[Federal Register Volume 79, Number 244 (Friday, December 19, 2014)]
[Notices]
[Pages 75852-75854]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-29698]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73836; File No. SR-BX-2014-059]
Self-Regulatory Organizations; NASDAQ OMX BX; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Changes to Amend Rule
7018 to establish Fees and Rebates in Connection with BX's Retail Price
Improvement (``RPI'') Program
December 15, 2014.
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 December 3, 2014, NASDAQ OMX 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.\3\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ The Commission notes that the Exchange initially filed the
proposed rule change on November 24, 2014 under File Number SR-BX-
2014-058. On December 3, 2014, the Exchange withdrew SR-BX-2014-058
due to errors in the Form 19b-4 and Exhibit 1, and refiled the
proposed rule change under SR-BX-2014-059.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is proposing changes to amend BX Rule 7018 to
establish fees and rebates in connection with BX's Retail Price
Improvement (``RPI'') Program. The Exchange proposes to implement the
proposed rule change on December 1, 2014, contemporaneously with the
launch of the RPI Program.
The text of the proposed rule change is available on the Exchange's
Web site at http://nasdaqomxbx.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. 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 this proposal is to amend BX Rule 7018 to establish
fees and rebates for execution of orders under BX's recently filed RPI
Program.\4\ Under the RPI Program, a member (or a division thereof)
approved by the Exchange to participate in the program (a ``Retail
Member Organization'' or ``RMO'') may submit designated ``Retail
Orders'' \5\ for the purpose of seeking price improvement. All BX
members may enter retail price improvement orders (``RPI Orders''),\6\
a form of non-displayed orders that are priced more aggressively than
the Protected National Best Bid or Offer (``NBBO'') by at least $0.001
per share, for the purpose of offering such price improvement. RMOs may
use two types of Retail Orders. A Type 1 Retail Order is eligible to
execute only against RPI Orders and other orders (such as midpoint
pegged orders) that will provide price improvement. Type 2 Retail
Orders interact first with available RPI Orders and other price
improving orders, and then are eligible to access non-price improving
liquidity on the BX book and to route to other trading venues if so
designated.
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\4\ Securities Exchange Act Release No. 73410 (October 23,
2014), 79 FR 64447 (October 29, 2014) (SR-BX-2014-048) (proposing
RPI program and exemption from SEC Rule 612 under Regulation NMS, 17
CFR 242.612, in connection therewith).
\5\ A Retail Order is defined in BX Rule 4780(a)(2), in part, as
``an agency or riskless principal order that satisfies the criteria
of FINRA Rule 5320.03, that originates from a natural person and is
submitted to the Exchange by a Retail Member Organization, provided
that no change is made to the terms of the order with respect to
price (except in the case that a market order is changed to a
marketable limit order) or side of market and the order does not
originate from a trading algorithm or any other computerized
methodology.''
\6\ A Retail Price Improvement Order is defined in BX Rule
4780(a)(3), in part, as consisting of ``non-displayed liquidity on
the Exchange that is priced better than the Protected NBBO by at
least $0.001 and that is identified as such.''
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BX proposes to offer a rebate of $0.0025 per share executed to RMOs
with respect to Retail Orders that execute against RPI Orders. RMO
orders that execute against other orders providing price improvement
with respect to the NBBO will receive a rebate otherwise applicable to
executions of orders that access liquidity. For Type 2 Retail Orders
that execute against non-price improving orders on the BX book, BX will
offer a rebate otherwise applicable to execution of orders that access
liquidity. Similarly, when Type 2 Retail Orders are routed and execute
at another trading venue, BX will charge the fee otherwise applicable
to execution of routed orders. For RPI orders that provide liquidity,
BX will charge a fee of $0.0025 per share executed. Other orders that
provide liquidity to Retail Orders will receive the credit or pay the
fee otherwise applicable to orders that provide liquidity.
2. Statutory Basis
BX believes that the proposed rule change is consistent with the
provisions of Section 6 of the Act,\7\ in general, and with Sections
6(b)(4) and 6(b)(5) of the Act,\8\ in particular, in that it provides
for the equitable allocation of reasonable dues, fees and other charges
among members and issuers and other persons
[[Page 75853]]
using any facility or system which BX operates or controls, and is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\7\ 15 U.S.C. 78f.
\8\ 15 U.S.C. 78f(b)(4) and (5).
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The proposed fees with respect to the RPI program are reflective of
BX's ongoing efforts to use pricing incentive programs to attract
orders of retail customers to BX and improve market quality. The goal
of this program and similar pricing incentives is to provide meaningful
incentives for members that represent the orders of retail customers to
increase their participation on BX.
