Notice2022-19580
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Enhance the BX Retail Price Improvement Program
Primary source
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Published
September 12, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 175 (Monday, September 12, 2022)</title>
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[Federal Register Volume 87, Number 175 (Monday, September 12, 2022)]
[Notices]
[Pages 55863-55866]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-19580]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95676; File No. SR-BX-2022-014]
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Enhance the BX
Retail Price Improvement Program
September 6, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
[[Page 55864]]
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on August 24, 2022, 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 Equity 4, Rule 4780 to enhance the
BX Retail Price Improvement Program, 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 purpose of the proposed rule change is to amend Equity 4, Rule
4780 \3\ to enhance the BX Retail Price Improvement Program in a manner
that will attract more liquidity providers to participate in the
Program. Specifically, the Exchange proposes to amend paragraph (e) of
Rule 4780 to provide Participants a choice whether to disseminate the
Retail Liquidity Identifier (defined below) when submitting Retail
Price Improvement interest to the Exchange.
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\3\ Hereinafter, references to the Rule 4000 Series shall mean
the Rule Series set forth in Equity 4 of the Exchange's Rulebook.
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Retail Price Improvement Program (``RPI Program'')
In June 2019, the Commission approved making permanent the
Exchange's pilot RPI Program.\4\ The RPI Program is designed to attract
retail order flow to the Exchange and allow such order flow to receive
potential price improvement. The RPI Program is limited to trades
occurring at prices equal to or greater than $1.00 per share. Under the
RPI Program, Retail Member Organizations are eligible to submit Retail
Orders to the Exchange. BX members (``Members'') are permitted to
provide potential price improvement for Retail Orders in the form of
non-displayed interest that is priced more aggressively than the
Protected National Best Bid or Offer (``Protected NBBO'').\5\ The
Exchange publishes a price improvement indicator notifying market
participants that such price improving liquidity is available.
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\4\ Securities Exchange Act Release No. 86194 (June 25, 2019),
84 FR 31385 (July 1, 2019) (SR-BX-2019-011) (``RPI Approval
Order''). In addition to approving the proposal to make the RPI
Program permanent, the Commission granted the Exchange's request for
limited exemptive relief from Rule 612 of Regulation NMS, 17 CFR
242.612 (``Sub-Penny Rule''), which among other things prohibits a
national securities exchange from accepting or ranking orders priced
greater than $1.00 per share in an increment smaller than $0.01. See
id.
\5\ The term Protected Quotation is defined in Equity 1, Section
1(a)(16) and has the same meaning as is set forth in Regulation NMS
Rule 600. The Protected NBBO is the best-priced protected bid and
offer. Generally, the Protected NBBO and the national best bid and
offer (``NBBO'') will be the same. However, a market center is not
required to route to the NBBO if that market center is subject to an
exception under Regulation NMS Rule 611(b)(1) or if such NBBO is
otherwise not available for an automatic execution. In such case,
the Protected NBBO would be the best-priced protected bid or offer
to which a market center must route interest pursuant to Regulation
NMS Rule 611.
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The SEC approved making the RPI Program permanent, in part, because
it concluded, ``the Exchange's Program data and analysis about price
improvement for retail investors . . . supports the Exchange's
conclusion that the program provides meaningful price improvement to
retail investors on a regulated exchange venue and has not demonstrably
caused harm to the broader market.'' \6\ In approving the pilot RPI
Program, the Commission found that ``while the Program would treat
retail order flow differently from order flow submitted by other market
participants, such segmentation would not be inconsistent with Section
6(b)(5) of the Act, which requires that the rules of an exchange are
not designed to permit unfair discrimination.'' \7\ As the SEC
acknowledged, the retail order segmentation was designed to create
greater competition for retail investor orders thereby creating more
competition for these orders on transparent and well-regulated
exchanges. This would help to ensure that retail investors benefit from
competitive price improvement that exchange-based liquidity providers
provide.
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\6\ See RPI Approval Order, supra note 4 at 31387.
\7\ Securities Exchange Act Release No. 73702 (November 28,
2014), 79 FR 72049, 72051 (December 4, 2014) (SR-BX-2014-048).
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Retail Liquidity Identifier
Currently, the Exchange disseminates an identifier when RPI
interest priced at least $0.001 better than the Exchange's Protected
Bid or Protected Offer for a particular security is available in the
System (the ``Retail Liquidity Identifier''). The Retail Liquidity
Identifier is disseminated through consolidated data streams (i.e.,
pursuant to the Consolidated Tape Association Plan/Consolidated
Quotation System, or CTA/CQS, for Tape A and Tape B securities, and The
Nasdaq Stock Market, LLC (``Nasdaq'') UTP Plan for Tape C securities)
as well as through proprietary Exchange data feeds.\8\ The Retail
Liquidity Identifier reflects the symbol and the side (buy or sell) of
the RPI interest, but does not include the price or size of the RPI
interest. In particular, CQS and UTP quoting outputs include a field
for codes related to the Retail Liquidity Identifier. The codes
indicate RPI interest that is priced better than the Exchange's
Protected Bid or Protected Offer by at least the minimum level of price
improvement as required by the RPI Program.
