Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange's Pricing Schedule at Options 7, Section 2(1), 25677-25681 [2024-07641]
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Federal Register / Vol. 89, No. 71 / Thursday, April 11, 2024 / Notices
proposed rule change to January 11,
2024.5 On January 8, 2024, FINRA
responded to the comment letters
received in response to the Notice.6
On January 11, 2024, the Division of
Trading and Markets (‘‘Division’’),
pursuant to delegated authority,7 issued
an order approving the proposed rule
change.8 On January 19, 2024, the
Deputy Secretary of the Commission
notified FINRA that, pursuant to
Commission Rule of Practice 431,9 the
Commission would review the
Division’s action pursuant to delegated
authority and that the Division’s action
pursuant to delegated authority was
stayed until the Commission orders
otherwise.10
Accordingly, it is ordered, pursuant to
Commission Rule of Practice 431, that
on or before May 8, 2024, any party or
other person may file a statement in
support of, or in opposition to, the
action made pursuant to delegated
authority.
It is further ordered that the order
approving proposed rule change SR–
FINRA–2023–013 shall remain stayed
pending further order of the
Commission.
By the Commission.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–07672 Filed 4–10–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99913; File No. SR–BX–
2024–012]
Self-Regulatory Organizations; Nasdaq
BX, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend the
Exchange’s Pricing Schedule at
Options 7, Section 2(1)
April 5, 2024.
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 April 1,
2024, Nasdaq BX, Inc. (‘‘BX’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change 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 Pricing Schedule at Options
7, Section 2(1).
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 amend its
Pricing Schedule at Options 7, Section
2(1) to establish a number of incentives
for Lead Market Makers (‘‘LMMs’’),3
Market Makers (‘‘MMs’’),4 and
Customers.5
Today, the Exchange assesses the
following fees and rebates in Penny and
Non-Penny Symbols:
PENNY SYMBOLS
Market participant
Maker rebate
Lead Market Maker ..................................................................................................................................................
Market Maker ...........................................................................................................................................................
Non-Customer ..........................................................................................................................................................
Firm ..........................................................................................................................................................................
Customer .................................................................................................................................................................
($0.24)
(0.20)
(0.12)
(0.12)
(0.30)
Taker fee
$0.50
0.50
0.50
0.50
0.40
NON-PENNY SYMBOLS
Maker rebate/
fee
Market participant
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Lead Market Maker ..................................................................................................................................................
Market Maker ...........................................................................................................................................................
Non-Customer ..........................................................................................................................................................
Firm ..........................................................................................................................................................................
5 See letter from Kristine Vo, Assistant General
Counsel, FINRA, to Lourdes Gonzalez, Assistant
Chief Counsel, Division of Trading and Markets,
Commission, dated Nov. 9, 2023, https://
www.finra.org/sites/default/files/2023-11/SRFINRA-2023-013-ExtensionNo1.pdf.
6 See letter from Kristine Vo, Assistant General
Counsel, Office of General Counsel, FINRA, to
Vanessa Countryman, Secretary, Commission, dated
January 8, 2024, https://www.sec.gov/comments/srfinra-2023-013/srfinra2023013-366519-893662.pdf.
7 See 17 CFR 200.30–3(a)(12).
8 See Exchange Act Release No. 99335 (Jan. 11,
2024), 89 FR 3481 (Jan. 18, 2024).
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9 See
17 CFR 201.431.
letter from J. Matthew DeLesDernier,
Deputy Secretary, Commission, to Kristine Vo,
Assistant General Counsel, FINRA, dated Jan. 19,
2024, https://www.sec.gov/files/rules/sro/finra/
2024/34-99335-letter.pdf.
1 15 U.S.C. 78s(b)(1).
2 CFR 240.19b–4.
3 The term ‘‘Lead Market Maker’’ or (‘‘LMM’’)
applies to a registered BX Options Market Maker
that is approved pursuant to Options 2, Section 3
to be the LMM in an options class (options classes).
4 The term ‘‘BX Options Market Maker’’ or (‘‘M’’)
is a Participant that has registered as a Market
10 See
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($0.45)
(0.40)
0.45
0.45
Taker fee
$1.25
1.25
1.25
1.25
Maker on BX Options pursuant to Options 2,
Section 1, and must also remain in good standing
pursuant to Options 2, Section 9. In order to receive
Market Maker pricing in all securities, the
Participant must be registered as a BX Options
Market Maker in at least one security.
5 The term ‘‘Customer’’ or (‘‘C’’) applies to any
transaction that is identified by a Participant for
clearing in the Customer range at The Options
Clearing Corporation (‘‘OCC’’) which is not for the
account of broker or dealer or for the account of a
‘‘Professional’’ (as that term is defined in Options
1, Section 1(a)(48)).
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Federal Register / Vol. 89, No. 71 / Thursday, April 11, 2024 / Notices
NON-PENNY SYMBOLS—Continued
Maker rebate/
fee
Market participant
Customer .................................................................................................................................................................
Note 2 Incentive
The Exchange now proposes to
establish new incentives in note 2,
which is currently reserved, that would
be in addition to the Penny and NonPenny Symbol Maker Rebates currently
provided to LMMs and MMs.
Specifically, note 2 would provide:
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Lead Market Makers and Market Makers
that either (1) execute more than 0.45%
Customer Total Consolidated Volume
(‘‘TCV’’) per day which adds liquidity in a
given month (excluding Lead Market Maker
and Market Maker volume which adds
liquidity in SPY), or (2) increase their
combined Lead Market Maker and Market
Maker volume which adds liquidity in a
given month by at least 70% above their
March 2024 volume as measured by a
percentage of TCV (excluding Lead Market
Maker and Market Maker volume which adds
liquidity in SPY), will receive the following
incentives: (i) an additional $0.05 per
contract Maker Rebate in Penny Symbols
excluding SPY, (ii) an additional $0.01 per
contract Maker Rebate in SPY, and (iii) an
additional $0.24 per contract Maker Rebate in
Non-Penny Symbols. Lead Market Makers
and Market Makers with no volume in the
add liquidity segment for the month of March
2024 may qualify for the additional Maker
Rebates by having any new volume
(excluding SPY volume) considered as added
volume. This note 2 incentive will be
available through September 30, 2024.
