Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its Pricing Schedule at Equity 7, Section 118(a), 58816-58819 [2024-15911]

Download as PDF ddrumheller on DSK120RN23PROD with NOTICES1 58816 Federal Register / Vol. 89, No. 139 / Friday, July 19, 2024 / Notices FINRA would assume regulatory responsibility for certain provisions of the federal securities laws and the rules and regulations thereunder that are set forth in the Certification. The Common Rules covered by the Amended Plan are specifically listed in the Certification, as may be amended by the Parties from time to time. According to the Amended Plan, PHLX will review the Certification at least annually, or more frequently if required by changes in either the rules of PHLX or FINRA, and, if necessary, submit to FINRA an updated list of Common Rules to add PHLX rules not included on the then-current list of Common Rules that are substantially similar to FINRA rules; delete PHLX rules included in the then-current list of Common Rules that no longer qualify as common rules; and confirm that the remaining rules on the list of Common Rules continue to be PHLX rules that qualify as common rules.14 FINRA will then confirm in writing whether the rules listed in any updated list are Common Rules as defined in the Amended Plan. The Commission believes that these provisions are designed to provide for continuing communication between the Parties to ensure the continued accuracy of the scope of the proposed allocation of regulatory responsibility. The Commission is hereby declaring effective an Amended Plan that, among other things, allocates regulatory responsibility to FINRA for the oversight and enforcement of all PHLX rules that are substantially similar to the rules of FINRA for Common Members of PHLX and FINRA. Therefore, modifications to the Certification need not be filed with the Commission as an amendment to the Amended Plan, provided that the Parties are only adding to, deleting from, or confirming changes to PHLX rules in the Certification in conformance with the definition of Common Rules provided in the Amended Plan. However, should the Parties decide to add a PHLX rule to the Certification that is not substantially similar to a FINRA rule; delete a PHLX rule from the Certification that is substantially similar to a FINRA rule; or leave on the Certification a PHLX rule that is no longer substantially similar to a FINRA rule, then such a change would constitute an amendment to the Amended Plan, which must be filed with the Commission pursuant to Rule 17d–2 under the Act.15 14 See paragraph 2 of the Amended Plan. addition to or deletion from the Certification of any federal securities laws, rules, and regulations for which FINRA would bear 15 The VerDate Sep<11>2014 18:53 Jul 18, 2024 Jkt 262001 Under paragraph (c) of Rule 17d–2, the Commission may, after appropriate notice and comment, declare a plan, or any part of a plan, effective. In this instance, the Commission believes that appropriate notice and comment can take place after the proposed amendment is effective. The primary purpose of the amendment is to update the list of Common Rules and to add surveillance and investigation coverage for certain Common Rules specified in Exhibit 1 to the Amended Plan. By declaring it effective today, the Amended Plan can become effective and be implemented without undue delay. The Commission notes that the prior version of this plan immediately prior to this proposed amendment was published for comment and the Commission did not receive any comments thereon.16 Furthermore, the Commission does not believe that the amendment to the plan raises any new regulatory issues that the Commission has not previously considered. VI. Conclusion This order gives effect to the Amended Plan filed with the Commission in File No. 4–818. The Parties shall notify all members affected by the Amended Plan of their rights and obligations under the Amended Plan. It is therefore ordered, pursuant to Section 17(d) of the Act, that the Amended Plan in File No. 4–818, between the FINRA and PHLX, filed pursuant to Rule 17d–2 under the Act, hereby is approved and declared effective. It is further ordered that PHLX is relieved of those responsibilities allocated to FINRA under the Amended Plan in File No. 4–818. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.17 J. Matthew DeLesDernier, Deputy Secretary. [FR Doc. 2024–15909 Filed 7–18–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–100531; File No. SR–BX– 2024–022] Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its Pricing Schedule at Equity 7, Section 118(a) July 15, 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 July 1, 2024, Nasdaq BX, Inc. (‘‘BX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II and III, below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend the Exchange’s pricing schedule at Equity 7, Section 118(a), as described further below. The text of the proposed rule change is available on the Exchange’s website at https://listingcenter.nasdaq.com/ rulebook/bx/rules, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change responsibility under the Amended Plan for examining, and enforcing compliance by, Common Members, also would constitute an amendment to the Amended Plan. 16 See supra note 11 (citing to Securities Exchange Act Release No. 99260). 