Document ID: SEC-2014-0661-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX BX, Inc.
Posted Date: 2014-04-22T04:00Z

[Federal Register Volume 79, Number 77 (Tuesday, April 22, 2014)]
[Notices]
[Pages 22565-22568]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-09079]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71956; File No. SR-BX-2014-018]

Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing of Proposed Rule Change To Amend the Fee Schedule Under Exchange 
Rule 7018(a) With Respect to Transactions in Securities Priced at $1 
per Share or More

April 16, 2014.
    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 8, 2014, NASDAQ OMX BX, Inc. (``BX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``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 fee schedule under Exchange Rule 
7018(a) with respect to transactions in

[[Page 22566]]

securities priced at $1 per share or more.
    The text of the proposed rule change is also available on the 
Exchange's Web site at http://nasdaqomxbx.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 Exchange is proposing several changes to its fees and rebates 
applicable to transactions in securities priced at $1 or more under BX 
Rule 7018(a).
    First, the Exchange proposes to introduce a new credit for an order 
entered by a member that accesses liquidity equal to or exceeding 0.1% 
of total consolidated volume per month. BX will provide such firms 
$0.0015 per share executed for liquidity accessing orders.
    Next, the Exchange proposes to amend the criteria by which it 
provides a credit of $0.0013 per share executed for liquidity accessing 
orders (excluding orders executing against the midpoint). Previously, 
this rate was available to a member (i) With an average daily volume of 
liquidity accessed in all securities during the month of 6 million or 
more shares through one or more BX Equities System MPIDs, provide 
[sic], however, that (ii) the member adds and/or removes liquidity of 
30,000 or more contracts per day during the month through BX Options 
with an average daily volume of liquidity provided in all securities 
during the month of 1 million or more shares.
    The Exchange proposes to amend the criteria by which it provides a 
credit of $0.0011 per share executed for liquidity accessing orders 
(excluding orders executing against the midpoint). Previously, this 
rate was available to a BX Equities System MPID through which the 
member provides an average daily volume of at least 25,000, but less 
than 1 million, shares of liquidity during the month. BX proposes to 
make this credit available to members that provide an average daily 
volume of at least 25,000, but less than 1 million, shares of liquidity 
during the month.
    In BX Rule 7018(a) the term ``Qualified Liquidity Provider'' will 
be replaced with ``Qualified Market Maker'' (``QMM'') and both of these 
sub-sections will clarify that for members that qualify under these 
sub-sections, the member must have at least one Qualified MPID, 
respectively. There will now be two tiers available for the QMM, Tier 1 
and Tier 2. Tier 1 will be achieved by the methods currently outlined 
in BX Rule 7018(a)(1) and (2). The Exchange proposes that a firm may 
become a Qualified Market Maker (Tier 2) by having at least one 
Qualified MPID, that is, an MPID through which, for at least 300 
securities, the Qualified Market Maker quotes at the NBBO an average of 
at least 75% of the time during the regular market hours (9:30 a.m. 
through 4:00 p.m. during the month.
    The Exchange proposes that the charge of $0.0014 per share executed 
for a displayed order entered by a Qualified Liquidity Provider through 
a Qualified MPID remains the same, but that it now applies to a 
Qualified Market Maker (Tier 1) and no longer must go through a 
Qualified MPID.
    Additionally, the Exchange proposes that a new charge of $0.0017 
per share executed will be added for a displayed order entered by a QMM 
(Tier 2).
    The Exchange also proposes that the charge of $0.0016 per share 
executed for a displayed order entered by a member (i) with a daily 
average volume of liquidity provided in all securities during the month 
of 2 million or more shares through one or more BX Equities System 
MPIDs, and (ii) that adds BX Options Market Maker volume under Chapter 
XV of BX Options rules of 20,000 or more contracts per day during the 
month, be replaced with a charge for a displayed order entered by a 
member that adds liquidity equal to or exceeding $0.25% of total 
consolidated volume during a month of $0.00165 per share executed.
    As for a displayed order entered through a NASDAQ OMX BX Equities 
System MPID through which a member provides an average daily volume of 
4 million or more shares of liquidity during the month, the Exchange 
proposes that the current charge of $0.0018 per share executed now 
applies to a displayed order by a member that provides an average daily 
volume of 2.5 million or more shares of liquidity during the month.
    Next, the Exchange proposes that the charge for a midpoint pegged 
order entered by a member that provides an average daily volume of 2 
million or more shares of liquidity using midpoint pegged orders during 
the month be reduced from $0.0010 to $0.0005 per share executed, and 
that it will now apply to a midpoint pegged order entered by a member 
that provides an average daily volume of 2 million or more shares of 
non-displayed liquidity during the month.
    The Exchange also proposes that the charge for midpoint pegged 
order entered by a member that provides an average daily volume of 1 
million or more, but less than 2 million, shares of liquidity using 
midpoint pegged orders during the month be reduced from $0.00125 to 
$0.0009 per share executed, and that it will now apply to a midpoint 
pegged order entered by a member that provides an average daily volume 
of 1 million or more, but less than 2 million shares of non-displayed 
liquidity.
    The Exchange additionally proposes that a new charge for other non-
displayed orders (other than those pegged to the midpoint) entered by a 
member that provides an average daily volume of 5 million or more 
shares of non-displayed liquidity, that a charge [sic] will be added of 
$0.0019 per share executed.
    Finally, the Exchange also proposes to make several grammatical and 
conforming changes to BX Rule 7018(a) for the purposes of consistency 
and clarity.
2. Statutory Basis
    BX believes that the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\3\ in general, and Sections 6(b)(4) 
and (b)(5) of the Act,\4\ in particular, because it provides for the 
equitable allocation of reasonable dues, fees and other charges among 
members and issuers and other persons using any facility or system that 
the Exchange operates or controls, and it does not unfairly 
discriminate between customers, issuers, brokers or dealers.
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    \3\ 15 U.S.C. 78f.
    \4\ 15 U.S.C. 78f(b)(4), (5).
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    At a high level, the changes simplify various aspects of the BX fee 
schedule to encourage firms to make use of the favorable economics it 
offers. By [sic] assigning rates to members based on their aggregate 
activity instead of on an MPID by MPID basis enhances a member's 
ability to earn certain