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\8\ The Exchange notes that the Retail Liquidity Identifier for
Tape A and Tape B securities are disseminated pursuant to the CTA/
CQS Plan. The identifier is also available through the consolidated
public market data stream for Tape C securities. The processor for
the Nasdaq UTP quotation stream disseminates the Retail Liquidity
Identifier and analogous identifiers from other market centers that
operate programs similar to the RPI Program.
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The Exchange proposes to amend Rule 4780(e) to enable Participants
that send Retail Price Improvement Orders to elect whether to
disseminate the Retail Liquidity Identifier. The Exchange believes that
providing Participants with the option to opt out of dissemination of
the Retail Liquidity Identifier is appropriate in order to increase
liquidity in the RPI Program and improve price improvement for retail
investors. The Exchange believes that the mandatory use of the Retail
Liquidity Identifier discourages some firms from providing liquidity to
the RPI Program due to concerns around signaling to the market. The
Exchange is confident that, by allowing firms to opt out of displaying
the Retail Liquidity
[[Page 55865]]
Identifier, the Exchange would be able to increase participation in the
RPI Program and generate additional price improvement to orders of
retail investors.
Although the Exchange expects that the proposed optionality
relating to the Retail Liquidity Identifier would increase liquidity to
the RPI Program, the Exchange also recognizes the value of the Retail
Liquidity Identifier, which makes it clear that there is price
improving liquidity available. Therefore, the Exchange will monitor the
program in light of the change and, if necessary, propose modifications
aimed at ensuring the program continues to operate consistent with its
design and objectives.
Implementation Date
The Exchange intends to introduce this new functionality no later
than the Fourth Quarter of 2022. In any event, the Exchange will issue
an Equities Trader Alert not less than 7 days prior to introducing the
new functionality.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\9\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\10\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest, by promoting competition for retail order flow among
execution venues and providing the potential for meaningful price
improvement to orders of retail investors. The proposal would allow
Participants to choose whether to disseminate the Retail Liquidity
Identifier when Participants submit Retail Price Improvement Orders to
the Exchange. By providing an option to opt out of disseminating the
Retail Liquidity Identifier, the Exchange could attract more liquidity
providers to interact with retail order flow.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
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A significant percentage of retail order flow is executed off-
exchanges. The Exchange believes that it is appropriate to continue to
improve the RPI Program to encourage on-exchange interaction with
retail investor orders. The proposed changes to the RPI Program would
increase competition among execution venues, encourage additional
liquidity, and offer potential price improvement to retail investors.
Increased competition for retail order flow could also lead to
increased investor interest in trading securities and innovation within
the market, thereby increasing the quality of the national market
system.
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. The Exchange believes that, by
allowing Participants to choose whether to disseminate the Retail
Liquidity Identifier, the proposed rule change would enhance
competition for retail order flow among execution venues. This change
would encourage expansion of the RPI Program, thereby creating
additional price improvement opportunities for retail orders and
increasing competition between execution venues. All Participants would
have the option to opt out of displaying the Retail Liquidity
Identifier.
The Exchange believes that the proposed rule changes would increase
competitive interaction with retail investor orders which should lead
to increased retail investor order activity on transparent and well-
regulated exchanges. This would help to ensure that retail investors
benefit from competitive price improvement that exchange-based
liquidity providers provide. The Exchange operates in a highly
competitive market in which market participants can easily direct their
orders to competing venues, including off-exchange venues. In such an
environment, the Exchange must continually review and consider
adjusting the services it offers and the requirements it imposes to
remain competitive with other venues. Therefore, the Exchange believes
that the proposed rule change reflects this competitive environment.
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
Because the foregoing proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \11\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\12\
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\11\ 15 U.S.C. 78s(b)(3)(A)(iii).
\12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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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 necessary or
appropriate in the public interest, for the protection of investors, or
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#0f7d7a636a226c6062626a617b7c4f7c6a6c21686079"><span class="__cf_email__" data-cfemail="b2c0c7ded79fd1dddfdfd7dcc6c1f2c1d7d19cd5ddc4">[email protected]</span></a>. Please include
File Number SR-BX-2022-014 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-2022-014. 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
[[Page 55866]]
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 offices 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-
2022-014, and should be submitted on or before October 3, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-19580 Filed 9-9-22; 8:45 am]
BILLING CODE 8011-01-P
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