Proposed note 2 would provide LMMs
and MMs two separate paths to receive
the additional Maker Rebates described
above. The first path would be based on
liquidity adding volume on BX as a
percentage of Customer Total
Consolidated Volume, which will be
defined as the total national volume
cleared at The Options Clearing
Corporation in the Customer range in
equity and ETF options in that month.6
The Exchange is proposing to base the
first path on a percentage of industry
volume in recognition of the fact that
the volume executed by a Member may
rise or fall with industry volume.
The second path would be a growth
incentive aimed at rewarding LMMs and
MMs to grow the extent of their
liquidity adding activity on the
Exchange over time, relative to a
6 The Exchange will add this definition in
Options 7, Section 1(a). The Exchange notes the
proposed language is based on substantially similar
definitions in the Pricing Schedules of its affiliates
Nasdaq ISE (‘‘ISE’’) and Nasdaq MRX (‘‘MRX’’). See
ISE Options 7, Section 1(c) and MRX Options 7,
Section 1(c).
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benchmark month. LMMs and MMs
who did not have any combined Lead
Market Maker and Market Maker add
liquidity volume for the month of March
2024 (and therefore lack March 2024
baseline volume against which to
measure subsequent growth) would
meet the proposed growth requirement
through whatever volume of LMM and
MM add liquidity activity (excluding in
SPY) during the first month of use.7
Growth incentives in general are
designed to further encourage Members
to increase their order flow to the
Exchange, which contributes to a
deeper, more liquid market and
provides even more execution
opportunities for market participants.
Increased overall order flow benefits all
market participants by contributing
towards a robust and well-balanced
market ecosystem. Other options
exchanges have adopted substantially
similar growth incentives.8
The Exchange notes that it will
exclude LMM and MM liquidity adding
volume in SPY from both paths because
SPY is the most actively traded symbol
on BX, and Exchange believes that
LMMs and MMs will continue to be
incentivized to bring SPY liquidity
adding volume on BX despite the
exclusion of SPY volume from the note
2 qualifications. Further, the Exchange
is encouraging SPY liquidity adding
volume separately through the proposed
additional $0.01 per contract Maker
Rebate in SPY described above.
The proposed note 2 incentives will
be available through September 30,
2024. The Exchange believes that this
would ensure that the note 2
incentives—notably the growth
incentive using the benchmark month
7 As discussed below, the Exchange will sunset
the note 2 incentives (including the growth
incentive) on September 30, 2024 and will use this
time period to evaluate the proposed growth
incentive criteria to determine whether the
parameters are appropriately designed to
incentivize LMMs and MMs in the intended
manner.
8 See, e.g., Securities Exchange Act Release Nos.
97148 (March 15, 2023), 88 FR 17068 (March 21,
2023) (SR–MRX–2023–07) (establishing growth
incentive for MRX Market Makers); and 97440 (May
5, 2023), 88 FR 30370 (May 11, 2023) (SR–MRX–
2023–08) (adding an expiration date for the MRX
growth incentive). MRX subsequently eliminated
this growth incentive upon reaching the expiration
date. See Securities Exchange Act Release No.
97800 (June 26, 2023), 88 FR 42409 (June 30, 2023)
(SR–MRX–2023–11).
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(1.10)
Taker fee
0.79
(i.e., March 2024) against which LMM
and MM growth would be measured—
are timely and meet the intended
purpose of encouraging increased order
flow and liquidity adding activity.
Note 4 Incentive
The Exchange also proposes to
establish a growth incentive in new note
4 of Options 7, Section 2(1) that would
have similar qualifications as the growth
incentive proposed in new note 2 above
in that Members would be measured
relative to a benchmark month.
Specifically, Members that increase
their executed Customer volume which
removes liquidity in a given month by
at least 70% above their March 2024
volume as measured by a percentage of
TCV will receive a Taker Fee discount
of $0.05 per contract in Penny Symbols
excluding SPY, QQQ, and IWM.
Accordingly, qualifying Members would
pay a Customer Taker Fee of $0.35
(instead of $0.40) per contract in Penny
Symbols. The Exchange is proposing to
exclude SPY, QQQ, and IWM from the
note 4 incentive because Members are
already paying lower Customer Taker
Fees of $0.33 per contract for those
symbols today.9
The proposed note 4 incentive is
aimed at rewarding Members to grow
the extent of their Customer liquidity
removing activity on the Exchange over
time, relative to a benchmark month.
The Exchange also proposes to make
clear that Members with no Customer
volume in the remove liquidity segment
for the month of March 2024 may
qualify for the Taker Fee discount by
having any new volume considered as
added volume. Similar to the note 2
incentive proposed above, Members
who did not have the requisite volume
for the month of March 2024 (and
therefore lack March 2024 baseline
volume against which to measure
subsequent growth) would meet the
proposed growth requirement through
whatever volume in the required
segment during the first month of use.
The Exchange believes that the
proposed growth incentive in note 4
will encourage increased Customer
order flow to the Exchange, which
contributes to a deeper, more liquid
market and provides even more
9 See
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Options 7, Section 2(1), note 1.
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execution opportunities for market
participants.
Similar to the proposed note 2
incentive above, the Exchange proposes
to sunset the new note 4 incentive on
September 30, 2024. The Exchange
believes that this would ensure that the
proposed growth incentive is timely and
meets the intended purpose of
encouraging increased order flow and
Customer liquidity removing activity.