[[Page 22567]]

proposed rates. By assigning displayed liquidity fees based on the 
total amount of liquidity provided, firms are more likely to be able to 
attain trading thresholds to receive superior execution rates. By 
lowering fees across multiple levels of firm level activity, BX ensures 
that growth in participation occurs across a broad contingent of 
Exchange members. In effect, this change lowers prices for BX members.
    More specifically, the proposed increase of $0.0013 to $0.0015 per 
share executed of the credit for an order that accesses liquidity 
(excluding liquidity pegged to the midpoint) entered by a member that 
accesses liquidity equal to or exceeding 0.1% of total consolidated 
volume during a month is consistent with an equitable allocation of 
fees and is not unfairly discriminatory because it is remains [sic] 
consistent with the Exchange's approach of providing a credit for 
orders accessing liquidity, which benefits all market participants, and 
is applicable to all such orders. Additionally, it is reasonable 
because it reflects the availability of what is in effect a price 
reduction for all members that access liquidity in this manner.
    The applicability of the credit of $0.0013 per share executed for 
an order that accesses liquidity (excluding liquidity pegged to the 
midpoint) entered by a member with a daily average volume of liquidity 
provided in all securities during the month of 1 million or more shares 
is consistent with an equitable allocation of fees and is not unfairly 
discriminatory because it does not change the credit, but simply 
reduces the requirement of 6 million or more shares through one or more 
BX Equities System MPIDs, and that adds/or removes liquidity of 30,000 
or more contracts per days [sic] during the month through BX Options 
(excluding any order that executes against a midpoint pegged order) to 
simply 1 million or more shares. The amount of the credit is not being 
changed, and is reasonable because it has the potential to reduce 
aggregate fees while simplifying the process for obtaining that 
particular rate.
    The applicability of the credit of $0.0011 per share executed for 
an order that accesses liquidity (excluding liquidity pegged to the 
midpoint) entered by a member that provides an average daily volume of 
at least 25,000, but less than 1 million, shares of liquidity during 
the month is consistent with an equitable allocation of fees and is not 
unfairly discriminatory because it does not change the credit, but 
simply removes the requirement that the order is entered by a member 
through a BX Equities System MPID. The amount of the credit is in 
essence not being changed. As discussed above, the change makes the 
credit more inclusionary since some firms may have multiple MPIDs.
    The applicability of the charge of $0.0014 per share executed for a 
displayed order entered by a Qualified Market Maker (Tier 1) is 
consistent with an equitable allocation of fees and is not unfairly 
discriminatory because it does not change the charge, but merely 
substitutes ``Qualified Market Maker (Tier 1)'' for ``Qualified 
Liquidity Provider through a Qualified MPID''. Moreover, this change, 
much like the others above, make [sic] a more favorable rate available 
to a member as a whole, and not for just one of its constituent MPIDs. 
Indeed, this change makes the provision of such a rate less 
discriminatory.
    The new charge of $0.0017 per share executed for a displayed order 
entered by a Qualified Market Maker (Tier 2) and the introduction of a 
method for obtaining this status is consistent with an equitable 
allocation of fees and is not unfairly discriminatory because it 
expands the eligibility of favorable rates to add liquidity under the 
QMM program. It is reasonable because the program has proven valuable 
in improving the quotations of BX, which, in turn, benefits market 
participants who seek to access liquidity at favorable rates.
    The increase to the charge of $0.0016 per share executed for a 
displayed order entered by a member (i) with a daily average volume of 
liquidity provided in all securities during the month of 2 million or 
more shares through one or more BX Equities System MPIDs, and (ii) that 
adds BX Options Market Maker volume under Chapter XV of BX Options 
rules of 20,000 or more contracts per day during the month, to a charge 
of $0.00165 per share executed for a displayed order entered and 
replaces the above requirement with a requirement that it be by a 
member that adds liquidity equal to or exceeding 0.25% of total 
consolidated volume during the month is consistent with an equitable 
allocation of fees and is not unfairly discriminatory because it only 
modestly increases the charge by $0.00005 per share executed and the 
updated requirement applicable to the member entering the displayed 
order is reasonable because it affects similarly situated members in 
