Notice2021-11403
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Equity 7, Section 118
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Published
June 1, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 103 (Tuesday, June 1, 2021)</title>
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[Federal Register Volume 86, Number 103 (Tuesday, June 1, 2021)]
[Notices]
[Pages 29314-29317]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-11403]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92000; File No. SR-BX-2021-024]
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Equity 7,
Section 118
May 25, 2021.
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 May 19, 2021, 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: (i) The Exchange's transaction
credits, 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 <a href="https://listingcenter.nasdaq.com/rulebook/bx/rules">https://listingcenter.nasdaq.com/rulebook/bx/rules</a>, 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 operates on the ``taker-maker'' model, whereby it
generally pays credits to members that take
[[Page 29315]]
liquidity and charges fees to members that provide liquidity.
Currently, the Exchange has a schedule, at Equity 7, Section 118(a),
which consists of several different credits that it provides for orders
in securities priced at $1 or more per share that access liquidity on
the Exchange and several different charges that it assesses for orders
in such securities that add liquidity on the Exchange.
The Exchange proposes to add a new credit to this schedule of
$0.0018 per share executed for orders in securities in Tape B that
access 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: (i) Accesses at least
60% more liquidity in securities in Tape B, as a percentage of total
Consolidated Volume during a month, than it did during April 2021; (ii)
accesses liquidity in securities in Tape B equal to or exceeding 0.035%
of total Consolidated Volume during a month; and (iii) adds liquidity
equal to or exceeding an average daily volume of 50,000 shares in a
month. Orders in securities in Tapes A and C will not be eligible for
the new proposed credit.
The Exchange intends for this new credit to reward members that
remove significant volumes of Tape B liquidity from the Exchange and to
encourage such members to further grow the extent to which they remove
Tape B liquidity from the Exchange. The Exchange believes that any
ensuing increase in the removal of Tape B liquidity from the Exchange
will improve the quality of the Exchange's market. In particular, the
Exchange intends to encourage members to increase the extent to which
they remove liquidity in securities in Tape B, as the Exchange believes
that increased removal activity in securities in Tape B is most needed
and likely to be most beneficial to market quality.
The Exchange also notes that, like its other removal credit tiers,
it proposes to tie the new proposed credit to the addition of at least
an average daily volume of 50,000 shares of liquidity during the month.
Doing so will help to incent members, not only to remove a significant
amount of liquidity from the Exchange, but also to add a significant
amount of liquidity as well. Any increase in liquidity adding activity
that ensues from this credit will improve market quality, to the
benefit of all participants.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\3\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\4\ 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 proposal is also consistent with
Section 11A of the Act relating to the establishment of the national
market system for securities.
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\3\ 15 U.S.C. 78f(b).
\4\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposal Is Reasonable
The Exchange's proposed change to its schedule of credits is
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'. . . .'' \5\
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\5\ 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.'' \6\
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\6\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
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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, and it represents a small percentage of the overall market.
It is also only one of several taker-maker exchanges. Competing equity
exchanges offer similar tiered pricing structures to that of the
Exchange, including schedules of rebates and fees that apply based upon
members achieving certain volume thresholds.\7\
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\7\ See CBOE BYX Fee Schedule, at <a href="http://markets.cboe.com/us/equities/membership/fee_schedule/byx/">http://markets.cboe.com/us/equities/membership/fee_schedule/byx/</a>; NYSE National Fee Schedule,
at <a href="https://www.nyse.com/publicdocs/nyse/regulation/nyse/NYSE_National_Schedule_of_Fees.pdf">https://www.nyse.com/publicdocs/nyse/regulation/nyse/NYSE_National_Schedule_of_Fees.pdf</a>.
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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.\8\ Within
the foregoing context, the proposal represents a reasonable attempt by
the Exchange to increase its liquidity and market share relative to its
competitors.
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\8\ The Exchange perceives no regulatory, structural, or cost
impediments to market participants shifting order flow away from it.
In particular, the Exchange notes that these examples of shifts in
liquidity and market share, along with many others, have occurred
within the context of market participants' existing duties of Best
Execution and obligations under the Order Protection Rule under
Regulation NMS.
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The Exchange believes that its proposal is reasonable to establish
a new remove credit with a growth component tied to the removal of
liquidity in securities in Tape B. The proposal will encourage members
to increase the extent to which they remove Tape B liquidity from the
Exchange, and it will reward members that do so in significant volumes.