17 17 CFR 200.30–3(a)(34). PO 00000 Frm 00114 Fmt 4703 Sfmt 4703 1. Purpose The purpose of the proposed rule change is to provide an additional calculation for purposes of determining 1 15 2 17 E:\FR\FM\19JYN1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 19JYN1 ddrumheller on DSK120RN23PROD with NOTICES1 Federal Register / Vol. 89, No. 139 / Friday, July 19, 2024 / Notices whether a member qualifies for discounts to fees set forth in Equity 7, Section 118(f) that pertain to providing liquidity. The Exchange operates on the ‘‘takermaker’’ model, whereby it generally pays credits to members that take liquidity and charges fees to members that provide liquidity. In Equity 7, Section 118(f), the Exchange sets forth its Qualified Market Maker (‘‘QMM’’) Program, which provides supplemental incentives to members that meet certain quality standards in acting as market makers for securities on the Exchange. Pursuant to Equity 7, Section 118(f)(2)(i), to the extent that the Exchange designates a member to be a QMM because it quotes at the NBBO at least 10% of the time during Market Hours in an average of at least 325 securities per day during a month and provides add volume of at least 0.07% of total Consolidated Volume during a month, then the Exchange will provide the QMM with a discount of $0.0001 per share executed with respect to the fees that the QMM otherwise incurs, pursuant to Section 118(a), for entering displayed orders in securities priced at $1 or more that provide liquidity to the Exchange. Members may qualify for the discount under the QMM Program based, in part, upon the volume of their activities on the Exchange as a percentage of total ‘‘Consolidated Volume.’’ Pursuant to Equity 7, Section 118(a), the term ‘‘Consolidated Volume’’ means the total consolidated volume reported to all consolidated transaction reporting plans by all exchanges and trade reporting facilities during a month in equity securities, excluding executed orders with a size of less than one round lot. For purposes of calculating Consolidated Volume and the extent of a member’s trading activity, the following are excluded from both total Consolidated Volume and the member’s trading activity: (1) the date of the annual reconstitution of the Russell Investments Indexes; (2) the dates on which stock options, stock index options, and stock index futures expire (i.e., the third Friday of March, June, September, and December); (3) the dates of the rebalance of the MSCI Equities Indexes (i.e., on a quarterly basis); (4) the dates of the rebalance of the S&P 400, S&P 500, and S&P 600 Indexes (i.e., on a quarterly basis); and (5) the date of the annual reconstitution of the Nasdaq100 and Nasdaq Biotechnology Indexes. Section 118(a) also provides that, for purposes of calculating a member’s qualifications for fees that pertain to providing liquidity set forth in this Section 118(a), the Exchange will VerDate Sep<11>2014 18:53 Jul 18, 2024 Jkt 262001 calculate a member’s volume and total Consolidated Volume twice. First, the Exchange will calculate a member’s volume and total Consolidated Volume inclusive of volume that consists of executions in securities priced less than $1. Second, the Exchange will calculate a member’s volume and total Consolidated Volume exclusive of volume that consists of executions in securities priced less than $1, while also increasing the distinct qualifying volume percentage thresholds, as set forth in this Section 118(a), by 10%. The Exchange will then assess which of these two calculations would qualify the member for the most advantageous fees for the month and then it will apply those to the member. With this proposal, the Exchange proposes to extend such calculations of volume and Consolidated Volume for purposes of determining whether a member qualifies for discounts to fees set forth in Equity 7, Section 118(f) that pertain to providing liquidity. To effectuate this change, the Exchange proposes to modify Equity 7, Section 118(a) by adding Section 118(f) in the description of the applicability of such calculations. The revised sentence would state, ‘‘For purposes of calculating a member’s qualifications for fees that pertain to providing liquidity set forth in Section 118(a) and Section 118(f), the Exchange will calculate a member’s volume and total Consolidated Volume twice.’’ In addition, to effectuate the change, the Exchange proposes to remove the reference to Section 118(a) in the following language: ‘‘while also increasing the distinct qualifying volume percentage thresholds, as set forth in this Section 118(a), by 10%.’’ The Exchange proposes to remove such reference to Section 118(a) because the language is no longer only applicable to Section 118(a). The Exchange believes that it is unnecessary to point to the relevant sections for the distinct qualifying volume percentage thresholds as it is implied that the applicable percentage thresholds are in the same sections where the applicable fees or fee discounts are found (i.e., either in Section 118(a) or Section 118(f), as applicable). Lastly, the Exchange proposes to specify that the two calculations would be assessed to determine the most advantageous fees or discounts to fees. Generally, the ratio of consolidated volumes in securities priced at or above $1 (‘‘dollar plus volume’’) relative to consolidated volumes inclusive of securities priced below a dollar is usually stable from month to month, such that ‘‘Consolidated Volume’’ has PO 00000 Frm 00115 Fmt 4703 Sfmt 4703 58817 been a reasonable baseline for determining tiered incentives for members that execute dollar plus volume on the Exchange. However, there have been a few months where volumes in securities priced below a dollar (‘‘sub-dollar volume’’) have been elevated, thereby impacting the ratio mentioned above. Anomalous rises in sub-dollar volume stand to have a material adverse impact on members’ qualifications for pricing tiers/incentives because such qualifications depend members upon achieving threshold percentages of volumes as a percentage of Consolidated Volume, and an extraordinary rise in sub-dollar volume stands to elevate Consolidated Volume. As a result, members may find it more difficult, if not practically impossible, to qualify for or to continue to qualify for their existing pricing incentives during months where there are such rises in sub-dollar volumes, even if their dollar plus volumes have not diminished relative to prior months. The Exchange believes that it would be unfair for its members that execute significant dollar plus volumes on the Exchange to fail to achieve or to lose their existing pricing incentives for such volumes due to anomalous behavior that is extraneous to them. Therefore, the Exchange wishes to amend its Rules to help avoid extraordinary spikes in subdollar volumes from adversely affecting a member’s qualification of pricing incentives for their dollar plus stock executions. Although the Exchange wishes to avoid extraordinary spikes in sub-dollar volumes from adversely affecting a member’s qualification of pricing incentives for their dollar plus stock executions, the Exchange proposes to include certain limits on the proposal to efficiently allocate the Exchange’s limited resources for pricing tiers/ incentives. Specifically, as noted above, the Exchange proposes to apply the calculation excluding sub-dollar volumes to those incentives in Section 118(f) that pertain to providing liquidity. In addition, as noted above, the Exchange proposes to increase the distinct qualifying volume percentage thresholds set forth in Section 118(f) by 10% for purposes of the proposed calculation excluding sub-dollar volumes.3 The Exchange wishes to 3 For example, to the extent that the Exchange designates a member to be a QMM because it quotes at the NBBO at least 10% of the time during Market Hours in an average of at least 325 securities per day during a month and provides add volume of at least 0.07% of total Consolidated Volume during a month, then the Exchange will provide the QMM E:\FR\FM\19JYN1.SGM Continued 19JYN1 58818 Federal Register / Vol. 89, No. 139 / Friday, July 19, 2024 / Notices impose such limitations in order to limit the cost impact on the Exchange, while still providing some relief to members in months with extraordinary spikes in sub-dollar volumes. The Exchange has limited resources to devote to incentive programs, and it is appropriate for the Exchange to reallocate these incentives periodically in a manner that best achieves the Exchange’s overall mix of objectives. ddrumheller on DSK120RN23PROD with NOTICES1 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,4 in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,5 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 pricing schedule are reasonable in several respects. As a threshold matter, the Exchange is subject to significant competitive forces in the market for equity securities transaction services that constrain its pricing determinations in that market. The fact that this market is competitive has long been recognized by the courts. In NetCoalition v. Securities and Exchange Commission, the D.C. Circuit stated as follows: ‘‘[n]o one disputes that competition for order flow is ‘fierce.’ . . . As the SEC explained, ‘[i]n the U.S. national market system, buyers and sellers of securities, and the broker-dealers that act as their order-routing agents, have a wide range of choices of where to route orders for execution’; [and] ‘no exchange can afford to take its market share percentages for granted’ because ‘no exchange possesses a monopoly, regulatory or otherwise, in the execution of order flow from broker dealers’. . . .’’ 6 with a discount of $0.0001 per share executed with respect to the fees that the QMM otherwise incurs, pursuant to Section 118(a), for entering displayed orders in securities priced at $1 or more that provide liquidity to the Exchange. See Equity 7, Section 118(f)(2)(i). Under the proposal, in addition to calculating the member’s volume and total Consolidated Volume exclusive of volume that consists of executions in securities priced less than $1, the distinct qualifying volume percentage threshold would be increased by 10%. Therefore, for purposes of this example, in order to qualify for the fee discounts using volumes excluding subdollar activity, the member would need to provide add volume of at least 0.077% of total Consolidated Volume during a month (i.e., 0.07% + (10%)(0.07%)). 4 15 U.S.C. 78f(b). 5 15 U.S.C. 78f(b)(4) and (5). 6 NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) (quoting Securities Exchange Act Release No. VerDate Sep<11>2014 18:53 Jul 18, 2024 Jkt 262001 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.’’ 7 Numerous indicia demonstrate the competitive nature of this market. For example, clear substitutes to the Exchange exist in the market for equity security transaction services. The Exchange is only one of several equity venues to which market participants may direct their order flow. Competing equity exchanges offer similar tiered pricing structures and market quality programs to that of the Exchange, including schedules of rebates and fees that apply based upon members achieving certain volume thresholds. 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. The Exchange believes that the proposal is reasonable and equitable because, in its absence, members may experience material adverse impacts on their ability to qualify for certain incentives during a month with an anomalous rise in sub-dollar volumes. The Exchange does not wish to penalize members that execute significant volumes on the Exchange due to anomalous and extraneous trading activities of a small number of firms in sub-dollar securities. The proposed rule would seek to provide a means for members that provide liquidity to avoid such a penalty by determining whether calculating member volume and total Consolidated Volume to include or exclude sub-dollar volume 8 would result in Exchange members qualifying for the most advantageous charges, and then applying the calculations that would result in the incentives for 59039 (December 2, 2008), 73 FR 74770, 74782–83 (December 9, 2008) (SR–NYSEArca–2006–21)). 7 Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) (‘‘Regulation NMS Adopting Release’’). 8 As noted above, in considering whether a member meets qualifying incentive criteria using the proposed calculation excluding sub-dollar volumes, the distinct qualifying volume percentage thresholds would be increased by 10%. PO 00000 Frm 00116 Fmt 4703 Sfmt 4703 providing liquidity that are most advantageous to each member. The Exchange believes it is reasonable to limit the proposal by applying the proposed calculation to incentives that pertain to providing liquidity set forth in Equity 7, Section 118(f) and increasing the distinct qualifying volume percentage thresholds by 10% when using the proposed calculation excluding sub-dollar volumes because the Exchange has limited resources to devote to incentive programs, and it is appropriate for the Exchange to reallocate these incentives periodically in a manner that best achieves the Exchange’s overall mix of objectives. The Exchange believes that the proposed rule change is an equitable allocation and is not unfairly discriminatory because the Exchange does not intend for the proposal to advantage any particular member and the Exchange will apply the proposed calculation to all similarly situated members. Those participants that are dissatisfied with the changes to the Exchange’s pricing schedule are free to shift their order flow to competing venues that provide more favorable fees or generous incentives. