Document ID: SEC-2013-1592-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX BX, Inc.
Posted Date: 2013-09-12T04:00Z

[Federal Register Volume 78, Number 177 (Thursday, September 12, 2013)]
[Notices]
[Pages 56249-56251]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-22165]

[[Page 56249]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70339; File No. SR-BX-2013-051]

Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Fees Assessed for Connectivity to the Exchange Under Rule 7015 and 
Amend the Fees Assessed and Credits Paid Under Exchange Rule 7018(a)

September 6, 2013.
    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 August 28, 2013, NASDAQ OMX 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 a rule change to amend fees assessed for 
connectivity to the Exchange under Rule 7015. The Exchange is also 
amending the fees assessed and credits paid under Exchange Rule 7018(a) 
for executing certain trades that either add liquidity to or remove 
liquidity from the Exchange's order book in securities priced at $1 per 
share or greater. 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 to modify two sets of fees: (1) 
Connectivity fees assessed under Exchange Rule 7015, and (2) execution 
fees and credits assessed or granted under Exchange Rule 7018(a) with 
respect to securities priced at $1 per share or greater.
    Connectivity Fees. The Exchange is proposing to increase the fee 
assessed for use of TCP ITCH data feed pairs to connect to the BX 
System. TCP ITCH data feed pairs are a type of port pair \3\ that firms 
may subscribe to receive market data through a private (i.e., not 
shared) connection to BX. By contrast, a firm may subscribe to a 
Multicast ITCH data feed pair,\4\ which provides access to a shared 
distribution of market data that is distributed to all subscribers 
simultaneously. BX assesses a fee of $400 per month for each port pair 
used to connect to BX using protocols other than Multicast ITCH. 
Currently, subscription to a TCP ITCH data feed pair is covered by this 
fee. Unlike Multicast ITCH data, TCP ITCH data requires substantially 
greater hardware infrastructure to support subscribers because BX must 
support each individual TCP ITCH connection, including the transmission 
of the large volume of market data through each port. By contrast, BX 
transmits market data for Multicast ITCH through a single point, which 
is accessed by all subscribers. In light of increased costs resulting 
from a need to support the hardware and support demands of the service, 
the Exchange is proposing to increase the fees for subscription to a 
TCP ITCH data port from $400 per month, per port pair to $750 per 
month, per port pair.
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    \3\ BX uses the term ``data feed pair'' herein and in the rule 
as a more precise description of the intended use and functionality 
of the port pair.
    \4\ For a fee of $1,000 per month for software-based TotalView-
ITCH or $2,500 per month for combined software- and hardware-based 
TotalView-ITCH.
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    BX is also proposing to increase the $400 monthly fee assessed 
under Rule 7015 for port pairs used to enter orders in Exchange trading 
systems to $500 per month. The change does not affect ports used to 
receive market data, to enter quotes, or to enter trade reports into 
the FINRA/NASDAQ Trade Reporting Facility. The change applies both to 
members that obtain ports for direct access, and non-member service 
bureaus that act as a conduit for orders entered by BX members that are 
their customers.
    BX notes that it has not increased the $400 fee since its adoption 
in January 2009.\5\ When the Exchange initially adopted its fees, it 
set its fee levels appropriate to the start-up nature of the Exchange's 
new equities trading platform and in manner designed to attract order 
flow to the Exchange. Since that time, the BX has matured as a market, 
resulting in higher volumes. As a consequence, the Exchange has 
experienced greater hardware demands and costs associated with offering 
connectivity options. Accordingly, BX believes that an increase in 
access services fees is now warranted to help ensure that its market 
data technology continues to perform at a high level of responsiveness 
and efficiency.
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    \5\ Securities Exchange Act Release No. 61595 (Feb. 2, 2009), 74 
FR 6441 (Feb. 9, 2009) (SR-BX-2009-004).
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    Execution Fees and Credits. The Exchange proposes to amend four 
fees and credits governed by Rule 7018(a), which applies to securities 
priced at $1 per share or greater. The first three adjustments apply to 
credits the Exchange offers members for entering order that accesses 
liquidity in the NASDAQ OMX BX Equities System. The first applies to 
order entered by a member through a BX Equities System Market 
Participant Identifier (``MPID'') through which the member (i) accesses 
an average daily volume of 3.5 million or more shares of liquidity, or 
(ii) provides an average daily volume of 1 million or more shares of 
liquidity during the month (excluding an order that executes against a 
midpoint pegged order). Currently, the credit pays $0.0014 per share 
executed. BX is lowering that credit to $0.0013 per share executed.
    The second adjustment applies to order entered by a member through 
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 (excluding an order that executes against a 
midpoint pegged order). Currently, the credit offered is $0.0010 per 
share executed, and BX proposes to increase that credit to $0.0011 per 
share executed.
    The third adjustment is an increase from $0.0004 to $0.0007 in 
credit per share executed for all orders entered in securities priced 
at $1 per share or greater that accesses liquidity in the NASDAQ OMX BX 
Equities System. This increase is a ``catch-all'' that applies to all 
other orders that access liquidity in securities priced $1 per share or 
greater that are not specified elsewhere in Rule 7018(a) (i.e., not in

