[Federal Register Volume 83, Number 144 (Thursday, July 26, 2018)]
[Notices]
[Pages 35502-35505]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-15944]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83680; File No. SR-BX-2018-032]


Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Section 
7018(a) of the Exchange's Rules

July 20, 2018.
    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 10, 2018, Nasdaq BX, Inc. (``BX'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``SEC'' or ``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Exchange's transaction fees at 
Rule 7018(a), as described further below.
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaqbx.cchwallstreet.com/, at the principal office 
of the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The purpose of the proposed rule change is to amend the Exchange's 
transaction fees at Rule 7018 to (i) adjust the volume threshold for a 
credit associated with orders that access liquidity that are entered by 
members that access liquidity equal to or in excess of a certain 
percentage of their total Consolidated Volume \3\ for a month; (ii) 
establish two new credit tiers for orders that access liquidity equal 
to or exceeding 0.20% of total Consolidated Volume during a month and 
access 20% more liquidity as a percentage of Consolidated Volume than 
the member accessed in May 2018; and (iii) increase the fee applicable 
to buy (sell) orders with Midpoint pegging that receive an execution 
price that is lower (higher) than the midpoint of the National Best Bid 
and Offer (``NBBO'').
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    \3\ Pursuant to Rule 7018(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.
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First Change
    The Exchange operates on the ``taker-maker'' model, whereby it pays 
credits to members that take liquidity and charges fees to members that 
provide liquidity. Currently, the Exchange offers several different 
credits for orders that access liquidity on the Exchange. Among these 
credits, the Exchange pays a credit of $0.0015 per share executed for 
an order that accesses liquidity (excluding orders with Midpoint 
pegging and excluding orders that receive price improvement and execute 
against an order with a Non-displayed price) entered by a member that 
accesses liquidity equal to or exceeding

[[Page 35503]]