Technical Amendments
Lastly, the Exchange proposes a
number of non-substantive, technical
edits in Options 7. First, the Exchange
proposes to title paragraph (a) in
Options 7, Section 1 as ‘‘Definitions’’ to
more clearly identify the applicable
rules within this paragraph. Second, the
Exchange proposes to amend Options 7,
Section 2(1) to correct a formatting error
by adding parentheses around the note
1 and note 3 references appended to the
Customer Taker Fee in Penny Symbols
and Customer Maker Rebate in NonPenny Symbols, respectively.
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2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,10 in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5)
of the Act,11 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 Exchange’s proposed changes to
its schedule of credits are reasonable in
several respects. As a threshold matter,
the Exchange is subject to significant
competitive forces in the market for
options 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
10 15
11 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
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of order flow from broker
dealers’. . . .’’ 12
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.’’ 13
Numerous indicia demonstrate the
competitive nature of this market. For
example, clear substitutes to the
Exchange exist in the market for options
security transaction services. The
Exchange is only one of seventeen
options exchanges to which market
participants may direct their order flow.
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. As such, the proposal
represents a reasonable attempt by the
Exchange to increase its liquidity and
market share relative to its competitors.
Note 2 Incentive
The Exchange believes that the
proposed note 2 incentives are
reasonable for several reasons. As
discussed above, note 2 would provide
LMMs and MMs two separate paths to
receive the proposed additional Maker
Rebates of (i) $0.05 per contract in
Penny Symbols excluding SPY,14 (ii)
$0.01 per contract in SPY,15 and (iii)
$0.24 per contract in Non-Penny
Symbols.16 The first path would be
based on liquidity adding volume on BX
as a percentage of Customer Total
Consolidated Volume (i.e., TCV).17 The
12 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)).
13 Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(‘‘Regulation NMS Adopting Release’’).
14 Accordingly, qualifying LMMs and MMs would
receive a total of $0.29 per contract (LMMs) and
$0.25 per contract (MMs) in Penny Symbols
excluding SPY.
15 Accordingly, qualifying LMMs and MMs would
receive a total of $0.25 per contract (LMMs) and
$0.21 per contract (MMs) in SPY.
16 Accordingly, qualifying LMMs and MMs would
receive a total of $0.69 per contract (LMMs) and
$0.64 per contract (MMs) in Non-Penny Symbols.
17 In particular, LMMs and MMs that execute
more than 0.45% Customer Total Consolidated
Volume (‘‘TCV’’) per day which adds liquidity in
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25679
Exchange believes that the total industry
percentage threshold is reasonable in
order to align with increasing LMM and
MM activity on BX over time. The
Exchange is proposing to base the first
path on a percentage of industry volume
in recognition of the fact that the
volume executed by a Member may rise
or fall with industry volume. A
percentage of industry volume
calculation allows the proposed
qualifications in note 2 to be calibrated
to current market volumes rather than
requiring a static amount of volume
regardless of market conditions. The
proposed threshold of 0.45% Customer
Total Consolidated Volume is generally
intended to reward LMMs and MMs for
executing more liquidity adding volume
on BX. To the extent such activity is
increased by this proposal, market
participants may increasingly compete
for the opportunity to trade on Exchange
to the benefit of all market participants.
As noted above, total industry
percentage thresholds are established
concepts within the Pricing Schedules
of BX’s affiliates.18
As discussed above, the second path
would be a growth incentive that would
provide LMMs and MMs with the
additional Maker Rebates outlined
above if they increase their combined
LMM and MM volume which adds
liquidity in a given month by at least
70% above their March 2024 volume as
measured by a percentage of TCV
(excluding LMM and MM volume
which adds liquidity in SPY). The
Exchange believes that its proposal is
reasonable because it will provide extra
incentives to LMMs and MMs to engage
in substantial amounts of liquidity
adding activity on the Exchange, as well
as to substantially grow the extent to
which they do so relative to a recent
benchmark month. The Exchange
believes that if the proposed growth
incentive is effective, any ensuing
increase in liquidity adding activity on
BX will improve the quality of the
market overall, to the benefit of all
market participants. The Exchange also
believes that it is reasonable to consider
any new add liquidity volume
(excluding SPY volume) for LMMs and
MMs with no such volume for the
month of March 2024 in order for those
market participants to receive the
proposed additional Maker Rebates in
note 2. The proposed growth incentive
is designed to attract additional
liquidity from new LMMs and MMs as
well as existing LMMs and MMs who
a given month (excluding Lead Market Maker and
Market Maker volume which adds liquidity in SPY)
would receive the proposed note 2 incentives.
18 See supra note 6.
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Federal Register / Vol. 89, No. 71 / Thursday, April 11, 2024 / Notices
may not have a large footprint on BX
today. To the extent this proposal
attracts such LMM and MM add
liquidity volume to BX, all market
participants should benefit through
more trading opportunities and tighter
spreads. An overall increase in activity
would deepen the Exchange’s liquidity
pool, support the quality of price
discovery, promote market transparency
and improve market quality for all
investors. As discussed above, the
Exchange intends for the proposed note
2 incentives, including the growth
incentive, to sunset on September 30,
2024, and will use this time to evaluate
suitable parameters for such market
participants in the targeted segment.
The Exchange believes that this will
ensure that the proposed incentives are
timely and meet the intended purpose
of encouraging increased order flow and
liquidity adding activity. As noted
above, other options exchanges
(including the Exchange’s affiliate) have
previously adopted substantially similar
growth incentives.19
The Exchange further believes that it
is reasonable to exclude LMM and MM
liquidity adding volume in SPY from
both paths because SPY is the most
actively traded symbol on BX, and
Exchange believes that LMMs and MMs
will continue to be incentivized to bring
SPY liquidity adding volume on BX
despite the exclusion of SPY volume
from the note 2 qualifications. Further,
the Exchange is encouraging SPY
liquidity adding volume separately
through the proposed additional $0.01
per contract Maker Rebate in SPY
described above.
The Exchange believes that the
proposed note 2 incentives are equitable
and not unfairly discriminatory for the
reasons that follow. As a general matter,
the Exchange believes that it is equitable
and not unfairly discriminatory to
provide the note 2 incentives to only
LMMs and MMs because these market
participants have different requirements
and additional obligations to the
Exchange that other market participants
do not (such as quoting requirements).