[[Page 56250]]

the liquidity program described in the preceding two paragraphs, not 
midpoint peg orders, and not any of the multiple order types otherwise 
specified).
    The fourth adjustment to the fee schedule for the BX Equities 
Market is an decrease from $0.0015 to $0.0014 per share executed in the 
charge for providing liquidity through the NASDAQ OMX BX Equities 
System for Displayed order entered by a Qualified Liquidity Provider 
through a Qualified MPID. The Exchange charges a reduced fee for 
members providing liquidity if they meet the criteria of a ``Qualified 
Liquidity Provider.'' These criteria (which BX is not modifying) 
include requirements that the member access and provide volumes of 
liquidity in excess of certain levels, expressed as a percentage of 
Consolidated Volume.\6\ BX is now proposing to further reduce the fee 
changed under that program from $0.0015 to $0.0014 per share executed.
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    \6\ ``Consolidated Volume'' is the consolidated volume of shares 
reported to all consolidated transaction reporting plans by all 
exchanges and trade reporting facilities during a month.
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2. Statutory Basis
    BX believes that the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\7\ in general, and Section 6(b)(4) 
of the Act,\8\ 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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    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(4).
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    The proposed connectivity fee increases are reasonable because they 
reflect the increased costs associated with offering connectivity 
options on BX. The proposed fees are equitable and not unfairly 
discriminatory because the Exchange is assessing the fees equally among 
subscribers to the service. Moreover, the proposed fees are not 
unfairly discriminatory as it enables the Exchange to allocate the 
increased costs of connectivity to the Exchange to those who subscribe 
to the service. The Exchange believes that the increased fees will 
enable it to cover its costs and earn an appropriate return on its 
investment in market technology and services.
    With respect to execution fees under Exchange Rule 7018(a), the 
Exchange believes that the minor fee modifications provide for the 
equitable allocation of reasonable dues, fees and other charges among 
members and issuers and other persons using any facility or system 
which BX operates or controls, and are not designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers. In 
particular, with respect to the credits offered for orders executed 
that access liquidity on BX in securities priced at $1 or greater, the 
Exchange notes that decreasing the credit paid to members qualifying 
for the highest volume tier and increasing the credit for members 
qualifying for the lower tier or for no tier (as is the case with the 
``catch-all'' rate), will encourage more members to access liquidity 
from BX. BX expects that small and medium-sized member firms will 
benefit most from the proposed changes. Additionally, by increasing the 
overall quantities of executed orders that access liquidity, as BX 
believes will occur, BX expects to also increase total liquidity 
available on its market, increase total order interaction on its order 
book, and improve overall execution quality for all members.
    With respect to the decrease from $0.0015 to $0.0014 per share 
executed in the charge for providing liquidity through the NASDAQ OMX 
BX Equities System for Displayed order entered by a Qualified Liquidity 
Provider through a Qualified MPID, the Exchange believes that the 
proposed modification 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 BX operates or 
controls, and are not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers. In particular, the Exchange 
first notes the proposed changes do not modify the requirements with 
respect to the current $0.0015 per share executed rate for Displayed 
orders that provide liquidity. The current Liquidity Provider program 
has itself been accepted as consistent with the Exchange Act.
    Additionally, the decrease in the applicable rate for such 
Displayed orders is reasonable because it will further encourage 
members to qualify for the program, and increase the total volume of 
orders displayed on the Exchange. Increased display of liquidity on the 
Exchange will benefit all members, as described above. Moreover, the 
Exchange continues to offer an even more favorable charge to members 
using midpoint pegged orders, which may be used by all members, 
regardless of volume.
    The proposed fee reduction is consistent with an equitable 
allocation of fees because it is consistent with the established 
practice at a number of national securities exchanges of providing more 
favorable fee economics to members that contribute to market quality 
and the Exchange's market share by achieving certain volume 
requirements. A member that provides and displays a comparatively large 
volume of liquidity is demonstrating its commitment to the viability of 
BX's market model by posting orders at prices that attract members 
seeking liquidity. Accordingly, BX believes that it is equitable for 
the fees charged to such a member to be more favorable than the fees 
charged to members providing lower volumes of liquidity. The Exchange 
further believes that the change is not unfairly discriminatory because 
the associated volume requirements are not very high and because the 
Exchange provides an alternative means of paying a lower fee for orders 
that provide liquidity.
    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. Accordingly, if 
the Exchange's proposed fee is deemed excessive, a market participant 
currently subscribed to the data service may elect to cancel its 
subscription and either subscribe to another connectivity option or 
route its order flow to another competitor exchange with lower fees.

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 necessary or 
appropriate in furtherance of the purposes of the Act, as amended. 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, 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 increased subscription fee is reflective of 
the increased costs associated with offering the associated 
connectivity options. As

[[Page 56251]]

such, the fees are targeted to apply to only those that subscribe to, 
and derive benefit from, subscription to the connectivity options. In 
terms of TCP ITCH data feed fee, the Exchange will continue to offer 
other data connectivity options and firms may seek out third party 
providers of such data as well, should the firms determine that the 
cost of subscribing to the TCP ITCH data feed is excessive.
    With respect to the execution fees and credits, the minor 
modifications described herein are a direct response to competition, 
which should be viewed as a positive signal that a competitive market 
exists. If the changes are unattractive to market participants, it is 
likely that BX will lose market share as a result. 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.

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 the public interest; (ii) 
for the protection of investors; or (iii) otherwise in furtherance of 
the purposes of the Act.
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    \9\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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-2013-051 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-BX-2013-051. 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-2013-051 and 
should be submitted on or before October 3, 2013.
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    \10\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
Kevin M O'Neill,
Deputy Secretary.
[FR Doc. 2013-22165 Filed 9-11-13; 8:45 am]
BILLING CODE 8011-01-P