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. Intramarket Competition The Exchange does not believe that its proposal will place any category of Exchange participant at a competitive disadvantage. The Exchange intends for its proposal to help avoid pricing disadvantages due to anomalous spikes in sub-dollar volumes and is not intended to provide a competitive advantage to any particular member. The Exchange also intends for its proposal to reallocate its limited resources more efficiently and to align them with the Exchange’s overall mix of objectives. The Exchange notes that its members are free to trade on other venues to the extent they believe that the proposal is not attractive. As one can observe by looking at any market share chart, price competition between exchanges is fierce, with liquidity and market share moving freely between exchanges in reaction to fee and credit changes. Intermarket Competition In terms of inter-market competition, the Exchange notes that it operates in a E:\FR\FM\19JYN1.SGM 19JYN1 Federal Register / Vol. 89, No. 139 / Friday, July 19, 2024 / Notices highly competitive market in which market participants can readily favor competing venues if they deem fee levels at a particular venue to be excessive, or rebate opportunities available at other venues to be more favorable. In such an environment, the Exchange must continually adjust its credits and fees to remain competitive with other exchanges and with alternative trading systems that have been exempted from compliance with the statutory standards applicable to exchanges. Because competitors are free to modify their own credits and fees in response, and because market participants may readily adjust their order routing practices, the Exchange believes that the degree to which credit or fee changes in this market may impose any burden on competition is extremely limited. The proposal is reflective of this competition. Even the largest U.S. equities exchange by volume has less than 20% market share, which in most markets could hardly be categorized as having enough market power to burden competition. Moreover, as noted above, price competition between exchanges is fierce, with liquidity and market share moving freely between exchanges in reaction to fee and credit changes. This is in addition to free flow of order flow to and among off-exchange venues, which comprises upwards of 40% of industry volume. 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. ddrumheller on DSK120RN23PROD with NOTICES1 C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act.9 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) necessary or appropriate in 9 15 U.S.C. 78s(b)(3)(A)(ii). VerDate Sep<11>2014 18:53 Jul 18, 2024 Jkt 262001 58819 SR–BX–2024–022 and should be submitted on or before August 9, 2024. 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. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.10 J. Matther DeLesDernier, Deputy Secretary. IV. Solicitation of Comments [FR Doc. 2024–15911 Filed 7–18–24; 8:45 am] 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: BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–100536; File No. 4–575] • 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–2024–022 on the subject line. Program for Allocation of Regulatory Responsibilities Pursuant to Rule 17d– 2; Notice of Filing and Order Approving and Declaring Effective an Amended Plan for the Allocation of Regulatory Responsibilities Between the Financial Industry Regulatory Authority, Inc., The Nasdaq Stock Market LLC, and Nasdaq BX, Inc. Paper Comments July 15, 2024. Electronic 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–2024–022. 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 PO 00000 Frm 00117 Fmt 4703 Sfmt 4703 Notice is hereby given that the Securities and Exchange Commission (‘‘Commission’’) has issued an Order, pursuant to Section 17(d) of the Securities Exchange Act of 1934 (‘‘Act’’),1 approving and declaring effective an amendment to the plan for allocating regulatory responsibility (‘‘Plan’’) filed on July 1, 2024, pursuant to Rule 17d–2 of the Act,2 by the Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’), The Nasdaq Stock Market LLC (‘‘Nasdaq’’), and Nasdaq BX, Inc. (‘‘BX’’) (collectively, ‘‘Participating Organizations’’ or ‘‘parties’’). This Agreement amends and restates the agreement entered into between FINRA, Nasdaq, and BX approved by the SEC on September 23, 2021, entitled ‘‘Agreement Among Financial Industry Regulatory Authority, Inc., The Nasdaq Stock Market LLC and Nasdaq BX, Inc. pursuant to Rule 17d–2 under the Securities Exchange Act of 1934,’’ and any subsequent amendments thereafter. I. Introduction Section 19(g)(1) of the Act,3 among other things, requires every selfregulatory organization (‘‘SRO’’) registered as either a national securities exchange or national securities association to examine for, and enforce compliance by, its members and persons associated with its members with the Act, the rules and regulations thereunder, and the SRO’s own rules, 10 17 CFR 200.30–3(a)(12). U.S.C. 78q(d). 2 17 CFR 240.17d–2. 3 15 U.S.C. 78s(g)(1). 1 15 E:\FR\FM\19JYN1.SGM 19JYN1