0.05% of total Consolidated Volume during a month. The Exchange 
proposes to increase the Consolidated Volume threshold applicable to 
this credit to 0.075% of total Consolidated Volume during a month. The 
Exchange proposes this changes [sic] to provide a greater incentive to 
member firms to remove liquidity from the Exchange.
Second and Third Changes
    The Exchange proposes to add two new categories of credit for 
members whose orders remove liquidity from the Exchange. First, the 
Exchange proposes to offer a $0.0018 per share executed credit for 
orders that access liquidity in securities in Tapes A and C (excluding 
orders with Midpoint pegging and excluding orders that receive price 
improvement and execute against an order with a Non-displayed price) 
that are entered by a member that: (i) Accesses liquidity equal to or 
exceeding 0.20% of total Consolidated Volume during a month; and (ii) 
accesses 20% more liquidity as a percentage of Consolidated Volume than 
the member accessed in May 2018. Second, the Exchange proposes to offer 
a $0.0019 per share executed credit for orders that access liquidity in 
securities in Tape B (excluding orders with Midpoint pegging and 
excluding orders that receive price improvement and execute against an 
order with a Non-displayed price) that are entered by a member that: 
(i) Accesses liquidity equal to or exceeding 0.20% of total 
Consolidated Volume during a month; and (ii) accesses 20% more 
liquidity as a percentage of Consolidated Volume than the member 
accessed in May 2018.
    An example of how these credits will work is as follows. Firm X 
removes 0.19% of total Consolidated Volume in securities in Tape A in 
May 2018. In July 2018, Firm X removes 0.23% of total Consolidated 
Volume in securities in the same Tape. Firm X will therefore qualify 
for a $0.0018 per share executed credit for its orders that access 
liquidity in securities in Tape A (excluding orders with Midpoint 
pegging and excluding orders that receive price improvement and execute 
against an order with a Non-displayed price) because, during July, Firm 
X removed more than 0.20% of total Consolidated Volume in securities in 
Tape A and it also removed 20% more liquidity in July (as a percentage 
of Consolidated Volume) than it did in May.
    The Exchange proposes to add these credits to provide new and 
stronger incentive for members to remove and to increase their removal 
of liquidity from the Exchange. In particular, the Exchange proposes a 
higher credit for removing liquidity in Tape B than it does in Tapes A 
or C to specifically target Tape B securities, where the Exchange has 
seen less activity than it has in Tape A and C securities.
Fourth Change
    Presently, the Exchange charges a baseline fee of $0.0030 per share 
executed for each non-displayed order that adds liquidity. However, for 
certain types of non-displayed orders that add liquidity, the Exchange 
charges lower fees relative to the baseline fee as a means of 
incentivizing additional liquidity. For example, the Exchange charges 
$0.0015 per share executed for orders with Midpoint pegging \4\ or 
$0.0005 if the order with Midpoint pegging is entered by a member that 
adds 0.02% of total Consolidated Volume of non-displayed liquidity.
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    \4\ Pursuant to Rule 4703(d), an order with a ``Midpoint 
pegging'' attribute is a nondisplayed order whose price is 
determined withreference to midpoint between the Inside Bid and 
Inside Offer (the ``Midpoint'').
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    In May 2018, the Exchange added a fee of $0.0017 per share executed 
for buy (sell) orders with Midpoint pegging that receive execution 
prices that are lower (higher) than the midpoint of the NBBO.\5\ In 
doing so, the Exchange explained that the $0.0017 per share executed 
fee--which is higher than the fees that the Exchange charges to execute 
regular Midpoint pegging orders--is reasonable because orders that 
execute at prices better than the Midpoint of the NBBO receive better 
prices than regular Midpoint pegging orders.\6\ The Exchange also 
explained that the fee is also reasonable because it is lower than the 
baseline $0.0030 fee that the Exchange charges for non-display orders, 
and thus provides incentives for non-displayed orders that provide 
price improvement relative to the Midpoint.\7\
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    \5\ See Release No. 34-83224 (May 14, 2018), 83 FR 23312 (May 
18, 2018) (SR-BX-2018-018).
    \6\ See id.
    \7\ See id.
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    After having observed the impact of this fee over the past few 
months, the Exchange has determined to re-calibrate it so that it is 
better aligned with the Exchange's objectives in imposing it. 
Accordingly, the Exchange proposes to increase the fee from $0.0017 per 
share executed to $0.0024 per share executed. Even with this re-
calibration, the Exchange believes that the fee remains reasonable for 
the same reasons it expressed upon establishing it.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\8\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\9\ in particular, in that it provides 
for the equitable allocation of reasonable dues, fees and other charges 
among members and issuers and other persons using any facility, and is 
not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4) and (5).
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    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. In Regulation 
NMS, while adopting a series of steps to improve the current market 
model, the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \10\
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    \10\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    Likewise, in NetCoalition v. Securities and Exchange Commission 
\11\ (``NetCoalition'') the D.C. Circuit upheld the Commission's use of 
a market-based approach in evaluating the fairness of market data fees 
against a challenge claiming that Congress mandated a cost-based 
approach.\12\ As the court emphasized, the Commission ``intended in 
Regulation NMS that `market forces, rather than regulatory 
requirements' play a role in determining the market data . . . to be 
made available to investors and at what cost.'' \13\
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    \11\ NetCoalition v. SEC, 615 F.3d 525 (DC Cir. 2010).
    \12\ See NetCoalition, at 534-535.
    \13\ Id. at 537.
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    Further, ``[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'. . . .'' \14\ Although the court and 
the SEC were discussing the cash equities markets, the Exchange 
believes

[[Page 35504]]

