Notice2023-08144
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its Schedule of Fees and Credits at Equity 7, Section 118
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Published
April 18, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 74 (Tuesday, April 18, 2023)</title>
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[Federal Register Volume 88, Number 74 (Tuesday, April 18, 2023)]
[Notices]
[Pages 23717-23720]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-08144]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97290; File No. SR-BX-2023-008]
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Its
Schedule of Fees and Credits at Equity 7, Section 118
April 12, 2023.
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 April 3, 2023, 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 (i) adjust or eliminate several of the
Exchange's transaction credits, at Equity 7, Section 118(a); and (ii)
eliminate several of the Exchange's transaction fees, 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 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 purpose of the proposed rule change
is to amend this schedule of fees and credits, at Equity 7, Section
118(a) to: (i) adjust or eliminate several of the Exchange's
transaction credits; and (ii) eliminate several of the Exchange's
transaction fees.
Revision to and Elimination of Transaction Credits
The Exchange proposes to eliminate two of the Exchange's
transaction credits and adjust three of the Exchange's transaction
credits.
Currently, the Exchange provides $0.0015, $0.0015, and $0.0014 per
share executed credits for securities in Tape A, Tape B, and Tape C,
respectively, to a member accessing liquidity (excluding orders with
Midpoint pegging and excluding orders that receive price improvement
and execute against an order with a non-displayed price): (i) whose
combined liquidity removing and adding activities equal or exceed
0.075% of total Consolidated Volume during a month; and (ii) that adds
liquidity equal to or exceeding an average daily volume of 50,000
shares in a month. The Exchange proposes to eliminate this credit
because it has not been successful in accomplishing its objectives.
That is, it has not induced members to materially grow liquidity
removing and adding activity on the Exchange. The Exchange also seeks
to simplify its schedule of credits. The Exchange has limited resources
to allocate to incentive programs and it must, from time to time,
reallocate resources to maximize their net impact on the Exchange,
market quality, and participants.
Currently, the Exchange provides a $0.0018 per share executed
credit for securities in Tape B to a member accessing liquidity that
(excluding orders with Midpoint pegging and excluding orders that
receive price improvement and execute against an
[[Page 23718]]
order with a non-displayed price): (i) accesses at least 60% more
liquidity in Tape B securities, as a percentage of total Consolidated
Volume during a month, than it did during April 2021; (ii) accesses
liquidity in Tape B securities 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. The
Exchange proposes to eliminate this credit because the baseline month
for the growth element of the credit--April 2021--is no longer a
relevant benchmark. As such, this credit no longer provides a growth
incentive that is aligned with the Exchange's needs. Again, the
Exchange has limited resources to devote to incentive programs, and it
is appropriate for the Exchange to reallocate these incentives
periodically in a manner that best achieves the Exchange's overall mix
of objectives.
Presently, the Exchange provides a $0.0015 per share executed
credit for securities in Tape C to a member accessing liquidity
(excluding orders with Midpoint pegging and excluding orders that
receive price improvement and execute against an order with a non-
displayed price): (i) whose combined liquidity removing and adding
activities equal or exceed 0.10% of total Consolidated Volume during a
month; (ii) that accesses liquidity equal to or exceeding 0.05% of
total Consolidated Volume during a month; and (iii) that adds liquidity
equal to or exceeding an average daily volume of 50,000 shares in a
month. The Exchange proposes to increase the amount of this credit for
securities in Tape C to $0.0016 per share executed.
Currently, the Exchange provides a $0.0009 per share executed
credit for securities in Tape C to a member accessing liquidity
(excluding orders with Midpoint pegging and excluding orders that
receive price improvement and execute against an order with a non-
displayed price): (i) whose combined liquidity removing and adding
activities equal or exceed 0.05% of total Consolidated Volume during a
month; and (ii) that adds liquidity equal to or exceeding an average
daily volume of 50,000 shares in a month. The Exchange proposes to
increase the amount of this credit for securities in Tape C to $0.0010
per share executed.
Finally, the Exchange currently provides a $0.0004 per share
executed credit for securities in Tape C to a member accessing
liquidity (excluding orders with Midpoint pegging and excluding orders
that receive price improvement and execute against an order with a non-
displayed price) that adds liquidity equal to or exceeding an average
daily volume of 50,000 shares in a month. The Exchange proposes to
increase the amount of this credit for securities in Tape C to $0.0005
per share executed.
The Exchange proposes to increase the three credits described above
for securities in Tape C to make these credit amounts consistent with
the credits offered for securities in Tapes A and B. These adjustments
will align existing incentives for members to add liquidity or
executions on the Exchange.
Elimination of Transaction Fees
In addition, the Exchange proposes to eliminate six of the
Exchange's transaction fees.
