Notice2021-21210
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend BX Options 7, Section 2, BX Options Market-Fees and Rebates
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Published
September 30, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 187 (Thursday, September 30, 2021)</title>
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[Federal Register Volume 86, Number 187 (Thursday, September 30, 2021)]
[Notices]
[Pages 54259-54262]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-21210]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93121; File No. SR-BX-2021-040]
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend BX Options
7, Section 2, BX Options Market-Fees and Rebates
September 24, 2021.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on September 10, 2021, Nasdaq BX, Inc. (``BX'' or
``Exchange'') filed with the Securities and Exchange Commission (the
``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\ 15 U.S.C. 78a.
\3\ 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 BX Options 7, Section 2, ``BX
Options Market-Fees and Rebates.''
The Exchange originally filed the proposed pricing changes on
August 27, 2021 (SR-BX-2021-036). On September 10, 2021, the Exchange
withdrew that filing and submitted this filing.
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 proposes to amend BX's Pricing Schedule at Options 7,
Section 2, ``BX Options Market-Fees and Rebates.'' Specifically, within
Options 7, Section 2(1), the Exchange proposes to: (1) Increase the
Non-Penny Symbol Customer Taker Fee; and (2) amend note 3 of that
section that reduces the Non-Penny Symbol Customer Maker Rebate in
certain circumstances.
Today, Customers are assessed a Non-Penny Symbol Taker Fee of $0.65
per contract for removing liquidity and paid a Non-Penny Symbol Maker
Rebate of $0.90 per contract for adding liquidity. Today, with respect
to the Customer Non-Penny Symbol Maker Rebate, Customer orders receive
a $0.45 per contract Non-Penny Symbol Maker Rebate, instead of the
aforementioned $0.90 per contract rebate, if the quantity of
transactions where the contra-side is also a Customer is greater than
25% of Participant's total Customer Non-Penny Symbol volume which adds
liquidity in that month.\4\
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\4\ See Options 7, Section 2(1) note 3. The 25% calculation does
not consider orders within the Opening Process per Options 3,
Section 8, orders that generate an order exposure alert per BX
Options 5, Section 4, or orders transacted in the Price Improvement
Auction (``PRISM'') per Options 3, Section 13.
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The Exchange proposes to increase the Customer Non-Penny Symbol
Taker Fee from $0.65 to $0.79 per contract. The Exchange also proposes
to amend the percentage within note 3, related to the quantity of
transactions where the contra-side is also a Customer, from 25% to 50%.
Proposed note 3 would provide, ``Customer orders will receive a $0.45
per contract Non-Penny Symbol Maker Rebate if the quantity of
transactions where the contra-side is also a Customer is greater than
50% of
[[Page 54260]]
Participant's total Customer Non-Penny Symbol volume which adds
liquidity in that month. The aforementioned calculation of 50% will not
consider orders within the Opening Process per Options 3, Section 8,
orders that generate an order exposure alert per BX Options 5, Section
4, or orders transacted in the Price Improvement Auction (``PRISM'')
per Options 3, Section 13.''
The Exchange would continue to pay a Customer Non-Penny Symbol
Maker Rebate of $0.90 per contract. Also, the Exchange would continue
to pay the lower Non-Penny Symbol Maker Rebate of $0.45 per contract if
the quantity of transactions where the contra-side is also a Customer
is greater than the proposed 50% of Participant's total Customer Non-
Penny Symbol volume which adds liquidity in that month.
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.
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\5\ 15 U.S.C. 78 f(b).
\6\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange's proposed changes to its Pricing Schedule are
reasonable in several respects. As a threshold matter, the Exchange is
subject to significant competitive forces in the market for options
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 (DC 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\ See 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
options security transaction services. The Exchange is only one of
sixteen options exchanges to which market participants may direct their
order flow. 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. As such,
the proposal represents a reasonable attempt by the Exchange to
increase its liquidity and market share relative to its competitors.
The Exchange's proposal to increase the Customer Non-Penny Symbol
Taker Fee from $0.65 to $0.79 per contract is reasonable. While the
Exchange's Customer Non-Penny Symbol Taker Fee is increasing, the
Exchange believes its fees remain competitive with other options
exchanges.\9\ Also, BX continues to offer the highest base rebate of
$0.90 per contract prior to taking into account volume or contra-
party.\10\ Of note, other exchanges have higher simple order rebates,
provided certain volume criteria are met.\11\ Accordingly, the Exchange
believes that the proposed Customer Non-Penny Symbol Taker Fee remains
competitive and will continue to attract order flow to BX to the
benefit of all market participants.
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\9\ NYSE Arca, Inc. (``NYSEArca Options Fees'') currently
assesses customers a Take Liquidity fee of $0.85 per contract in
Non-Penny Issues (or $0.67 per contract if the Customer is trading
against a lead market maker). See NYSEArca Options Fees and Charges,
Transaction Fee for Electronic Executions--Per Contract.