As noted above, LMMs would
ultimately receive higher Maker Rebates
than MMs when combining the current
base rebates with the proposed
additional rebates.20 Nevertheless, the
Exchange continues to believe that it is
equitable and not unfairly
discriminatory to provide more
favorable pricing to LMMs compared to
MMs given that LMMs are subject to
heightened quoting obligations
19 See
20 See
supra note 8.
supra notes 14–16.
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compared to Market Makers.21 The
higher rebates therefore recognize the
differing contributions made to the
liquidity and trading environment on
the Exchange by LMMs. Overall, the
Exchange believes that incentivizing
both LMMs and MMs to provide greater
liquidity benefits all market participants
through the quality of order interaction.
The Exchange also believes that it is
equitable and not unfairly
discriminatory to consider any new add
liquidity volume (excluding SPY
volume) for LMMs and MMs with no
such volume in March 2024 in order for
those market participants to receive the
proposed additional Maker Rebates
because this is designed to attract
additional liquidity and order flow from
new and existing LMMs and MMs to the
Exchange, as discussed above. In turn,
this additional liquidity should benefit
all market participants through
increased liquidity and order
interaction. Furthermore, the proposed
growth incentive will be temporary and
sunset on September 30, 2024 to ensure
that the incentive is timely and meets
the intended purpose of encouraging
increased order flow and liquidity
adding activity.
Note 4 Incentive
The Exchange believes that the
proposed growth incentive in new note
4 of Options 7, Section 2(1) is
reasonable for the reasons that follow.
As discussed above, Members that
increase their executed Customer
volume which removes liquidity in a
given month by at least 70% above their
March 2024 volume as measured by a
percentage of TCV will receive a Taker
Fee discount of $0.05 per contract in
Penny Symbols excluding SPY, QQQ,
and IWM. Accordingly, qualifying
Members would pay a Customer Taker
Fee of $0.35 (instead of $0.40) per
contract in Penny Symbols excluding
SPY, QQQ, and IWM. The Exchange
believes it is reasonable to exclude SPY,
QQQ, and IWM from the note 4
incentive because Members are already
paying lower Customer Taker Fees of
$0.33 per contract for those symbols
today.22
The Exchange believes that the
proposed growth incentive is reasonable
because it will provide extra incentives
to Members to engage in substantial
amounts of Customer liquidity removing
activity on the Exchange, as well as to
substantially grow the extent to which
they do so relative to a recent
21 See Options 2, Section 4(j) (setting forth the
90% or higher quoting obligations for LMMs) and
Section 5(d) (setting forth the 60% or higher
quoting obligations for MMs).
22 See Options 7, Section 2(1), note 1.
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benchmark month. The Exchange
believes that if the proposed growth
incentive is effective, any ensuing
increase in liquidity removing activity
on BX will increase trading
opportunities for all market
participants. The Exchange also believes
that it is reasonable to consider any new
Customer remove liquidity volume for
Members with no such volume for the
month of March 2024 in order for those
Members to receive the proposed Taker
Fee discount in note 4. The proposed
growth incentive is designed to attract
additional Customer order flow from
new Members as well as existing
Members who may not have a large
footprint on BX today. To the extent this
proposal attracts such order flow to BX,
all market participants should benefit
through more trading opportunities. As
discussed above, the Exchange intends
for the proposed growth incentive in
note 4 to sunset on September 30, 2024,
and will use this time to evaluate
suitable parameters for such market
participants in the targeted segment.
The Exchange believes that this will
ensure that the proposed incentive is
timely and meets the intended purpose
of encouraging increased order flow and
Customer liquidity removing activity.
As noted above, other options
exchanges (including the Exchange’s
affiliate) have previously adopted
similar growth incentives.23
Further, the Exchange believes that
the proposed note 4 incentive is
equitable and not unfairly
discriminatory for the reasons that
follow. As a general matter, the
Exchange believes that it is equitable
and not unfairly discriminatory to
provide the note 4 incentive to only
Customer orders because the proposed
changes are intended to increase
Customer order follow, particularly
Customer remove liquidity order flow,
to BX. An increase in Customer order
flow enhances liquidity on the
Exchange to the benefit of all market
participants by providing more trading
opportunities, which in turn attracts
other market participants that may
interact with this order flow.
The Exchange also believes that it is
equitable and not unfairly
discriminatory to consider any new
Customer remove liquidity volume for
Members with no such volume in March
2024 in order for those Members to
receive the proposed Taker Fee discount
because this is designed to attract
additional liquidity and order flow from
new and existing Members to the
Exchange, as discussed above. In turn,
this additional liquidity should benefit
23 See
E:\FR\FM\11APN1.SGM
supra note 8.
11APN1
Federal Register / Vol. 89, No. 71 / Thursday, April 11, 2024 / Notices
all market participants through
increased liquidity and order
interaction. Furthermore, the proposed
growth incentive will be temporary and
sunset on September 30, 2024 to ensure
that the incentive is timely and meets
the intended purpose of encouraging
increased Customer order flow and
liquidity removing activity.
khammond on DSKJM1Z7X2PROD with NOTICES
Technical Amendments
The Exchange believes that the nonsubstantive, technical edits in Options 7
are consistent with the Act because they
will promote clarity so that market
participants can more easily locate the
relevant rules in the Pricing Schedule,
and they are also intended to correct
formatting errors in the Pricing
Schedule.
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 intra-market competition,
the Exchange does not believe that its
proposal will place any category of
market participant at a competitive
disadvantage. As it relates to the
proposed note 2 incentives offered to
LMMs and MMs, the Exchange believes
that the additional Maker Rebates
should encourage the provision of
liquidity from both existing and new
LMMs and MMs that enhances the
quality of the Exchange’s market and
increases the number of trading
opportunities on the Exchange for all
market participants who will be able to
compete for such opportunities.