Currently, the Exchange charges members providing liquidity $0.0012
per share executed for securities in Tapes A, B, and C for displayed
orders entered by a member that adds liquidity equal to or exceeding
0.25% of total Consolidated Volume during a month. The Exchange charges
members providing liquidity $0.0014 per share executed for securities
in Tapes A, B, and C for displayed orders entered by a member that adds
liquidity equal to or exceeding 0.15% of total Consolidated Volume
during a month. The Exchange charges members providing liquidity
$0.0017 per share executed for securities in Tapes A, B, and C for
displayed orders entered by a member that adds liquidity equal to or
exceeding 0.10% of total Consolidated Volume during a month. The
Exchange proposes to eliminate these fees because they have not been
successful in accomplishing their objectives. That is, they have not
induced members to materially add liquidity on the Exchange. The
Exchange also seeks to simplify its schedule of fees. The Exchange has
limited resources to allocate to incentive programs and it must, from
time to time, reallocate resources to maximize their net impact on the
Exchange, market quality, and participants.
Presently, the Exchange charges members providing liquidity $0.0017
per share executed for securities in Tapes A, B, and C for displayed
orders entered by a member that: (i) adds liquidity equal to or
exceeding an average daily volume of 9,500,000 shares in a month; and
(ii) adds at least 15% more liquidity relative to the member's March
2021 average daily volume of liquidity provided. The Exchange charges
members providing liquidity $0.0020 per share executed for securities
in Tapes A, B, and C for displayed orders that adds liquidity entered
by a member that: (i) adds liquidity equal to or exceeding an average
daily volume of 2,500,000 shares in a month; and (ii) adds at least 25%
more liquidity relative to the member's March 2021 average daily volume
of liquidity provided. The Exchange proposes to eliminate these fees
because the baseline month for the growth element of the fees--March
2021--is no longer a relevant benchmark. As such, this fee no longer
provides a growth incentive that is aligned with the Exchange's needs.
As noted, the Exchange has limited resources to devote to incentive
programs, and it is appropriate for the Exchange to reallocate these
incentives periodically in a manner that best achieves the Exchange's
overall mix of objectives.
Finally, the Exchange also currently charges members providing
liquidity $0.0024 per share executed for securities in Tapes A, B, and
C for non-displayed orders (other than orders with Midpoint pegging)
entered by a member that (i) adds and removes liquidity equal to or
exceeding 0.15% total Consolidated Volume during a month; and (ii)
achieves at least a 35% ratio of its displayed liquidity adding
activity to its total liquidity adding activity during a month. The
Exchange proposes to eliminate this fee because the fee has not been
successful in accomplishing its objective and the Exchange seeks to
streamline its fee schedule.
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.
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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 Exchange's proposed changes to its schedule of credits are
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
[[Page 23719]]
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. 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.
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 believes it is reasonable, equitable, and not unfairly
discriminatory to eliminate two of the Exchange's transaction credits,
adjust three of the Exchange's transaction credits, and eliminate six
of the Exchange's transaction fees. The Exchange seeks to simplify and
streamline its schedule of credits and fees by: (i) eliminating credits
and fees that have not been successful in inducing members to grow
their liquidity adding or removing activity or that are no longer based
on relevant benchmarks; and (ii) adjusting several credits to
securities in Tape C to streamline such credits to those provided in
Tapes A and B. The proposed changes are designed to better align with
the Exchange's needs. The Exchange has limited resources to devote to
incentive programs, and it is appropriate for the Exchange to
reallocate these incentives periodically in a manner that best achieves
the Exchange's overall mix of objectives.
Those participants that are dissatisfied with the eliminations and
adjustments to the Exchange's schedule of credits and fees are free to
shift their order flow to competing venues that provide more generous
incentives 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 proposals will place any
category of Exchange participant at a competitive disadvantage.
The Exchange intends for its proposed changes to its credits and
fees to reallocate its limited resources more efficiently and for
optimized effect, to recalibrate them to reflect changing market
behavior, and to align them with the Exchange's overall mix of
objectives. The Exchange notes that its members are free to trade on
other venues to the extent they believe that these proposals 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.
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 or fee changes in this market may impose any burden on
competition is extremely limited. The proposals are reflective of this
competition.
Even as one of the largest U.S. equities exchanges by volume, the
Exchange has less than 20% 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 comprises upwards of 50% of industry volume.
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) of the Act \7\ and paragraph (f) of Rule 19b-4 \8\
thereunder.
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\7\ 15 U.S.C. 78s(b)(3)(A).
\8\ 17 CFR 240.19b-4(f).
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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.
[[Page 23720]]
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="b1c3c4ddd49cd2dedcdcd4dfc5c2f1c2d4d29fd6dec7">[email protected]</span></a>. Please include
File Number SR-BX-2023-008 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-2023-008. 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-2023-008 and should be submitted on
or before May 9, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-08144 Filed 4-17-23; 8:45 am]
BILLING CODE 8011-01-P
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