the same way.
    The applicability of the charge of $0.0018 per share executed for a 
displayed order entered by a member that provides an average daily 
volume of 2.5 million or more shares of liquidity during the month is 
consistent with an equitable allocation of fees and is not unfairly 
discriminatory because it does not change the credit, but simply 
reduces the number of shares required to reach this level from 4 
million to 2.5 million or more shares of liquidity during the month. It 
is reasonable in that it affects similarly situated members in the same 
way.
    The reduction of the charge from $0.0010 to $0.0005 per share 
executed for a midpoint pegged order entered by a member that provides 
an average daily volume of 1 million shares, but less than 2 million 
shares of non-displayed liquidity (previously, liquidity using midpoint 
pegged orders) is consistent with an equitable allocation of fees and 
is not unfairly discriminatory because the Exchange believes that it is 
appropriate to charge a lower fee to midpoint pegged orders, which 
provide price improvement. It is also reasonable because it affects 
similarly situated members in the same way.
    The new charge for non-displayed orders (other than those pegged to 
the midpoint) entered by a member that provides an average daily volume 
of 5 million or more shares of non-displayed liquidity of $0.0019 per 
share executed is consistent with an equitable allocation of fees and 
is not unfairly discriminatory because use of non-displayed orders is 
wholly voluntary. It is also reasonable because it encourages 
additional activity from large non-display participants.
    The proposed pricing changes are, in part, reflective of BX's 
ongoing efforts to use responsive pricing to attract orders that BX 
believes will improve market quality.
    Finally, BX 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. In such an 
environment, BX must continually adjust its fees to remain competitive 
with other exchanges and with alternative trading systems that have 
been exempted from compliance with the statutory standards applicable 
to exchanges. BX believes that the proposed rule change reflects this 
competitive environment because it is designed to ensure that the 
charges and credits for participation on BX reflect changes in the cost 
of such participation to BX, and its desire to attract order flow that 
improves the market for all participants.

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

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not

[[Page 22568]]

necessary or appropriate in furtherance of the purposes of the Act, as 
amended.\5\ BX notes that it operates in a highly competitive market in 
which market participants can readily favor over 40 different competing 
exchanges and alternative trading systems 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, BX must 
continually adjust its fees to remain competitive with other exchanges 
and with alternative trading systems that have been exempted from 
compliance with the statutory standards applicable to exchanges. 
Because competitors are free to modify their own fees in response, and 
because market participants may readily adjust their order routing 
practices, BX believes that the degree to which fee changes in this 
market may impose any burden on competition is extremely limited. In 
this instance, the increases with respect to certain orders coupled 
with the easier to qualify for pricing tier for members active in the 
Exchange's cash equities market enhances the Exchange's competitiveness 
by reducing fees for some and raising fees modestly for others. 
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. 
Accordingly, BX 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.
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    \5\ 15 U.S.C. 78f(b)(8).
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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 change has become effective pursuant to Section 
19(b)(3)(A) of the Act \6\ and paragraph (f) of Rule 19b-4 \7\ 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.
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    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 17 CFR 240.19b-4(f).
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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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-BX-2014-018 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-2014-018. 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 Web site (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 Web site 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; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly.
    All submissions should refer to File Number SR-BX-2014-018 and 
should be submitted on or before May 13, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-09079 Filed 4-21-14; 8:45 am]
BILLING CODE 8011-01-P