that these views apply with equal force to the options markets.
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    \14\ Id. at 539 (quoting Securities Exchange Act Release No. 
59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008) 
(SR-NYSEArca-2006-21)).
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First Change
    The Exchange believes that it is reasonable to increase the 
Consolidated Volume threshold on its credit for orders that access 
liquidity (excluding orders with Midpoint pegging and excluding orders 
that receive price improvement and execute against an order with 
Midpoint pegging) entered by members that access liquidity equal to or 
exceeding 0.05% of total Consolidated Volume during a month. The 
Exchange must, from time to time, assess the effectiveness of its 
credits in achieving their intended objectives and adjust the levels of 
such credits based on the Exchange's observations of market participant 
behavior. In this instance, the Exchange determined that the threshold 
percentage of Consolidated Volume that is necessary for members to 
qualify for the credits should be increased to provide stronger 
incentives to market participants to improve the market. The Exchange 
believes that the proposed increase is equitable and is not unfairly 
discriminatory because it will apply to all similarly situated member 
firms.
Second and Third Changes
    Likewise, the Exchange believes that its proposal is reasonable to 
add new credits for orders that access liquidity (excluding orders with 
Midpoint pegging and those that receive price improvement and execute 
against an order with a non-displayed price) that are entered by 
members that access liquidity equal to or in excess of 0.20% of total 
Consolidated Volume during a month and that access 20% more liquidity 
as a percentage of Consolidated Volume than the member accessed in May 
2018. This proposal is reasonable because it will provide new and 
stronger incentive for members to improve the market by removing 
liquidity from the Exchange. It will also incent them to increase the 
extent of this activity on the Exchange relative to their activity 
levels as of May 2018. The Exchange believes it is reasonable, 
equitable, and not unfairly discriminatory to propose a higher credit 
to members that remove liquidity in securities in Tape B than those 
that do so in securities in Tapes A and C because the Exchange has 
experienced less activity in Tape B securities relative to Tapes A and 
C securities and it wishes to specifically target increased activity 
with respect to Tape B securities. The Exchange also believes that 
these proposals are equitable and not unfairly discriminatory because 
they will apply to all similarly situated member firms.
Fourth Change
    Finally, the Exchange believes that its proposal is reasonable to 
increase the fee it charges for Midpoint pegging buy (sell) orders that 
receive execution prices that are lower (higher) than the midpoint of 
the NBBO. A Midpoint pegging order that receives price improvement 
relative to the midpoint of the NBBO receives a better price than an 
order that executes at the midpoint of the NBBO, such that the fee that 
the Exchange charges for the former is higher than the latter. 
Notwithstanding the proposed fee increase, the Exchange notes that the 
$0.0024 per share executed fee that it proposes to charge for Midpoint 
pegging orders that receive price improvement relative to the midpoint 
of the NBBO remains lower than the baseline $0.0030 per share executed 
fee that the Exchange charges for non-displayed orders.
    The Exchange also notes that it is reasonable for it, from time to 
time, to adjust its mix of fees, rebates, and credits so as to ensure 
that the Exchange is allocating its limited resources efficiently and 
in a manner that best achieves its overarching objectives. The proposed 
fee change is function of that adjustment.
    The Exchange believes that the proposed fee increase is an 
equitable allocation and is not unfairly discriminatory because the 
Exchange will apply the same fee to all similarly situated members.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. In terms of inter-market 
competition, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive, or rebate opportunities available at other venues to be more 
favorable. In such an environment, the Exchange must continually adjust 
its fees and credits to remain competitive with other exchanges and 
with alternative trading systems that have been exempted from 
compliance with the statutory standards applicable to exchanges. 
Because competitors are free to modify their own fees and credits in 
response, and because market participants may readily adjust their 
order routing practices, the Exchange believes that the degree to which 
fee or credit changes in this market may impose any burden on 
competition is extremely limited.
    In this instance, the Exchange's proposals to add to or modify its 
credits do not impose a burden on competition because these proposals 
are reflective of the Exchange's overall efforts to provide greater 
incentives to market participants that it believes will improve the 
market, to the benefit of all participants. The Exchange does not 
believe that any of the proposed changes will impair the ability of 
members or competing order execution venues to maintain their 
competitive standing in the financial markets. Moreover, because there 
are numerous competitive alternatives to the use of the Exchange, it is 
likely that BX will lose market share as a result of the changes if 
they are unattractive to market participants.
    Likewise, the Exchange's proposed fee increase does not impose a 
burden on competition because the Exchange's execution services are 
completely voluntary and subject to extensive competition both from 
other exchanges and from off-exchange venues. Again, if the proposed 
fee increase is unattractive to market participants, it is likely that 
the Exchange will lose market share as a result. Accordingly, the 
Exchange does not believe that the proposal 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.\15\
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    \15\ 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.

[[Page 35505]]

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

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#493b3c252c642a2624242c273d3a093a2c2a672e263f"><span class="__cf_email__" data-cfemail="5c2e293039713f3331313932282f1c2f393f723b332a">[email protected]</span></a>. Please include 
File Number SR-BX-2018-032 on the subject line.

Paper Comments

    <bullet> 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-2018-032. 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 (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-BX-2018-032 and should be submitted on 
or before August 16, 2018.
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    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Brent J. Fields,
Secretary.
[FR Doc. 2018-15944 Filed 7-25-18; 8:45 am]
BILLING CODE 8011-01-P


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