Agencies

[Federal Register Volume 89, Number 139 (Friday, July 19, 2024)]
[Notices]
[Pages 58816-58819]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-15911]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100531; File No. SR-BX-2024-022]


Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Its 
Pricing Schedule at Equity 7, Section 118(a)

July 15, 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 July 1, 2024, Nasdaq BX, Inc. (``BX'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``SEC'' or ``Commission'') the 
proposed rule change as described in Items I, II and III, below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Exchange's pricing schedule at 
Equity 7, Section 118(a), as described further below.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/bx/rules, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to provide an additional 
calculation for purposes of determining

[[Page 58817]]

whether a member qualifies for discounts to fees set forth in Equity 7, 
Section 118(f) that pertain to providing liquidity.
    The Exchange operates on the ``taker-maker'' model, whereby it 
generally pays credits to members that take liquidity and charges fees 
to members that provide liquidity. In Equity 7, Section 118(f), the 
Exchange sets forth its Qualified Market Maker (``QMM'') Program, which 
provides supplemental incentives to members that meet certain quality 
standards in acting as market makers for securities on the Exchange. 
Pursuant to Equity 7, Section 118(f)(2)(i), to the extent that the 
Exchange designates a member to be a QMM because it quotes at the NBBO 
at least 10% of the time during Market Hours in an average of at least 
325 securities per day during a month and provides add volume of at 
least 0.07% of total Consolidated Volume during a month, then the 
Exchange will provide the QMM with a discount of $0.0001 per share 
executed with respect to the fees that the QMM otherwise incurs, 
pursuant to Section 118(a), for entering displayed orders in securities 
priced at $1 or more that provide liquidity to the Exchange.
    Members may qualify for the discount under the QMM Program based, 
in part, upon the volume of their activities on the Exchange as a 
percentage of total ``Consolidated Volume.'' Pursuant to Equity 7, 
Section 118(a), the term ``Consolidated Volume'' means the total 
consolidated volume reported to all consolidated transaction reporting 
plans by all exchanges and trade reporting facilities during a month in 
equity securities, excluding executed orders with a size of less than 
one round lot. For purposes of calculating Consolidated Volume and the 
extent of a member's trading activity, the following are excluded from 
both total Consolidated Volume and the member's trading activity: (1) 
the date of the annual reconstitution of the Russell Investments 
Indexes; (2) the dates on which stock options, stock index options, and 
stock index futures expire (i.e., the third Friday of March, June, 
September, and December); (3) the dates of the rebalance of the MSCI 
Equities Indexes (i.e., on a quarterly basis); (4) the dates of the 
rebalance of the S&P 400, S&P 500, and S&P 600 Indexes (i.e., on a 
quarterly basis); and (5) the date of the annual reconstitution of the 
Nasdaq-100 and Nasdaq Biotechnology Indexes.
    Section 118(a) also provides that, for purposes of calculating a 
member's qualifications for fees that pertain to providing liquidity 
set forth in this Section 118(a), the Exchange will calculate a 
member's volume and total Consolidated Volume twice. First, the 
Exchange will calculate a member's volume and total Consolidated Volume 
inclusive of volume that consists of executions in securities priced 
less than $1. Second, the Exchange will calculate a member's volume and 
total Consolidated Volume exclusive of volume that consists of 
executions in securities priced less than $1, while also increasing the 
distinct qualifying volume percentage thresholds, as set forth in this 
Section 118(a), by 10%. The Exchange will then assess which of these 
two calculations would qualify the member for the most advantageous 
fees for the month and then it will apply those to the member. With 
this proposal, the Exchange proposes to extend such calculations of 
volume and Consolidated Volume for purposes of determining whether a 
member qualifies for discounts to fees set forth in Equity 7, Section 
118(f) that pertain to providing liquidity. To effectuate this change, 
the Exchange proposes to modify Equity 7, Section 118(a) by adding 
Section 118(f) in the description of the applicability of such 
calculations. The revised sentence would state, ``For purposes of 
calculating a member's qualifications for fees that pertain to 
providing liquidity set forth in Section 118(a) and Section 118(f), the 
Exchange will calculate a member's volume and total Consolidated Volume 
twice.'' In addition, to effectuate the change, the Exchange proposes 
to remove the reference to Section 118(a) in the following language: 
``while also increasing the distinct qualifying volume percentage 
thresholds, as set forth in this Section 118(a), by 10%.'' The Exchange 
proposes to remove such reference to Section 118(a) because the 
language is no longer only applicable to Section 118(a). The Exchange 
believes that it is unnecessary to point to the relevant sections for 
the distinct qualifying volume percentage thresholds as it is implied 
that the applicable percentage thresholds are in the same sections 
where the applicable fees or fee discounts are found (i.e., either in 
Section 118(a) or Section 118(f), as applicable). Lastly, the Exchange 
proposes to specify that the two calculations would be assessed to 
determine the most advantageous fees or discounts to fees.
    Generally, the ratio of consolidated volumes in securities priced 
at or above $1 (``dollar plus volume'') relative to consolidated 
volumes inclusive of securities priced below a dollar is usually stable 
from month to month, such that ``Consolidated Volume'' has been a 
reasonable baseline for determining tiered incentives for members that 
execute dollar plus volume on the Exchange. However, there have been a 
few months where volumes in securities priced below a dollar (``sub-
dollar volume'') have been elevated, thereby impacting the ratio 
mentioned above.
    Anomalous rises in sub-dollar volume stand to have a material 
adverse impact on members' qualifications for pricing tiers/incentives 
because such qualifications depend members upon achieving threshold 
percentages of volumes as a percentage of Consolidated Volume, and an 
extraordinary rise in sub-dollar volume stands to elevate Consolidated 
Volume. As a result, members may find it more difficult, if not 
practically impossible, to qualify for or to continue to qualify for 
their existing pricing incentives during months where there are such 
rises in sub-dollar volumes, even if their dollar plus volumes have not 
diminished relative to prior months.
    The Exchange believes that it would be unfair for its members that 
execute significant dollar plus volumes on the Exchange to fail to 
achieve or to lose their existing pricing incentives for such volumes 
due to anomalous behavior that is extraneous to them. Therefore, the 
Exchange wishes to amend its Rules to help avoid extraordinary spikes 
in sub-dollar volumes from adversely affecting a member's qualification 
of pricing incentives for their dollar plus stock executions.
    Although the Exchange wishes to avoid extraordinary spikes in sub-
dollar volumes from adversely affecting a member's qualification of 
pricing incentives for their dollar plus stock executions, the Exchange 
proposes to include certain limits on the proposal to efficiently 
allocate the Exchange's limited resources for pricing tiers/incentives. 
Specifically, as noted above, the Exchange proposes to apply the 
calculation excluding sub-dollar volumes to those incentives in Section 
118(f) that pertain to providing liquidity. In addition, as noted 
above, the Exchange proposes to increase the distinct qualifying volume 
percentage thresholds set forth in Section 118(f) by 10% for purposes 
of the proposed calculation excluding sub-dollar volumes.\3\ The 
Exchange wishes to

