Document ID: SEC-2016-0663-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ BX, Inc.
Posted Date: 2016-04-18T04:00Z

[Federal Register Volume 81, Number 74 (Monday, April 18, 2016)]
[Notices]
[Pages 22678-22681]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-08821]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77590; File No. SR-BX-2016-020]

Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Fees Under 
Rule 7018(a)

April 12, 2016.
    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 March 30, 2016, 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) relating to charges assessed for providing liquidity 
through the NASDAQ OMX BX Equities System in securities priced at $1 or 
more per share that it trades to: (i) Eliminate Qualified Market Maker-
based criteria and adopt new Consolidated Volume-based criteria 
required to receive the $0.0014 per share executed charge; and (ii) 
decrease the $0.0018 per share executed charge, and amend the 
qualification criteria currently required to receive the charge, for a 
displayed order entered by a member.
    While these amendments are effective upon filing, the Exchange has 
designated the proposed amendments to be operative on April 1, 2016.

[[Page 22679]]

    The text of the proposed rule change is 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 purpose of the proposed rule change is to amend the Exchange's 
transaction fees at Rule 7018(a) relating to charges assessed for 
providing liquidity through the NASDAQ OMX BX Equities System in 
securities priced at $1 or more per share that it trades to: (i) 
Eliminate Qualified Market Maker-based criteria and adopt new 
Consolidated Volume-based criteria required to receive the $0.0014 per 
share executed charge; and (ii) decrease the $0.0018 per share executed 
charge, and amend the qualification criteria currently required to 
receive the charge, for a displayed order entered by a member.
First Change
    The purpose of the first change is to eliminate the Qualified 
Market Maker-based criteria required to receive the $0.0014 per share 
executed charge. Currently, this fee applies to all displayed orders 
entered by a Qualified Market Maker. A member firm may become a 
Qualified Market Maker by being a member firm that provides through one 
or more of its NASDAQ OMX BX Equities System MPIDs more than 0.20% of 
Consolidated Volume \3\ during the month. For a member firm qualifying 
under this method, the member must have at least one Qualified MPID, 
that is, an MPID through which, for at least 200 securities, the 
Qualified Market Maker quotes at the National Best Bid and Offer 
(``NBBO'') an average of at least 50% of the time during regular market 
hours (9:30 a.m. through 4:00 p.m.) during the month. Because the 
Exchange is proposing to eliminate the Qualified Market Maker criteria 
there will no longer be references to Qualified Market Makers in Rule 
7018. Thus, the Exchange is also proposing to eliminate language 
concerning how a member firm may become a Qualified Market Maker.
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    \3\ Consolidated Volume is defined as 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, expressed as a 
percentage of or ratio to Consolidated Volume, the date of the 
annual reconstitution of the Russell Investments Indexes shall be 
excluded from both total Consolidated Volume and the member's 
trading activity. See Rule 7018.
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    In lieu of the Qualified Market Maker-based criteria, the Exchange 
proposes to adopt new Consolidated Volume-based criteria that a member 
must meet to receive the $0.0014 per share executed charge. 
Specifically, the Exchange proposes to provide the $0.0014 per share 
executed charge for a displayed order entered by a member firm that 
adds liquidity equal to or exceeding 0.25% of total Consolidated Volume 
during a month.
    The Exchange notes that, like the eliminated $0.0014 charge 
criteria discussed above, the proposed new charge criteria requires a 
level of Consolidated Volume in return for a reduced charge assessed 
for displayed orders. Although the proposed level of Consolidated 
Volume is 0.05% higher than the eliminated charge tier, the proposed 
new charge criteria does not require the member firm to also qualify as 
a Qualified Market Maker, which includes certain quoting requirements 
discussed above.
Second Change
    The purpose of the second change is to decrease the $0.0018 per 
share executed charge, and amend the qualifications currently required 
to receive the charge, for a displayed order entered by a member. Under 
Rule 7018(a), a member firm may receive a $0.0018 per share executed 
charge for a displayed order if it adds liquidity equal to or exceeding 
0.20% of total Consolidated Volume during a month.
    The Exchange is proposing to reduce the level of total Consolidated 
Volume required from 0.20% to 0.15% during a month, in light of the new 
$0.0014 per share executed charge tier discussed above that requires 
0.25% Consolidated Volume to qualify. The Exchange is also proposing to 
decrease the charge assessed member firms that qualify under the rule 
from $0.0018 to $0.0017 per share executed. As a consequence of the 
changes, the amended charge tier will be easier to attain and will 
provide a further reduced per share executed charge [sic]
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 or 
system which the Exchange operates or controls, and is not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(4) and (5).
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First Change
    The Exchange believes that eliminating the $0.0014 per share 
executed charge for a displayed order entered by a Qualified Market 
Maker is reasonable because the Exchange must, from time to time, 
assess the effectiveness of the criteria it applies in providing 
reduced charges, including the nature of the market improving behavior 
required to receive the reduced charge. The Exchange will modify or 
eliminate such criteria when it believes the criteria are ineffective, 
which in turn may allow the Exchange to offer other incentives instead.
    In this instance, the Exchange believes the criteria required to 
receive the $0.0014 per share executed charge were ineffective at 
providing incentive to market participants to improve the market 
appreciably. As a consequence, the Exchange believes it is reasonable 
to eliminate the Qualified Market Maker-based criteria and replace it 
with new criteria, as discussed below.
    The Exchange believes that the new $0.0014 per share executed 
charge criteria is reasonable because it is similar to the Qualified 
Market Maker charge tier criteria that the Exchange is proposing to 
eliminate. Under the existing Qualified Market Maker charge tier, a 
member firm must be a Qualified Market Maker to receive the $0.0014 per 
share executed charge for its displayed orders. To be a Qualified 
Market Maker, a member firm must: (i) Provide through one or more of 
its NASDAQ OMX BX Equities System MPIDs more than 0.20% of Consolidated 
Volume during