Similarly, for the proposed note 4
incentive offered to Customers, the
Exchange likewise believes that the
Taker Fee discount should encourage
additional Customer order flow from
both existing and new Members, which
would enhance BX’s market quality and
increase trading opportunities to the
benefit of all market participants.
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
options 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
VerDate Sep<11>2014
16:50 Apr 10, 2024
Jkt 262001
believes that the degree to which fee
changes in this market may impose any
burden on competition is extremely
limited. In sum, if the changes proposed
herein are unattractive to market
participants, it is likely that the
Exchange will lose market share as a
result. Accordingly, the Exchange does
not believe that the proposed changes
will impair the ability of members or
competing order execution venues to
maintain their competitive standing in
the financial markets.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act.24
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is: (i) necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
BX–2024–012 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–2024–012. This file
number should be included on the
subject line if email is used. To help the
24 15
PO 00000
U.S.C. 78s(b)(3)(A)(ii).
Frm 00124
Fmt 4703
Sfmt 4703
25681
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
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–BX–2024–012 and should be
submitted on or before May 2, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.25
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–07641 Filed 4–10–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[SEC File No. 270–321, OMB Control No.
3235–0358]
Submission for OMB Review;
Comment Request; Extension: Rule
11a–3
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736.
Notice is hereby given that pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501–3520), the Securities
and Exchange Commission (the
‘‘Commission’’) has submitted to the
Office of Management and Budget a
request for extension of the previously
25 17
E:\FR\FM\11APN1.SGM
CFR 200.30–3(a)(12).
11APN1
]]>Agencies
[Federal Register Volume 89, Number 71 (Thursday, April 11, 2024)]
[Notices]
[Pages 25677-25681]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-07641]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99913; File No. SR-BX-2024-012]
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the
Exchange's Pricing Schedule at Options 7, Section 2(1)
April 5, 2024.
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 April 1, 2024, Nasdaq BX, Inc. (``BX'' or ``Exchange'') filed with
the Securities and Exchange Commission (``SEC'' or ``Commission'') the
proposed rule change 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\ CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the Exchange's Pricing Schedule at
Options 7, Section 2(1).
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 amend its Pricing Schedule at Options 7,
Section 2(1) to establish a number of incentives for Lead Market Makers
(``LMMs''),\3\ Market Makers (``MMs''),\4\ and Customers.\5\
---------------------------------------------------------------------------
\3\ The term ``Lead Market Maker'' or (``LMM'') applies to a
registered BX Options Market Maker that is approved pursuant to
Options 2, Section 3 to be the LMM in an options class (options
classes).
\4\ The term ``BX Options Market Maker'' or (``M'') is a
Participant that has registered as a Market Maker on BX Options
pursuant to Options 2, Section 1, and must also remain in good
standing pursuant to Options 2, Section 9. In order to receive
Market Maker pricing in all securities, the Participant must be
registered as a BX Options Market Maker in at least one security.
\5\ The term ``Customer'' or (``C'') applies to any transaction
that is identified by a Participant for clearing in the Customer
range at The Options Clearing Corporation (``OCC'') which is not for
the account of broker or dealer or for the account of a
``Professional'' (as that term is defined in Options 1, Section
1(a)(48)).
---------------------------------------------------------------------------
Today, the Exchange assesses the following fees and rebates in
Penny and Non-Penny Symbols:
Penny Symbols
------------------------------------------------------------------------
Market participant Maker rebate Taker fee
------------------------------------------------------------------------
Lead Market Maker....................... ($0.24) $0.50
Market Maker............................ (0.20) 0.50
Non-Customer............................ (0.12) 0.50
Firm.................................... (0.12) 0.50
Customer................................ (0.30) 0.40
------------------------------------------------------------------------
Non-Penny Symbols
------------------------------------------------------------------------
Maker rebate/
Market participant fee Taker fee
------------------------------------------------------------------------
Lead Market Maker....................... ($0.45) $1.25
Market Maker............................ (0.40) 1.25
Non-Customer............................ 0.45 1.25
Firm.................................... 0.45 1.25
[[Page 25678]]
Customer................................ (1.10) 0.79
------------------------------------------------------------------------
Note 2 Incentive
The Exchange now proposes to establish new incentives in note 2,
which is currently reserved, that would be in addition to the Penny and
Non-Penny Symbol Maker Rebates currently provided to LMMs and MMs.
Specifically, note 2 would provide:
Lead Market Makers and Market Makers that either (1) execute
more than 0.45% Customer Total Consolidated Volume (``TCV'') per day
which adds liquidity in a given month (excluding Lead Market Maker
and Market Maker volume which adds liquidity in SPY), or (2)
increase their combined Lead Market Maker and Market Maker volume
which adds liquidity in a given month by at least 70% above their
March 2024 volume as measured by a percentage of TCV (excluding Lead
Market Maker and Market Maker volume which adds liquidity in SPY),
will receive the following incentives: (i) an additional $0.05 per
contract Maker Rebate in Penny Symbols excluding SPY, (ii) an
additional $0.01 per contract Maker Rebate in SPY, and (iii) an
additional $0.24 per contract Maker Rebate in Non-Penny Symbols.
Lead Market Makers and Market Makers with no volume in the add
liquidity segment for the month of March 2024 may qualify for the
additional Maker Rebates by having any new volume (excluding SPY
volume) considered as added volume. This note 2 incentive will be
available through September 30, 2024.
Proposed note 2 would provide LMMs and MMs two separate paths to
receive the additional Maker Rebates described above. The first path
would be based on liquidity adding volume on BX as a percentage of
Customer Total Consolidated Volume, which will be defined as the total
national volume cleared at The Options Clearing Corporation in the
Customer range in equity and ETF options in that month.\6\ The Exchange
is proposing to base the first path on a percentage of industry volume
in recognition of the fact that the volume executed by a Member may
rise or fall with industry volume.