\10\ The examples which follow represent options fees. BOX
Exchange LLC (``BOX'') pays no Non-Penny Interval Class Public
customer Maker Rebate. See BOX's Fee Schedule at Section I, A. Cboe
Exchange, Inc. (``Cboe'') pays a Non-Penny Class rebate to customers
of $0.18 per contract only if the original order is greater than or
equal to 100 contracts and removes liquidity. See Cboe's Fee
Schedule. Cboe C2 Exchange, Inc. (``C2'') pays a Non-Penny Class
rebate to customers of $0.80 per contract to transactions which add
liquidity. See C2's Fee Schedule. Cboe BZX Exchange, Inc.
(``CboeBZX'') pays Non-Penny Program Securities rebates to customers
which range from $0.85 to $1.06 per contract to transactions which
add liquidity. See CboeBZX's Fee Schedule. Cboe EDGX Exchange, Inc.
(``CboeEDGX'') pays Non-Penny Program Securities rebates to
customers which range from $0.01 to $0.21 based on customer volume
tiers. See CboeEDGX's Fee Schedule. Miami International Securities
Exchange, LLC (``MIAX'') pays no customer rebate for non-penny
classes. See MIAX's Fee Schedule. MIAX PEARL, LLC (``PEARL'') pays
Priority Customer Non-Penny Classes Maker Rebates which range from
$0.85 to $1.04 based on volume. See PEARL's Fee Schedule. MIAX
Emerald, LLC (``EMERALD'') pays Priority Customer Maker Rebates
which range from $0.43 to $0.53, except that SPY, QQQ and IWM
rebates are $0.45 and Priority Customer Simple Order rebates when
contra is an Affiliated Market Maker are $0.49. See EMERALD's Fee
Schedule. NYSEArca pays a Customer a $0.75 rebate to post liquidity
unless contra a lead market maker, in which case no rebate is paid.
See NYSE Arca Options Fees and Charges. NYSE American LLC
(``NYSEAmerican'') pays no Customer rebates. See NYSE American
Options Fee Schedule. The Nasdaq Stock Market LLC (``NOM'') pays an
$0.80 per contract Customer Non-Penny Symbol Rebate and in some
cases $1.00, or $1.05 if other criteria are met. See NOM's Pricing
Schedule. Nasdaq Phlx LLC (``Phlx'') pays Customer Non-Penny rebates
which range from $0.00 to $0.27. See Phlx's Pricing Schedule. Nasdaq
ISE, LLC (`ISE'') pays no Non-Penny Priority Customer rebates. See
ISE's Pricing Schedule. Nasdaq GEMX, LLC (``GEMX'') pays Priority
Customer Non-Penny Symbol Maker Rebates which range from $0.75 to
$1.05. See GEMX's Pricing Schedule. Nasdaq MRX, LLC (`MRX'') pays no
Priority Customer Non-Penny Symbol rebates. See MRX's Pricing
Schedule.
\11\ Id.
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The Exchange's proposal to increase the Customer Non-Penny Symbol
Taker Fee from $0.65 to $0.79 per contract is equitable and not
unfairly discriminatory because the proposed pricing will apply
uniformly to all similarly situated Participants for Non-Penny Symbols.
Customers would continue to receive favorable pricing as compared to
other market participants because Customer liquidity enhances liquidity
on the Exchange for the benefit of all market participants.
Specifically, Customer liquidity benefits all market participants by
providing more trading opportunities which attracts market makers. An
increase in the activity of these market participants (particularly in
response to pricing) in turn facilitates tighter spreads which may
cause an additional corresponding increase in order flow from other
market participants.
The Exchange's proposal to amend the percentage within note 3
related to the volume consideration for the ratio of Customer to
Customer orders as compared to total Participant volume which adds Non-
Penny Symbol liquidity in order to receive the $0.90 per contract
Customer Non-Penny Symbol rebate as compared to the reduced $0.45 per
contract rebate is
[[Page 54261]]
reasonable. With this proposal, the Exchange would assess a $0.79 per
contract Customer Non-Penny Taker Fee, the lowest BX Taker Fee for Non-
Penny Symbols,\12\ and, currently, the Exchange pays the highest
Customer Maker Rebate of $0.90 per contract that does not consider
volume or contra-party. The Exchange continues to offer Customers the
highest Non-Penny Maker Rebate on BX by assessing higher Non-Penny
Taker Fees to Non-Customers.\13\ To the extent a Participant submits a
Non-Penny Customer order to add liquidity which interacts with a Non-
Penny Customer order that removes liquidity, both Participants benefit
from the higher Non-Penny Maker Rebate and lower Non-Penny Taker Fee.
The Exchange's intention for assessing Customer orders with the reduced
Non-Penny Taker Fee was designed to bolster interaction with Non-
Customer participants. Today, Non-Penny Customer orders which add
liquidity have priority \14\ ahead of Non-Penny Non-Customer orders
and, therefore, the Exchange's intention to enhance Non-Customer
liquidity is subverted when a Non-Penny Customer order transacts with
another Non-Penny Customer order. As a result, when Non-Penny Customers
interact with other Non-Penny Customer orders more than by
happenstance, the Exchange believes it is reasonable to pay Customer
orders which add liquidity a lower rebate. The Exchange notes that
Participants do occasionally submit Non-Penny Customer orders which add
liquidity in Non-Penny Symbols to the order book that trade against
Non-Penny Customer orders that remove liquidity in Non-Penny Symbols.