[[Page 22680]]

the month; and (ii) have at least one Qualified MPID, that is, an MPID 
through which, for at least 200 securities, the Qualified Market Maker 
quotes at the NBBO an average of at least 50% of the time during 
regular market hours (9:30 a.m. through 4:00 p.m.) during the month.
    Under the proposed new charge tier, a member firm must provide a 
higher level of Consolidated Volume in contrast to the Qualified Market 
Maker criteria, but is not required to meet the quoting requirements of 
the Qualified Market Maker criteria. Accordingly, the Exchange believes 
that the proposed new $0.0014 per share executed charge criteria is 
reasonable.
    The Exchange believes that assessing a $0.0014 per share executed 
charge and requiring a member to provide a level of Consolidated Volume 
to qualify for that charge is an equitable allocation and is not 
unfairly discriminatory because the Exchange will apply the new 
criteria and assess the charge to all similarly situated members. Any 
member firm that elects to provide the level of Consolidated Volume 
required by the tier will receive the charge. In this regard, the 
Exchange notes that all member firms that could meet the eliminated 
criteria will have the opportunity to qualify under the new 
Consolidated Volume-based criteria.
Second Change
    The Exchange believes that the proposed changes to the $0.0018 per 
share executed charge provided for a displayed order if it is entered 
by a member firm that adds liquidity equal to or exceeding 0.20% of 
total Consolidated Volume during a month are reasonable because they 
better align the reduced charge with the level of Consolidated Volume 
required to qualify, in light of the proposed changes the Exchange is 
making to the $0.0014 per share executed charge criteria.
    Specifically, the Exchange is reducing the level of Consolidated 
Volume required to qualify from 0.20%, which is close to the proposed 
level of Consolidated Volume required to receive the $0.0014 per share 
executed charge, to 0.15%, which the Exchange believes is better 
aligned with the charges provided and the criteria required to receive 
the charges. As a further incentive, the Exchange is proposing to 
decrease the charge assessed qualifying member firms from $0.0018 to 
$0.0017 per share executed.
    The Exchange believes that it is reasonable to reduce the charge 
because it may provide greater incentive to member firms to provide the 
level of Consolidated Volume necessary to receive the reduced charge. 
Moreover, the reduced charge better aligns the charge tier with the 
proposed new $0.0014 per share executed charge tier and its 0.25% 
Consolidated Volume requirement and the $0.0019 per share executed 
tier, which requires a member to provide 0.10% of total Consolidated 
Volume to receive that charge.
    The Exchange believes that the proposed $0.0017 per share executed 
charge and changes to the Consolidated Volume requirement are an 
equitable allocation and are not unfairly discriminatory because the 
Exchange will apply the same charge to all similarly situated members. 
Any member firm that elects to provide the level of Consolidated Volume 
required by the amended tier will receive the reduced charge [sic]

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. In terms of inter-market 
competition, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive, or rebate opportunities available at other venues to be more 
favorable.
    In such an environment, the Exchange must continually adjust its 
fees to remain competitive with other exchanges and with alternative 
trading systems that have been exempted from compliance with the 
statutory standards applicable to exchanges. Because competitors are 
free to modify their own fees in response, and because market 
participants may readily adjust their order routing practices, the 
Exchange believes that the degree to which fee changes in this market 
may impose any burden on competition is extremely limited. In this 
instance, the proposed changes to the charges assessed member firms for 
execution of displayed orders do not impose a burden on competition 
because the Exchange's execution services are completely voluntary and 
subject to extensive competition both from other exchanges and from 
off-exchange venues.
    The proposed changes are reflective of this competition and the 
Exchange's desire to offer lower fees in return for market-improving 
liquidity, which is ultimately limited by the Exchange's need to cover 
costs and make a profit. Thus, the Exchange must carefully adjust its 
access fees with the understanding that if the proposed changes are 
unattractive to market participants, it is likely that the Exchange 
will lose market share to other exchanges and off-exchange venues as a 
result.
    In this proposal, the Exchange is modifying qualification criteria 
and reducing the charges that it assesses its member firms for 
providing liquidity to the Exchange. The Exchange believes that such 
changes will support liquidity on the Exchange and are pro-competitive, 
since any other market is free to provide similar, if not better, fees 
should they choose to do so. For these reasons, 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.\6\
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    \6\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-BX-2016-020 on the subject line.

[[Page 22681]]

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-2016-020. 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-2016-020, and should be 
submitted on or before May 9, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-08821 Filed 4-15-16; 8:45 am]
 BILLING CODE 8011-01-P