---------------------------------------------------------------------------
\6\ The Exchange will add this definition in Options 7, Section
1(a). The Exchange notes the proposed language is based on
substantially similar definitions in the Pricing Schedules of its
affiliates Nasdaq ISE (``ISE'') and Nasdaq MRX (``MRX''). See ISE
Options 7, Section 1(c) and MRX Options 7, Section 1(c).
---------------------------------------------------------------------------
The second path would be a growth incentive aimed at rewarding LMMs
and MMs to grow the extent of their liquidity adding activity on the
Exchange over time, relative to a benchmark month. LMMs and MMs who did
not have any combined Lead Market Maker and Market Maker add liquidity
volume for the month of March 2024 (and therefore lack March 2024
baseline volume against which to measure subsequent growth) would meet
the proposed growth requirement through whatever volume of LMM and MM
add liquidity activity (excluding in SPY) during the first month of
use.\7\ Growth incentives in general are designed to further encourage
Members to increase their order flow to the Exchange, which contributes
to a deeper, more liquid market and provides even more execution
opportunities for market participants. Increased overall order flow
benefits all market participants by contributing towards a robust and
well-balanced market ecosystem. Other options exchanges have adopted
substantially similar growth incentives.\8\
---------------------------------------------------------------------------
\7\ As discussed below, the Exchange will sunset the note 2
incentives (including the growth incentive) on September 30, 2024
and will use this time period to evaluate the proposed growth
incentive criteria to determine whether the parameters are
appropriately designed to incentivize LMMs and MMs in the intended
manner.
\8\ See, e.g., Securities Exchange Act Release Nos. 97148 (March
15, 2023), 88 FR 17068 (March 21, 2023) (SR-MRX-2023-07)
(establishing growth incentive for MRX Market Makers); and 97440
(May 5, 2023), 88 FR 30370 (May 11, 2023) (SR-MRX-2023-08) (adding
an expiration date for the MRX growth incentive). MRX subsequently
eliminated this growth incentive upon reaching the expiration date.
See Securities Exchange Act Release No. 97800 (June 26, 2023), 88 FR
42409 (June 30, 2023) (SR-MRX-2023-11).
---------------------------------------------------------------------------
The Exchange notes that it will exclude LMM and MM liquidity adding
volume in SPY from both paths because SPY is the most actively traded
symbol on BX, and Exchange believes that LMMs and MMs will continue to
be incentivized to bring SPY liquidity adding volume on BX despite the
exclusion of SPY volume from the note 2 qualifications. Further, the
Exchange is encouraging SPY liquidity adding volume separately through
the proposed additional $0.01 per contract Maker Rebate in SPY
described above.
The proposed note 2 incentives will be available through September
30, 2024. The Exchange believes that this would ensure that the note 2
incentives--notably the growth incentive using the benchmark month
(i.e., March 2024) against which LMM and MM growth would be measured--
are timely and meet the intended purpose of encouraging increased order
flow and liquidity adding activity.
Note 4 Incentive
The Exchange also proposes to establish a growth incentive in new
note 4 of Options 7, Section 2(1) that would have similar
qualifications as the growth incentive proposed in new note 2 above in
that Members would be measured relative to a benchmark month.
Specifically, Members that increase their executed Customer volume
which removes liquidity in a given month by at least 70% above their
March 2024 volume as measured by a percentage of TCV will receive a
Taker Fee discount of $0.05 per contract in Penny Symbols excluding
SPY, QQQ, and IWM. Accordingly, qualifying Members would pay a Customer
Taker Fee of $0.35 (instead of $0.40) per contract in Penny Symbols.
The Exchange is proposing to exclude SPY, QQQ, and IWM from the note 4
incentive because Members are already paying lower Customer Taker Fees
of $0.33 per contract for those symbols today.\9\
---------------------------------------------------------------------------
\9\ See Options 7, Section 2(1), note 1.
---------------------------------------------------------------------------
The proposed note 4 incentive is aimed at rewarding Members to grow
the extent of their Customer liquidity removing activity on the
Exchange over time, relative to a benchmark month. The Exchange also
proposes to make clear that Members with no Customer volume in the
remove liquidity segment for the month of March 2024 may qualify for
the Taker Fee discount by having any new volume considered as added
volume. Similar to the note 2 incentive proposed above, Members who did
not have the requisite volume for the month of March 2024 (and
therefore lack March 2024 baseline volume against which to measure
subsequent growth) would meet the proposed growth requirement through
whatever volume in the required segment during the first month of use.
The Exchange believes that the proposed growth incentive in note 4 will
encourage increased Customer order flow to the Exchange, which
contributes to a deeper, more liquid market and provides even more
[[Page 25679]]
execution opportunities for market participants.
Similar to the proposed note 2 incentive above, the Exchange
proposes to sunset the new note 4 incentive on September 30, 2024. The
Exchange believes that this would ensure that the proposed growth
incentive is timely and meets the intended purpose of encouraging
increased order flow and Customer liquidity removing activity.
Technical Amendments
Lastly, the Exchange proposes a number of non-substantive,
technical edits in Options 7. First, the Exchange proposes to title
paragraph (a) in Options 7, Section 1 as ``Definitions'' to more
clearly identify the applicable rules within this paragraph. Second,
the Exchange proposes to amend Options 7, Section 2(1) to correct a
formatting error by adding parentheses around the note 1 and note 3
references appended to the Customer Taker Fee in Penny Symbols and
Customer Maker Rebate in Non-Penny Symbols, respectively.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\10\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\11\ 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.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
The Exchange's proposed changes to its schedule of credits are
reasonable in several respects. As a threshold matter, the Exchange is
subject to significant competitive forces in the market for options
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'. . . .'' \12\
---------------------------------------------------------------------------
\12\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
---------------------------------------------------------------------------
The Commission and the courts have repeatedly expressed their
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. In Regulation
NMS, while adopting a series of steps to improve the current market
model, the Commission highlighted the importance of market forces in
determining prices and SRO revenues and, also, recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \13\
---------------------------------------------------------------------------
\13\ Securities Exchange Act Release No. 51808 (June 9, 2005),
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
---------------------------------------------------------------------------
Numerous indicia demonstrate the competitive nature of this market.