The Exchange believes that type of behavior occurs, by happenstance, a
small percentage of the time in a month. The Exchange initially
determined that 25% was the proper percentage which represented the
quantity of transactions that would demarcate the point at which a
Participant should receive the lower Customer Non-Penny Symbol Maker
Rebate of $0.45 per contract because it does not believe that the type
of behavior outlined herein should occur more than a certain percentage
of the time (in this case 25% of a Participant's total Customer Non-
Penny Symbol volume) unless the trading behavior was intended. After
reviewing the trading behavior for a period of time since the adoption
of the 25% threshold, the Exchange believes that a percentage of 50%
would be a more accurate demarcation. The Exchange has monitored
Customer to Customer trading behavior transacted on BX since the
inception of the 25% threshold. The Exchange believes that the addition
of the threshold deterred certain intended Customer to Customer
transactions, and the Exchange observed an expansion of counter parties
on Customer to Customer trades after the threshold was introduced. The
Exchange believes that increasing the percentage to 50% will more
reasonably account for inadvertent Customer to Customer trades while
still deterring those Customer to Customer transactions which occur
more than by happenstance given the number of Non-Penny Symbol Customer
to Customer orders transacted on BX.
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\12\ Non-Customer orders are assessed a $1.10 Non-Penny Symbol
Taker Fee.
\13\ A Non-Customer includes a Professional, Broker-Dealer and
Non-BX Options Market Maker. See BX Options 7, Section 1.
\14\ See Options 3, Section 10.
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While this proposal would continue to provide Customer orders with
lower rebates if they transact the requisite number of Customer-to
Customer trades, the Exchange continues to believe that the $0.45 per
contract rebate remains competitive and equal to or greater than the
rebates that other Participants are afforded.\15\
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\15\ Today, Lead Market Makers are paid $0.45 per contract Non-
Penny Symbol Maker Rebates and Market Maker are paid $0.40 per
contract Non-Penny Symbol Maker Rebates. Firms and Non-Customers are
not eligible for Non-Penny Symbol Maker Rebates and instead are
charged a Maker Fee of $0.45 per contract.
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The Exchange's proposal to amend the percentage within note 3
related to the volume consideration for the ratio of Customer to
Customer orders as compared to total Participant volume which adds Non-
Penny Symbol liquidity in order to receive the $0.90 per contract
Customer Non-Penny Symbol rebate as compared to the reduced $0.45 per
contract rebate is equitable and not unfairly discriminatory. The
Exchange would uniformly apply the criteria to all Customer orders to
determine the applicable rebate.
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.
Inter-market Competition
The proposal does not impose an undue burden on inter-market
competition. The Exchange believes its proposal remains competitive
with other options markets and will offer market participants with
another choice of where to transact options. 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
options 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.
Intra-Market Competition
The Exchange's proposal to increase the Customer Non-Penny Symbol
Taker Fee from $0.65 to $0.79 per contract does not impose an undue
burden on competition because the proposed pricing will apply uniformly
to all similarly situated Participants for Non-Penny Symbols. Customers
would continue to receive favorable pricing as compared to other market
participants because Customer liquidity enhances liquidity on the
Exchange for the benefit of all market participants. Specifically,
Customer liquidity benefits all market participants by providing more
trading opportunities which attracts market makers. An increase in the
activity of these market participants (particularly in response to
pricing) in turn facilitates tighter spreads which may cause an
additional corresponding increase in order flow from other market
participants.
The Exchange's proposal to pay a $0.45 per contract Customer Non-
Penny Symbol Maker Rebate if the quantity of transactions where the
contra-side is also a Customer is greater than 50% of Participant's
total Customer Non-Penny Symbol volume which adds liquidity \16\ in
that month does not impose an undue burden on competition as the
Exchange would uniformly apply the criteria to all Customer orders to
determine the applicable rebate.
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\16\ As proposed, the 25% calculation will not consider orders
within the Opening Process per Options 3, Section 8, orders that
generate an order exposure alert per BX Options 5, Section 4, or
orders transacted in the Price Improvement Auction (``PRISM'') per
Options 3, Section 13.
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[[Page 54262]]
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.\17\
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\17\ 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#ccbeb9a0a9e1afa3a1a1a9a2b8bf8cbfa9afe2aba3ba"><span class="__cf_email__" data-cfemail="c9bbbca5ace4aaa6a4a4aca7bdba89baacaae7aea6bf">[email protected]</span></a>. Please include
File Number SR-BX-2021-040 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-2021-040. 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-2021-040, and should be submitted on
or before October 21, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-21210 Filed 9-29-21; 8:45 am]
BILLING CODE 8011-01-P
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