[Federal Register Volume 83, Number 144 (Thursday, July 26, 2018)]
[Notices]
[Pages 35502-35505]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-15944]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-83680; File No. SR-BX-2018-032]
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Section
7018(a) of the Exchange's Rules
July 20, 2018.
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 July 10, 2018, 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 transaction fees at
Rule 7018(a), as described further below.
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 purpose of the proposed rule change is to amend the Exchange's
transaction fees at Rule 7018 to (i) adjust the volume threshold for a
credit associated with orders that access liquidity that are entered by
members that access liquidity equal to or in excess of a certain
percentage of their total Consolidated Volume \3\ for a month; (ii)
establish two new credit tiers for orders that access liquidity equal
to or exceeding 0.20% of total Consolidated Volume during a month and
access 20% more liquidity as a percentage of Consolidated Volume than
the member accessed in May 2018; and (iii) increase the fee applicable
to buy (sell) orders with Midpoint pegging that receive an execution
price that is lower (higher) than the midpoint of the National Best Bid
and Offer (``NBBO'').
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\3\ Pursuant to Rule 7018(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.
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First Change
The Exchange operates on the ``taker-maker'' model, whereby it pays
credits to members that take liquidity and charges fees to members that
provide liquidity. Currently, the Exchange offers several different
credits for orders that access liquidity on the Exchange. Among these
credits, the Exchange pays a credit of $0.0015 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 that
accesses liquidity equal to or exceeding
[[Page 35503]]
0.05% of total Consolidated Volume during a month. The Exchange
proposes to increase the Consolidated Volume threshold applicable to
this credit to 0.075% of total Consolidated Volume during a month. The
Exchange proposes this changes [sic] to provide a greater incentive to
member firms to remove liquidity from the Exchange.
Second and Third Changes
The Exchange proposes to add two new categories of credit for
members whose orders remove liquidity from the Exchange. First, the
Exchange proposes to offer a $0.0018 per share executed credit for
orders that access liquidity in securities in Tapes A and C (excluding
orders with Midpoint pegging and excluding orders that receive price
improvement and execute against an order with a Non-displayed price)
that are entered by a member that: (i) Accesses liquidity equal to or
exceeding 0.20% of total Consolidated Volume during a month; and (ii)
accesses 20% more liquidity as a percentage of Consolidated Volume than
the member accessed in May 2018. Second, the Exchange proposes to offer
a $0.0019 per share executed credit for orders that access liquidity in
securities in Tape B (excluding orders with Midpoint pegging and
excluding orders that receive price improvement and execute against an
order with a Non-displayed price) that are entered by a member that:
(i) Accesses liquidity equal to or exceeding 0.20% of total
Consolidated Volume during a month; and (ii) accesses 20% more
liquidity as a percentage of Consolidated Volume than the member
accessed in May 2018.
An example of how these credits will work is as follows. Firm X
removes 0.19% of total Consolidated Volume in securities in Tape A in
May 2018. In July 2018, Firm X removes 0.23% of total Consolidated
Volume in securities in the same Tape. Firm X will therefore qualify
for a $0.0018 per share executed credit for its orders that access
liquidity in securities in Tape A (excluding orders with Midpoint
pegging and excluding orders that receive price improvement and execute
against an order with a Non-displayed price) because, during July, Firm
X removed more than 0.20% of total Consolidated Volume in securities in
Tape A and it also removed 20% more liquidity in July (as a percentage
of Consolidated Volume) than it did in May.
The Exchange proposes to add these credits to provide new and
stronger incentive for members to remove and to increase their removal
of liquidity from the Exchange. In particular, the Exchange proposes a
higher credit for removing liquidity in Tape B than it does in Tapes A
or C to specifically target Tape B securities, where the Exchange has
seen less activity than it has in Tape A and C securities.
Fourth Change
Presently, the Exchange charges a baseline fee of $0.0030 per share
executed for each non-displayed order that adds liquidity. However, for
certain types of non-displayed orders that add liquidity, the Exchange
charges lower fees relative to the baseline fee as a means of
incentivizing additional liquidity. For example, the Exchange charges
$0.0015 per share executed for orders with Midpoint pegging \4\ or
$0.0005 if the order with Midpoint pegging is entered by a member that
adds 0.02% of total Consolidated Volume of non-displayed liquidity.
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\4\ Pursuant to Rule 4703(d), an order with a ``Midpoint
pegging'' attribute is a nondisplayed order whose price is
determined withreference to midpoint between the Inside Bid and
Inside Offer (the ``Midpoint'').
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In May 2018, the Exchange added a fee of $0.0017 per share executed
for buy (sell) orders with Midpoint pegging that receive execution
prices that are lower (higher) than the midpoint of the NBBO.\5\ In
doing so, the Exchange explained that the $0.0017 per share executed
fee--which is higher than the fees that the Exchange charges to execute
regular Midpoint pegging orders--is reasonable because orders that
execute at prices better than the Midpoint of the NBBO receive better
prices than regular Midpoint pegging orders.\6\ The Exchange also
explained that the fee is also reasonable because it is lower than the
baseline $0.0030 fee that the Exchange charges for non-display orders,
and thus provides incentives for non-displayed orders that provide
price improvement relative to the Midpoint.\7\
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\5\ See Release No. 34-83224 (May 14, 2018), 83 FR 23312 (May
18, 2018) (SR-BX-2018-018).