For example, clear substitutes to the Exchange exist in the market for
options security transaction services. The Exchange is only one of
seventeen options exchanges to which market participants may direct
their order flow. 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. As such, the proposal represents a reasonable attempt by the
Exchange to increase its liquidity and market share relative to its
competitors.
Note 2 Incentive
The Exchange believes that the proposed note 2 incentives are
reasonable for several reasons. As discussed above, note 2 would
provide LMMs and MMs two separate paths to receive the proposed
additional Maker Rebates of (i) $0.05 per contract in Penny Symbols
excluding SPY,\14\ (ii) $0.01 per contract in SPY,\15\ and (iii) $0.24
per contract in Non-Penny Symbols.\16\ The first path would be based on
liquidity adding volume on BX as a percentage of Customer Total
Consolidated Volume (i.e., TCV).\17\ The Exchange believes that the
total industry percentage threshold is reasonable in order to align
with increasing LMM and MM activity on BX over time. The Exchange is
proposing to base the first path on a percentage of industry volume in
recognition of the fact that the volume executed by a Member may rise
or fall with industry volume. A percentage of industry volume
calculation allows the proposed qualifications in note 2 to be
calibrated to current market volumes rather than requiring a static
amount of volume regardless of market conditions. The proposed
threshold of 0.45% Customer Total Consolidated Volume is generally
intended to reward LMMs and MMs for executing more liquidity adding
volume on BX. To the extent such activity is increased by this
proposal, market participants may increasingly compete for the
opportunity to trade on Exchange to the benefit of all market
participants. As noted above, total industry percentage thresholds are
established concepts within the Pricing Schedules of BX's
affiliates.\18\
---------------------------------------------------------------------------
\14\ Accordingly, qualifying LMMs and MMs would receive a total
of $0.29 per contract (LMMs) and $0.25 per contract (MMs) in Penny
Symbols excluding SPY.
\15\ Accordingly, qualifying LMMs and MMs would receive a total
of $0.25 per contract (LMMs) and $0.21 per contract (MMs) in SPY.
\16\ Accordingly, qualifying LMMs and MMs would receive a total
of $0.69 per contract (LMMs) and $0.64 per contract (MMs) in Non-
Penny Symbols.
\17\ In particular, LMMs and MMs that execute more than 0.45%
Customer Total Consolidated Volume (``TCV'') per day which adds
liquidity in a given month (excluding Lead Market Maker and Market
Maker volume which adds liquidity in SPY) would receive the proposed
note 2 incentives.
\18\ See supra note 6.
---------------------------------------------------------------------------
As discussed above, the second path would be a growth incentive
that would provide LMMs and MMs with the additional Maker Rebates
outlined above if they increase their combined LMM and MM volume which
adds liquidity in a given month by at least 70% above their March 2024
volume as measured by a percentage of TCV (excluding LMM and MM volume
which adds liquidity in SPY). The Exchange believes that its proposal
is reasonable because it will provide extra incentives to LMMs and MMs
to engage in substantial amounts of liquidity adding activity on the
Exchange, as well as to substantially grow the extent to which they do
so relative to a recent benchmark month. The Exchange believes that if
the proposed growth incentive is effective, any ensuing increase in
liquidity adding activity on BX will improve the quality of the market
overall, to the benefit of all market participants. The Exchange also
believes that it is reasonable to consider any new add liquidity volume
(excluding SPY volume) for LMMs and MMs with no such volume for the
month of March 2024 in order for those market participants to receive
the proposed additional Maker Rebates in note 2. The proposed growth
incentive is designed to attract additional liquidity from new LMMs and
MMs as well as existing LMMs and MMs who
[[Page 25680]]
may not have a large footprint on BX today. To the extent this proposal
attracts such LMM and MM add liquidity volume to BX, all market
participants should benefit through more trading opportunities and
tighter spreads. An overall increase in activity would deepen the
Exchange's liquidity pool, support the quality of price discovery,
promote market transparency and improve market quality for all
investors. As discussed above, the Exchange intends for the proposed
note 2 incentives, including the growth incentive, to sunset on
September 30, 2024, and will use this time to evaluate suitable
parameters for such market participants in the targeted segment. The
Exchange believes that this will ensure that the proposed incentives
are timely and meet the intended purpose of encouraging increased order
flow and liquidity adding activity. As noted above, other options
exchanges (including the Exchange's affiliate) have previously adopted
substantially similar growth incentives.\19\
---------------------------------------------------------------------------
\19\ See supra note 8.
---------------------------------------------------------------------------
The Exchange further believes that it is reasonable to exclude LMM
and MM liquidity adding volume in SPY from both paths because SPY is
the most actively traded symbol on BX, and Exchange believes that LMMs
and MMs will continue to be incentivized to bring SPY liquidity adding
volume on BX despite the exclusion of SPY volume from the note 2
qualifications. Further, the Exchange is encouraging SPY liquidity
adding volume separately through the proposed additional $0.01 per
contract Maker Rebate in SPY described above.
The Exchange believes that the proposed note 2 incentives are
equitable and not unfairly discriminatory for the reasons that follow.
As a general matter, the Exchange believes that it is equitable and not
unfairly discriminatory to provide the note 2 incentives to only LMMs
and MMs because these market participants have different requirements
and additional obligations to the Exchange that other market
participants do not (such as quoting requirements). As noted above,
LMMs would ultimately receive higher Maker Rebates than MMs when
combining the current base rebates with the proposed additional
rebates.\20\ Nevertheless, the Exchange continues to believe that it is
equitable and not unfairly discriminatory to provide more favorable
pricing to LMMs compared to MMs given that LMMs are subject to
heightened quoting obligations compared to Market Makers.\21\ The
higher rebates therefore recognize the differing contributions made to
the liquidity and trading environment on the Exchange by LMMs. Overall,
the Exchange believes that incentivizing both LMMs and MMs to provide
greater liquidity benefits all market participants through the quality
of order interaction.
