incentive payments if
they improve the market by providing significant quoting at the NBBO in
a large number of securities, while limiting the universe of such
securities to those which the Exchange believes will do most to improve
market quality.
In terms of intra-market 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
because the Program is open to all members on the same terms.
In sum, the proposed Program is designed to improve the quality of
the Exchange for securities that are likely to attract the greatest
trading interest; however, if the changes proposed herein are
unattractive to market participants, it is likely that the Exchange
will lose market share as a result. Accordingly, the Exchange does not
believe that the proposed changes will impair the ability of members or
competing order execution venues to maintain their competitive standing
in the financial markets.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act.\13\
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\13\ 15 U.S.C. 78s(b)(3)(A)(ii).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-BX-2021-047 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-2021-047. 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-2021-047 and should be submitted on
or before November 18, 2021.
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\14\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-23438 Filed 10-27-21; 8:45 am]
BILLING CODE 8011-01-P
