[Federal Register Volume 84, Number 201 (Thursday, October 17, 2019)]
[Notices]
[Pages 55621-55624]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22589]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87271; File No. SR-BX-2019-035]
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend
Transaction Fees at Equity 7, Section 118(a)
October 10, 2019.
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 September 30, 2019, 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend its transaction fees at Equity 7,
Section 118(a), as described further below. While these amendments are
effective upon filing, the Exchange has designated the proposed
amendments to be operative on October 1, 2019.
The text of the proposed rule change is available on the Exchange's
website at http://nasdaqbx.cchwallstreet.com/, 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.
Over the course of the last few months, the Exchange has
experimented with various reformulations of its pricing schedule with
the purpose of increasing activity on the Exchange, improving market
quality, and increasing market share.\3\ The Exchange
[[Page 55622]]
now proposes a further amendment to its pricing schedule to support
these efforts.
---------------------------------------------------------------------------
\3\ See SR-BX-2019-031(filed September 12, 2019, pending
publication); Securities Exchange Act Release No. 34-86120 (June 17,
2019); 84 FR 29270 (June 21, 2019) (SR-BX-2019-026); Securities
Exchange Act Release No. 34-85912 (May 22, 2019); 84 FR 24834 (May
29, 2019) (SR-BX-2019-013).
---------------------------------------------------------------------------
Specifically, the Exchange proposes to amend one of its charges for
displayed orders in securities that add liquidity to the Exchange.
Presently, the Exchange charges $0.0012 per share executed for
displayed orders in securities in Tape C that add liquidity entered by
a member that: (i) Adds liquidity equal to or exceeding 0.17% of total
Consolidated Volume; \4\ and (ii) adds liquidity equal to or exceeding
0.15% of total Consolidated Volume in securities in Tape C during a
month. The Exchange proposes to amend this charge by lowering the
threshold level of total Consolidated Volume that a member must achieve
in securities in Tape C from 0.15% to 0.12% during a month.
---------------------------------------------------------------------------
\4\ As used in Equity 7, Section 118(a), the term ``Consolidated
Volume'' means the total consolidated volume reported to all
consolidated transaction reporting plans by all exchanges and trade
reporting facilities during a month in equity securities, excluding
executed orders with a size of less than one round lot.
---------------------------------------------------------------------------
Applicability to and Impact on Participants
By lowering the level of total Consolidated Volume in securities in
Tape C that is necessary to qualify for the $0.012 per share executed
charge, the Exchange intends to render it easier for a member to
qualify for this charge, which represents the lowest transaction fee
that the Exchange charges for orders that add liquidity in securities
in Tape C. The Exchange believes this change will incentivize members
to increase their liquidity adding activity in Tape C, and to thereby
improve the overall quality and attractiveness of the Nasdaq BX market.
Exchange members that act as net adders of liquidity to the
Exchange in securities in Tape C will stand to benefit most from the
proposed change. Other members will benefit indirectly from any
improvement in the overall quality of the market that this proposal
facilitates. The Exchange notes that its proposal is not otherwise
targeted at or expected to be limited in its applicability to a
specific segment(s) of market participants nor will it apply
differently to different types of market participants.
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.
---------------------------------------------------------------------------
\5\ 15 U.S.C. 78f(b).
\6\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
The Proposal Is Reasonable
The Exchange's proposed change to its schedule of 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\
---------------------------------------------------------------------------
\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)).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\8\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\9\ CBOE EDGA provides a standard charge of $0.0030 per share
executed for liquidity adders (or between $0.0022 and $0.0026 if a
member qualifies for a volume tier). NYSE National has a standard
charge of $0.0028 per share executed for liquidity adders (and a
range of charges from $0.0020-$0.0026 if a member qualifies for a
volume tier).
---------------------------------------------------------------------------
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\
Separately, the Exchange has provided the SEC staff with multiple
examples of instances where pricing changes by BX and other exchanges
have resulted in shifts in exchange market share. Within the foregoing
context, the proposal represents a reasonable attempt by the Exchange
to increase its liquidity and market share relative to its competitors.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
The Exchange has designed its proposal to ease its qualification
requirements for a reduced $0.0012 per share executed charge and to
provide increased overall incentives to members to increase their
liquidity adding activity on the Exchange in Tape C securities. An
increase in liquidity adding activity on the Exchange will, in turn,
improve the quality of the Nasdaq BX market and increase its
attractiveness to existing and prospective participants. Generally, the
proposed amended charge will be comparable to, if not favorable to,
those that its competitors provide.\11\
---------------------------------------------------------------------------
\11\ See n.9, supra.
---------------------------------------------------------------------------
The Exchange notes that those participants that are dissatisfied
with the proposed amended charge are free to shift their order flow to
competing venues that offer them lower charges or less stringent
qualification criteria.
The Proposal Is an Equitable Allocation of Charges
The Exchange believes its proposal will allocate its charges fairly
among its
[[Page 55623]]
market participants. It is equitable for the Exchange to reduce the
qualification requirements for its $0.0012 per share executed charge
for displayed orders that add liquidity to the Exchange as a means of
incentivizing liquidity adding activity. An increase in overall
liquidity addition activity on the Exchange will improve the quality of
the Nasdaq BX market and increase its attractiveness to existing and
prospective participants.
The Proposed Credit 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 the proposal to attract more liquidity to
the market, improving market wide quality and price discovery. Although
net adders of liquidity in Tape C will benefit most from the proposal,
this result is fair insofar as increased activity in securities in Tape
C will help to improve market quality and the attractiveness of the
Nasdaq BX market to all existing and prospective participants.
Moreover, any participant that does not find the qualifying criteria
for the amended charge to be sufficiently is attractive is free to
shift its order flow to a competing venue.
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 grow or
modify their businesses so that they can receive the $0.0012 per share
executed charge. Moreover, members are free to trade on other venues to
the extent they believe that the fees charged are too high or the
qualification criteria 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 modification to its
schedule of charges will not impose a burden on competition because the
Exchange's execution services are completely voluntary and subject to
extensive competition both from the other 12 live exchanges and from
off-exchange venues, which include 32 alternative trading systems. 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 amended schedule of charges 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 only has 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 37% of industry volume for the month of July 2019.
The Exchange intends for the proposed change to increase member
incentives to engage in the addition of Tape C liquidity on the
Exchange. This change is procompetitive and reflective of the
Exchange's efforts to make it an attractive and vibrant venue to market
participants.
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)(ii) of the Act.\12\
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------
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
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-BX-2019-035 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange
[[Page 55624]]
Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-BX-2019-035. 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 (http://www.sec.gov/rules/sro.shtml).
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-2019-035 and should be submitted on
or before November 7, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
---------------------------------------------------------------------------
\13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-22589 Filed 10-16-19; 8:45 am]
BILLING CODE 8011-01-P