---------------------------------------------------------------------------
\20\ See supra notes 14-16.
\21\ See Options 2, Section 4(j) (setting forth the 90% or
higher quoting obligations for LMMs) and Section 5(d) (setting forth
the 60% or higher quoting obligations for MMs).
---------------------------------------------------------------------------
The Exchange also believes that it is equitable and not unfairly
discriminatory to consider any new add liquidity volume (excluding SPY
volume) for LMMs and MMs with no such volume in March 2024 in order for
those market participants to receive the proposed additional Maker
Rebates because this is designed to attract additional liquidity and
order flow from new and existing LMMs and MMs to the Exchange, as
discussed above. In turn, this additional liquidity should benefit all
market participants through increased liquidity and order interaction.
Furthermore, the proposed growth incentive will be temporary and sunset
on September 30, 2024 to ensure that the incentive is timely and meets
the intended purpose of encouraging increased order flow and liquidity
adding activity.
Note 4 Incentive
The Exchange believes that the proposed growth incentive in new
note 4 of Options 7, Section 2(1) is reasonable for the reasons that
follow. As discussed above, Members that increase their executed
Customer volume which removes liquidity in a given month by at least
70% above their March 2024 volume as measured by a percentage of TCV
will receive a Taker Fee discount of $0.05 per contract in Penny
Symbols excluding SPY, QQQ, and IWM. Accordingly, qualifying Members
would pay a Customer Taker Fee of $0.35 (instead of $0.40) per contract
in Penny Symbols excluding SPY, QQQ, and IWM. The Exchange believes it
is reasonable to exclude SPY, QQQ, and IWM from the note 4 incentive
because Members are already paying lower Customer Taker Fees of $0.33
per contract for those symbols today.\22\
---------------------------------------------------------------------------
\22\ See Options 7, Section 2(1), note 1.
---------------------------------------------------------------------------
The Exchange believes that the proposed growth incentive is
reasonable because it will provide extra incentives to Members to
engage in substantial amounts of Customer liquidity removing activity
on the Exchange, as well as to substantially grow the extent to which
they do so relative to a recent benchmark month. The Exchange believes
that if the proposed growth incentive is effective, any ensuing
increase in liquidity removing activity on BX will increase trading
opportunities for all market participants. The Exchange also believes
that it is reasonable to consider any new Customer remove liquidity
volume for Members with no such volume for the month of March 2024 in
order for those Members to receive the proposed Taker Fee discount in
note 4. The proposed growth incentive is designed to attract additional
Customer order flow from new Members as well as existing Members who
may not have a large footprint on BX today. To the extent this proposal
attracts such order flow to BX, all market participants should benefit
through more trading opportunities. As discussed above, the Exchange
intends for the proposed growth incentive in note 4 to sunset on
September 30, 2024, and will use this time to evaluate suitable
parameters for such market participants in the targeted segment. The
Exchange believes that this will ensure that the proposed incentive is
timely and meets the intended purpose of encouraging increased order
flow and Customer liquidity removing activity. As noted above, other
options exchanges (including the Exchange's affiliate) have previously
adopted similar growth incentives.\23\
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\23\ See supra note 8.
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Further, the Exchange believes that the proposed note 4 incentive
is equitable and not unfairly discriminatory for the reasons that
follow. As a general matter, the Exchange believes that it is equitable
and not unfairly discriminatory to provide the note 4 incentive to only
Customer orders because the proposed changes are intended to increase
Customer order follow, particularly Customer remove liquidity order
flow, to BX. An increase in Customer order flow enhances liquidity on
the Exchange to the benefit of all market participants by providing
more trading opportunities, which in turn attracts other market
participants that may interact with this order flow.
The Exchange also believes that it is equitable and not unfairly
discriminatory to consider any new Customer remove liquidity volume for
Members with no such volume in March 2024 in order for those Members to
receive the proposed Taker Fee discount because this is designed to
attract additional liquidity and order flow from new and existing
Members to the Exchange, as discussed above. In turn, this additional
liquidity should benefit
[[Page 25681]]
all market participants through increased liquidity and order
interaction. Furthermore, the proposed growth incentive will be
temporary and sunset on September 30, 2024 to ensure that the incentive
is timely and meets the intended purpose of encouraging increased
Customer order flow and liquidity removing activity.
Technical Amendments
The Exchange believes that the non-substantive, technical edits in
Options 7 are consistent with the Act because they will promote clarity
so that market participants can more easily locate the relevant rules
in the Pricing Schedule, and they are also intended to correct
formatting errors in the Pricing Schedule.
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 intra-market competition, the Exchange does not believe
that its proposal will place any category of market participant at a
competitive disadvantage. As it relates to the proposed note 2
incentives offered to LMMs and MMs, the Exchange believes that the
additional Maker Rebates should encourage the provision of liquidity
from both existing and new LMMs and MMs that enhances the quality of
the Exchange's market and increases the number of trading opportunities
on the Exchange for all market participants who will be able to compete
for such opportunities. Similarly, for the proposed note 4 incentive
offered to Customers, the Exchange likewise believes that the Taker Fee
discount should encourage additional Customer order flow from both
existing and new Members, which would enhance BX's market quality and
increase trading opportunities to the benefit of all market
participants.
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
options 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 sum, if the changes proposed herein are
unattractive to market participants, it is likely that the Exchange
will lose market share as a result. Accordingly, the Exchange does not
believe that the proposed changes will impair the ability of members or
competing order execution venues to maintain their competitive standing
in the financial markets.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act.\24\
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\24\ 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-2024-012 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-2024-012. 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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-BX-2024-012 and should be
submitted on or before May 2, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-07641 Filed 4-10-24; 8:45 am]
BILLING CODE 8011-01-P
