Notice2021-13657
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange's Transaction Fees, at Equity 7, Section 118(e)
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Published
June 28, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 121 (Monday, June 28, 2021)</title>
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[Federal Register Volume 86, Number 121 (Monday, June 28, 2021)]
[Notices]
[Pages 34074-34077]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-13657]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92230; File No. SR-BX-2021-028]
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the
Exchange's Transaction Fees, at Equity 7, Section 118(e)
June 22, 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 June 10, 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 the Exchange's transaction fees, at
Equity 7, Section 118(e), 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
[[Page 34075]]
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 liquidity and charges fees
to members that provide liquidity. Currently, the Exchange has a
schedule, at Equity 7, Section 118(e), which consists of several
different credits and fees for Retail Orders \3\ and Retail Price
Improvement Orders \4\ under Rule 4780 (Retail Price Improvement
Program).
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\3\ Retail Orders shall mean an order type with a Non-Display
Order Attribute submitted to the Exchange by a Retail Member
Organization (as defined in Rule 4780). A Retail Order must be an
agency Order, or riskless principal Order that satisfies the
criteria of FINRA Rule 5320.03. The Retail Order must reflect
trading interest of a natural person with no change made to the
terms of the underlying order of the natural person with respect to
price (except in the case of a market order that is changed to a
marketable limit order) or side of market and that does not
originate from a trading algorithm or any other computerized
methodology. See Rule 4702(b)(6).
\4\ Retail Price Improving (``RPI'') Orders shall mean an Order
Type with a Non-Display Order Attribute that is held on the Exchange
Book in order to provide liquidity at a price at least $0.001 better
than the NBBO through a special execution process described in Rule
4780. A Retail Price Improving Order may be entered in price
increments of $0.001. RPI Orders collectively may be referred to as
``RPI Interest.'' See Rule 4702(b)(5).
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Currently, the Exchange charges a fee of $0.0025 per share executed
for RPI Orders that provide liquidity. The Exchange proposes to adopt a
new fee of $0.0018 per share executed for RPI Orders entered by a
member that (i) quotes Retail Price Improvement Orders in at least
2,500 symbols on average per day and (ii) provides liquidity through
Retail Price Improvement Orders equal to or exceeding an average daily
volume of 2,500,000 shares. The Exchange will continue to charge a fee
of $0.0025 per share executed for all other RPI Orders that provide
liquidity. The Exchange hopes that the proposed lower fee will
encourage member organizations to increase liquidity providing activity
on RPI Orders on the Exchange. If the proposal is effective in
achieving this purpose, then the quality of the Exchange's market will
improve, particularly with respect to RPI and retail orders to the
benefit of all participants, especially those who submit RPI and Retail
Orders.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\5\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\6\ 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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\5\ 15 U.S.C. 78f(b).
\6\ 15 U.S.C. 78f(b)(4) and (5).
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The Proposal Is Reasonable and Is an Equitable Allocation of Charges
The Exchange's proposed change to its schedule of credits and
charges 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' . . . .'' \7\
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\7\ 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.'' \8\
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\8\ 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.\9\
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\9\ 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.\10\ Within
the foregoing context, the proposal represents a reasonable attempt by
the Exchange to increase its market share relative to its competitors.
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\10\ 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 it is reasonable and equitable to adopt a new
$0.0018 per share executed fee for RPI Orders entered by a member that
(i) quotes Retail Price Improvement Orders in at least 2,500 symbols on
average per day and (ii) provides liquidity through Retail Price
Improvement Orders equal to or exceeding an average daily volume of
2,500,000 shares. As discussed above, the Exchange's goal is to
increase liquidity adding activity in RPI Orders on its platform. It is
reasonable and equitable to address this need by
[[Page 34076]]
providing a lower fee to member organizations that meet the proposed
thresholds as an incentive for them to increase their liquidity
activity in RPI Orders on the Exchange. If the proposal is effective in
achieving this purpose, then the quality of the Exchange's market will
improve, particularly with respect to RPI and Retail orders to the
benefit of all participants, especially those who submit RPI and Retail
Orders.
The Proposed Fee Is Not Unfairly Discriminatory
The Exchange believes that the proposal is not unfairly
discriminatory. As an initial matter, the Exchange believes that
nothing about its volume-based tiered pricing model is inherently
unfair; instead, it is a rational pricing model that is well-
established and ubiquitous in today's economy among firms in various
industries--from co-branded credit cards to grocery stores to cellular
telephone data plans--that use it to reward the loyalty of their best
customers that provide high levels of business activity and incent
other customers to increase the extent of their business activity. It
is also a pricing model that the Exchange and its competitors have long
employed with the assent of the Commission. It is fair because it
incentivizes customer activity that increases liquidity, enhances price
discovery, and improves the overall quality of the equity markets.
The Exchange intends for its proposal to improve market quality for
all members that submit RPI and Retail Orders on the Exchange and by
extension attract more liquidity to the market, improving market wide
quality and price discovery. Although net adders of liquidity for RPI
Orders will benefit most from the proposal, this result is fair insofar
as increased liquidity adding activity in RPI Orders will help to
improve market quality and the attractiveness of the Nasdaq BX market
to all existing and prospective retail participants.
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 member organizations of the Exchange will benefit from
any increase in market activity that the proposal effectuates. Member
organizations may modify their businesses so that they can meet the
required thresholds and pay lower charges. Moreover, members are free
to trade on other venues to the extent they believe that the fees
assessed, and credits provided, are 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. The Exchange
notes that the tier structure is consistent with broker-dealer fee
practices as well as the other industries, as described above.
Intermarket Competition
The Exchange believes that its proposed modifications to its
schedule of credits and charges will not impose a burden on competition
because the Exchange's execution services are completely voluntary and
subject to extensive competition from the other live exchanges and from
off-exchange venues, which include alternative trading systems that
trade national market system stock. 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.
The proposed charge for adding liquidity 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 17-18% 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 40% of industry volume in recent months.
In sum, the Exchange intends for the proposed change to its fees
for RPI Orders, in the aggregate, to increase member incentives to
engage in the addition of liquidity on the Exchange. If the additional
fee 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 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.\11\
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\11\ 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
<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="a7d5d2cbc28ac4c8cacac2c9d3d4e7d4c2c489c0c8d1">[email protected]</span></a>. Please include
File Number SR-BX-2021-028 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.
[[Page 34077]]
All submissions should refer to File Number SR-BX-2021-028. 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-2021-028 and should be submitted on
or before July 19, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-13657 Filed 6-25-21; 8:45 am]
BILLING CODE 8011-01-P
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