[[Page 58818]]

impose such limitations in order to limit the cost impact on the 
Exchange, while still providing some relief to members in months with 
extraordinary spikes in sub-dollar volumes. The Exchange has limited 
resources to devote to incentive programs, and it is appropriate for 
the Exchange to reallocate these incentives periodically in a manner 
that best achieves the Exchange's overall mix of objectives.
---------------------------------------------------------------------------

    \3\ For example, to the extent that the Exchange designates a 
member to be a QMM because it quotes at the NBBO at least 10% of the 
time during Market Hours in an average of at least 325 securities 
per day during a month and provides add volume of at least 0.07% of 
total Consolidated Volume during a month, then the Exchange will 
provide the QMM with a discount of $0.0001 per share executed with 
respect to the fees that the QMM otherwise incurs, pursuant to 
Section 118(a), for entering displayed orders in securities priced 
at $1 or more that provide liquidity to the Exchange. See Equity 7, 
Section 118(f)(2)(i). Under the proposal, in addition to calculating 
the member's volume and total Consolidated Volume exclusive of 
volume that consists of executions in securities priced less than 
$1, the distinct qualifying volume percentage threshold would be 
increased by 10%. Therefore, for purposes of this example, in order 
to qualify for the fee discounts using volumes excluding sub-dollar 
activity, the member would need to provide add volume of at least 
0.077% of total Consolidated Volume during a month (i.e., 0.07% + 
(10%)(0.07%)).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\4\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\5\ 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.
---------------------------------------------------------------------------

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

    The Exchange's proposed changes to its pricing schedule are 
reasonable in several respects. As a threshold matter, the Exchange is 
subject to significant competitive forces in the market for equity 
securities transaction services that constrain its pricing 
determinations in that market. The fact that this market is competitive 
has long been recognized by the courts. In NetCoalition v. Securities 
and Exchange Commission, the D.C. Circuit stated as follows: ``[n]o one 
disputes that competition for order flow is `fierce.' . . . As the SEC 
explained, `[i]n the U.S. national market system, buyers and sellers of 
securities, and the broker-dealers that act as their order-routing 
agents, have a wide range of choices of where to route orders for 
execution'; [and] `no exchange can afford to take its market share 
percentages for granted' because `no exchange possesses a monopoly, 
regulatory or otherwise, in the execution of order flow from broker 
dealers'. . . .'' \6\
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    \6\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(quoting Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. In Regulation 
NMS, while adopting a series of steps to improve the current market 
model, the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \7\
---------------------------------------------------------------------------

    \7\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
---------------------------------------------------------------------------