The Exchange believes that any ensuing increase in the removal of
liquidity from the Exchange--and in particular, liquidity in securities
in Tape B--will improve the quality of the Exchange's market, and it
will cause the Exchange to become more attractive to existing and
prospective participants. The Exchange notes that it selected April
2021 as the baseline for the growth requirements because it is the
month immediately preceding the establishment of the new tier.
The Exchange also believes it is reasonable to tie the new proposed
credit to the addition of at least an average daily volume of 50,000
shares of liquidity during the month. Doing so will help to incent
members, not only to remove a significant amount of liquidity from the
Exchange, but also to add a
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significant amount of liquidity as well. Any increase in liquidity
adding activity that ensues from this credit will improve market
quality, to the benefit of all participants. The Exchange notes that it
includes the same criteria in several of its existing remove credit
tiers.
The Exchange notes that those participants that are dissatisfied
with the proposed credit are free to shift their order flow to
competing venues that offer them higher credits or lower charges.
The Proposal Is an Equitable Allocation of Credits and Charges
The Exchange believes that it is an equitable allocation of its
credits to establish a new remove credit tier that is tied to the
growth in removal of liquidity in securities in Tape B. The addition of
this new proposed credit tier will encourage members to increase the
extent to which they remove Tape B liquidity from the Exchange, and it
will reward members that do so in significant volumes. The Exchange
believes that any increase in the removal of liquidity from the
Exchange that follows from the introduction of this new credit--and in
particular, liquidity in securities in Tape B--will improve the quality
of the Exchange's market, and it will cause the Exchange to become more
attractive to existing and prospective participants.
The Exchange also believes it is an equitable allocation to tie the
new proposed credit to the addition of at least an average daily volume
of 50,000 shares of liquidity during the month. Doing so will help to
incent members, not only to remove a significant amount of liquidity
from the Exchange, but also to add a significant amount of liquidity as
well. Any increase in liquidity adding activity that ensues from this
credit will improve market quality, to the benefit of all participants.
The Exchange notes that it includes the same criteria in several of its
existing remove credit tiers.
Any participant that is dissatisfied with the proposal is free to
shift their order flow to competing venues that provide more generous
pricing or less stringent qualifying criteria.
The Proposed New Credit Is Not Unfairly Discriminatory
The Exchange believes that its new proposed remove credit with a
growth component is not unfairly discriminatory because it is aimed at
encouraging the growth in removal of liquidity from the Exchange, which
if successful, stands to improve the quality of the Exchange's market,
to the benefit of all market participants. The Exchange notes that its
proposal to offer the new credit to members with orders in securities
in Tape B is fair because the Exchange observes that its market has a
greater need for, and its market quality would benefit most from,
growth in removal of liquidity in securities in Tape B. The Exchange
has limited resources with which to apply to incentives, and it must
allocate those limited resources in a manner that prioritizes areas of
greatest need and potential effect.
Any participant that is dissatisfied with the proposal is free to
shift their order flow to competing venues that provide more generous
pricing or less stringent qualifying criteria.
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. As
noted above, all members of the Exchange will benefit from any increase
in market activity that the proposal effectuates. Members may grow or
modify their businesses so that they can receive the new proposed
credit. Moreover, members are free to trade on other venues to the
extent they believe that the credit proposed 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 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 changes in this market may impose any burden on
competition is extremely limited.
The proposed new credit is reflective of this competition because,
as a threshold issue, the Exchange is a relatively small market so its
ability to burden intermarket competition is limited. In this regard,
even the largest U.S. equities exchange by volume has less than 17%
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 comprised more than 41% of industry
volume for the month of March 2021.
In sum, if the change proposed herein 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 proposed
change 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\
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\9\ 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
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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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#a4d6d1c8c189c7cbc9c9c1cad0d7e4d7c1c78ac3cbd2"><span class="__cf_email__" data-cfemail="c4b6b1a8a1e9a7aba9a9a1aab0b784b7a1a7eaa3abb2">[email protected]</span></a>. Please include
File Number SR-BX-2021-024 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-2021-024. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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-2021-024 and should be submitted on
or before June 22, 2021.
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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\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-11403 Filed 5-28-21; 8:45 am]
BILLING CODE 8011-01-P
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