Notice2023-17757
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange's Schedule of Fees and Credits at Equity 7, Section 118
Primary source
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Published
August 18, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 159 (Friday, August 18, 2023)</title>
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[Federal Register Volume 88, Number 159 (Friday, August 18, 2023)]
[Notices]
[Pages 56670-56672]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-17757]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98127; File No. SR-BX-2023-018]
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the
Exchange's Schedule of Fees and Credits at Equity 7, Section 118
August 14, 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 August 1, 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 amend the Exchange's schedule of fees and
credits 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 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 Equity 4, 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 Equity 4, Rule 4702(b)(5).
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The purpose of the proposed rule change is to amend the Exchange's
schedule of fees and credits, at Equity 7, Section 118(e).
Specifically, the Exchange proposes to (1) establish a new fee for
certain RPI Orders that provide liquidity to the Exchange; and (2)
specify that certain Retail Orders that access liquidity shall be
excluded in the calculation of a member's volume for purposes of Equity
7, Section 118.
Currently, the Exchange charges certain fees for RPI Orders that
provide liquidity, ranging from $0.0018 per share executed to $0.0025
per share executed. The Exchange proposes to adopt a new fee of $0.0003
per share executed for RPI Orders that provide liquidity for accepted
Retail Orders greater than or equal to $10,000. The Exchange hopes that
the proposed fee will encourage members to increase liquidity providing
activity in RPI Orders greater than or equal to $10,000 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 Exchange also proposes to exclude accepted Retail Orders
greater than or equal to $10,000 that access liquidity provided by RPI
Orders for purposes of determining a member's volume for Equity 7,
Section 118.\5\ 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.
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\5\ For example, pursuant to Equity 7, Section 118(a), the
Exchange provides a credit of $0.0018 per share executed for an
Order that accesses 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: (i) whose combined liquidity removing and adding activities
equal or exceed 0.15% 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 proposed change would exclude accepted Retail Orders
greater than or equal to $10,000 that access liquidity provided by
RPI Orders from the volume calculations for purposes of determining
whether or not a member qualifies for this $0.0018 per share
executed credit.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\6\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\7\ 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
[[Page 56671]]
discrimination between customers, issuers, brokers, or dealers.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange's proposed changes to its fee schedule 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
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'. . . .'' \8\
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\8\ 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.'' \9\
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\9\ 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 and equitable to adopt a new
$0.0003 per share executed fee for RPI Orders that provide liquidity
for accepted Retail Orders greater than or equal to $10,000. As
discussed above, the Exchange's goal is to increase liquidity adding
activity in RPI Orders, particularly those greater than or equal to
$10,000, on its platform. It is reasonable and equitable to address
this need by providing a lower fee to members that meet the proposed
threshold as an incentive for them to increase their liquidity activity
in RPI Orders greater than or equal to $10,000 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 Exchange's proposal to exclude
accepted Retail Orders greater than or equal to $10,000 that access
liquidity provided by RPI Orders for purposes of determining a member's
volume for Equity 7, Section 118 is also reasonable because 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.
The Exchange believes that the proposal is not unfairly
discriminatory. The Exchange intends for its proposal to improve market
quality for all members that submit RPI and Retail Orders on the
Exchange (particularly in Orders greater than or equal to $10,000) and
by extension attract more liquidity to the market, improving market
wide quality and price discovery. Although net adders of liquidity for
RPI Orders (particularly of RPI Orders greater than or equal to
$10,000) will benefit most from the proposal, this result is fair
insofar as increased liquidity adding activity in RPI Orders greater
than or equal to $10,000 will help to improve market quality and the
attractiveness of the Nasdaq BX market to all existing and prospective
retail participants. The Exchange's proposal to exclude accepted Retail
Orders greater than or equal to $10,000 that access liquidity provided
by RPI Orders for purposes of determining a member's volume for Equity
7, Section 118 is equitable and not unfairly discriminatory because the
exclusion will apply to all members. The Exchange notes that it has
limited funds to apply in the form of incentives, and thus must deploy
those limited funds to incentives that it believes will be the most
effective at improving market quality in areas that the Exchange
determines are in need of improvement. Any member 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
modify their businesses so that they can meet the required thresholds
and pay lower charges. The Exchange's proposal to exclude accepted
Retail Orders greater than or equal to $10,000 that access liquidity
provided by RPI Orders for purposes of determining a member's volume
for Equity 7, Section 118 does not impose an undue burden on
competition because such exclusion applies to all members. The Exchange
notes that its members are free to trade on other venues to the extent
they believe that the proposal 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
[[Page 56672]]
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 proposal 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 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 comprised more than 40% of industry
volume.
In sum, the Exchange intends for the proposed changes, in the
aggregate, to increase member incentives to engage in the addition of
liquidity on the Exchange. If the changes proposed herein are
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.\10\
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\10\ 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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#3143445d541c525e5c5c545f4542714254521f565e47"><span class="__cf_email__" data-cfemail="2d5f584148004e4240404843595e6d5e484e034a425b">[email protected]</span></a>. Please include
file number SR-BX-2023-18 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-2023-018. 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="https://www.sec.gov/rules/sro.shtml">https://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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-BX-2023-18 and should be
submitted on or before September 8, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-17757 Filed 8-17-23; 8:45 am]
BILLING CODE 8011-01-P
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