The proposed credit of $0.0025 per share executed with respect to
Retail Orders that access Retail Price Improvement Order liquidity
offering price improvement is reasonable because it will result in a
significant increase of rebates with respect to such orders, thereby
reducing the costs of members that represent retail customers and that
take advantage of the program, and potentially also reducing costs to
the customers themselves. The change is consistent with an equitable
allocation of fees because BX believes that it is reasonable to use
rebate increases as a means to encourage greater retail participation
in BX. Because retail orders are likely to reflect long-term investment
intentions, they promote price discovery. Accordingly, their presence
in the BX market has the potential to benefit all market participants.
For this reason, BX believes that it is equitable to provide
significant financial incentives to encourage greater retail
participation in the market. BX further believes that the proposed
program is not unreasonably discriminatory because it is offered to
firms representing retail customers without regard to the firm's
trading volumes, and is therefore complementary to existing programs,
such as the Routable Order Program that already aim to encourage
greater retail participation, but that have minimum volume requirements
associated with them. The proposed fees and credits with respect to
Retail Orders that execute against liquidity other than that provided
by Retail Price Improvement Orders or by routing to other trading
venues are reasonable, equitably allocated, and not unreasonably
discriminatory because they do not reflect a change from the fees and
credits currently in effect with respect to orders that access
liquidity on BX or route.
The proposed fee with respect to a Retail Price Improvement Order
that provides liquidity is reasonable because, as previously recognized
by the Commission, it reflects the fact that markets often seek to
distinguish between orders of individual retail investors and orders of
professional traders.\9\ In this instance, the RPI seeks to balance the
consideration that ``retail investors may [sic] on average be less
informed about short-term price movements . . . [than] professional
traders'' \10\ with a fee charged to liquidity providers and a program
designed to provide retail investors with price improvement and
favorable execution prices. BX further believes that the fee charged
with respect to Retail Price Improvement Orders is equitable and not
unreasonably discriminatory for this same reason, and also because the
use of such orders by liquidity providers is voluntary. Firms that
believe that potential advantages of interacting with Retail Orders
outweigh the costs of price improvement and the fee charged by BX will
employ this new order type. Those that do not are free to forego
involvement in the program and pay a fee under BX's standard price
schedule when providing liquidity.
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\9\ Securities Exchange Act Release No. 67347 (July 3, 2012), 77
FR 40763 [sic], 40769-40680 [sic] (July 10, 2012) (SR-NYSE-2011-55;
SR-NYSEAmex-2011-84).
\10\ Id.
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Finally, BX 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. In such an
environment, BX 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. BX believes that the proposed rule change reflects this
competitive environment because it is designed to allow BX to compete
with other exchanges and that offer similar price improvement programs
for retail orders.
B. Self-Regulatory Organization's Statement on Burden on Competition
BX does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended. In this instance,
the introduction of the RPI program is designed to allow BX to compete
more effectively with the New York Stock Exchange (``NYSE''), NYSE MKT
LLC (``MKT''), NYSE Arca, Inc. (``Arca'''') and the BATS-Y Exchange,
all of which offer similar programs designed to attract retail order
flow. BX has structured its fees in a manner similar to these
exchanges, but as a new ``entrant'' in the field of those exchanges
offering such programs. Specifically, BX will offer a higher credit to
Retail Orders than NYSE, MKT, or Arca and will offer the credit with
respect to all securities priced above $1 that it trades. BX will,
however, offset these higher credits for retail orders by charging a
higher fee to liquidity providers than is the case with some of its
competitors. BX believes that the proposed higher credits with respect
to Retail Orders will enhance competition by drawing additional retail
order flow to BX and possibly encouraging other trading venues to make
competitive pricing changes.
With respect to the proposed fees for Retail Price Improvement
Orders, because the market for order execution is extremely
competitive, members that provide liquidity may readily opt to forego
participation in the BX program if they believe that alternatives offer
them better value. For these reasons and the reasons discussed in
connection with the statutory basis for the proposed rule change, BX
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) of the Act \11\ and paragraph (f) of Rule 19b-4
thereunder.\12\ 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.
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f).
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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:
[[Page 75854]]
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-2014-059 on the subject line.
Paper Comments
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-2014-059. 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 Web site (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 Web site 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 such filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-BX-2014-059 and should be
submitted on or before January 9, 2015.
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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-29698 Filed 12-18-14; 8:45 am]
BILLING CODE 8011-01-P