    Numerous indicia demonstrate the competitive nature of this market. 
For example, clear substitutes to the Exchange exist in the market for 
equity security transaction services. The Exchange is only one of 
several equity venues to which market participants may direct their 
order flow. Competing equity exchanges offer similar tiered pricing 
structures and market quality programs to that of the Exchange, 
including schedules of rebates and fees that apply based upon members 
achieving certain volume thresholds.
    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.
    The Exchange believes that the proposal is reasonable and equitable 
because, in its absence, members may experience material adverse 
impacts on their ability to qualify for certain incentives during a 
month with an anomalous rise in sub-dollar volumes. The Exchange does 
not wish to penalize members that execute significant volumes on the 
Exchange due to anomalous and extraneous trading activities of a small 
number of firms in sub-dollar securities. The proposed rule would seek 
to provide a means for members that provide liquidity to avoid such a 
penalty by determining whether calculating member volume and total 
Consolidated Volume to include or exclude sub-dollar volume \8\ would 
result in Exchange members qualifying for the most advantageous 
charges, and then applying the calculations that would result in the 
incentives for providing liquidity that are most advantageous to each 
member. The Exchange believes it is reasonable to limit the proposal by 
applying the proposed calculation to incentives that pertain to 
providing liquidity set forth in Equity 7, Section 118(f) and 
increasing the distinct qualifying volume percentage thresholds by 10% 
when using the proposed calculation excluding sub-dollar volumes 
because the Exchange has limited resources to devote to incentive 
programs, and it is appropriate for the Exchange to reallocate these 
incentives periodically in a manner that best achieves the Exchange's 
overall mix of objectives. The Exchange believes that the proposed rule 
change is an equitable allocation and is not unfairly discriminatory 
because the Exchange does not intend for the proposal to advantage any 
particular member and the Exchange will apply the proposed calculation 
to all similarly situated members.
---------------------------------------------------------------------------

    \8\ As noted above, in considering whether a member meets 
qualifying incentive criteria using the proposed calculation 
excluding sub-dollar volumes, the distinct qualifying volume 
percentage thresholds would be increased by 10%.
---------------------------------------------------------------------------

    Those participants that are dissatisfied with the changes to the 
Exchange's pricing schedule are free to shift their order flow to 
competing venues that provide more favorable fees or generous 
incentives.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
Intramarket Competition
    The Exchange does not believe that its proposal will place any 
category of Exchange participant at a competitive disadvantage.
    The Exchange intends for its proposal to help avoid pricing 
disadvantages due to anomalous spikes in sub-dollar volumes and is not 
intended to provide a competitive advantage to any particular member. 
The Exchange also intends for its proposal to reallocate its limited 
resources more efficiently and to align them with the Exchange's 
overall mix of objectives. The Exchange notes that its members are free 
to trade on other venues to the extent they believe that the proposal 
is not attractive. As one can observe by looking at any market share 
chart, price competition between exchanges is fierce, with liquidity 
and market share moving freely between exchanges in reaction to fee and 
credit changes.
Intermarket Competition
    In terms of inter-market competition, the Exchange notes that it 
operates in a

[[Page 58819]]

highly competitive market in which market participants can readily 
favor competing venues if they deem fee levels at a particular venue to 
be excessive, or rebate opportunities available at other venues to be 
more favorable. In such an environment, the Exchange must continually 
adjust its credits and fees to remain competitive with other exchanges 
and with alternative trading systems that have been exempted from 
compliance with the statutory standards applicable to exchanges. 
Because competitors are free to modify their own credits and fees in 
response, and because market participants may readily adjust their 
order routing practices, the Exchange believes that the degree to which 
credit or fee changes in this market may impose any burden on 
competition is extremely limited. The proposal is reflective of this 
competition.
    Even the largest U.S. equities exchange by volume has less than 20% 
market share, which in most markets could hardly be categorized as 
having enough market power to burden competition. Moreover, as noted 
above, price competition between exchanges is fierce, with liquidity 
and market share moving freely between exchanges in reaction to fee and 
credit changes. This is in addition to free flow of order flow to and 
among off-exchange venues, which comprises upwards of 40% of industry 
volume.
    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.\9\
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

    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-2024-022 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-2024-022. 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-2024-022 and should be 
submitted on or before August 9, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
---------------------------------------------------------------------------

    \10\ 17 CFR 200.30-3(a)(12).
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J. Matther DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-15911 Filed 7-18-24; 8:45 am]
BILLING CODE 8011-01-P
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