\6\ See id.
\7\ See id.
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After having observed the impact of this fee over the past few
months, the Exchange has determined to re-calibrate it so that it is
better aligned with the Exchange's objectives in imposing it.
Accordingly, the Exchange proposes to increase the fee from $0.0017 per
share executed to $0.0024 per share executed. Even with this re-
calibration, the Exchange believes that the fee remains reasonable for
the same reasons it expressed upon establishing it.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\8\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\9\ 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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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(4) and (5).
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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.'' \10\
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\10\ Securities Exchange Act Release No. 51808 (June 9, 2005),
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
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Likewise, in NetCoalition v. Securities and Exchange Commission
\11\ (``NetCoalition'') the D.C. Circuit upheld the Commission's use of
a market-based approach in evaluating the fairness of market data fees
against a challenge claiming that Congress mandated a cost-based
approach.\12\ As the court emphasized, the Commission ``intended in
Regulation NMS that `market forces, rather than regulatory
requirements' play a role in determining the market data . . . to be
made available to investors and at what cost.'' \13\
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\11\ NetCoalition v. SEC, 615 F.3d 525 (DC Cir. 2010).
\12\ See NetCoalition, at 534-535.
\13\ Id. at 537.
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Further, ``[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'. . . .'' \14\ Although the court and
the SEC were discussing the cash equities markets, the Exchange
believes
[[Page 35504]]
that these views apply with equal force to the options markets.
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\14\ Id. at 539 (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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First Change
The Exchange believes that it is reasonable to increase the
Consolidated Volume threshold on its credit for orders that access
liquidity (excluding orders with Midpoint pegging and excluding orders
that receive price improvement and execute against an order with
Midpoint pegging) entered by members that access liquidity equal to or
exceeding 0.05% of total Consolidated Volume during a month. The
Exchange must, from time to time, assess the effectiveness of its
credits in achieving their intended objectives and adjust the levels of
such credits based on the Exchange's observations of market participant
behavior. In this instance, the Exchange determined that the threshold
percentage of Consolidated Volume that is necessary for members to
qualify for the credits should be increased to provide stronger
incentives to market participants to improve the market. The Exchange
believes that the proposed increase is equitable and is not unfairly
discriminatory because it will apply to all similarly situated member
firms.
Second and Third Changes
Likewise, the Exchange believes that its proposal is reasonable to
add new credits for orders that access liquidity (excluding orders with
Midpoint pegging and those that receive price improvement and execute
against an order with a non-displayed price) that are entered by
members that access liquidity equal to or in excess of 0.20% of total
Consolidated Volume during a month and that access 20% more liquidity
as a percentage of Consolidated Volume than the member accessed in May
2018. This proposal is reasonable because it will provide new and
stronger incentive for members to improve the market by removing
liquidity from the Exchange. It will also incent them to increase the
extent of this activity on the Exchange relative to their activity
levels as of May 2018. The Exchange believes it is reasonable,
equitable, and not unfairly discriminatory to propose a higher credit
to members that remove liquidity in securities in Tape B than those
that do so in securities in Tapes A and C because the Exchange has
experienced less activity in Tape B securities relative to Tapes A and
C securities and it wishes to specifically target increased activity
with respect to Tape B securities. The Exchange also believes that
these proposals are equitable and not unfairly discriminatory because
they will apply to all similarly situated member firms.
Fourth Change
Finally, the Exchange believes that its proposal is reasonable to
increase the fee it charges for Midpoint pegging buy (sell) orders that
receive execution prices that are lower (higher) than the midpoint of
the NBBO. A Midpoint pegging order that receives price improvement
relative to the midpoint of the NBBO receives a better price than an
order that executes at the midpoint of the NBBO, such that the fee that
the Exchange charges for the former is higher than the latter.
Notwithstanding the proposed fee increase, the Exchange notes that the
$0.0024 per share executed fee that it proposes to charge for Midpoint
pegging orders that receive price improvement relative to the midpoint
of the NBBO remains lower than the baseline $0.0030 per share executed
fee that the Exchange charges for non-displayed orders.
The Exchange also notes that it is reasonable for it, from time to
time, to adjust its mix of fees, rebates, and credits so as to ensure
that the Exchange is allocating its limited resources efficiently and
in a manner that best achieves its overarching objectives. The proposed
fee change is function of that adjustment.
The Exchange believes that the proposed fee increase is an
equitable allocation and is not unfairly discriminatory because the
Exchange will apply the same fee to all similarly situated members.
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. 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 fees and credits 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 and credits in
response, and because market participants may readily adjust their
order routing practices, the Exchange believes that the degree to which
fee or credit changes in this market may impose any burden on
competition is extremely limited.
In this instance, the Exchange's proposals to add to or modify its
credits do not impose a burden on competition because these proposals
are reflective of the Exchange's overall efforts to provide greater
incentives to market participants that it believes will improve the
market, to the benefit of all participants. The Exchange does not
believe that any of the proposed changes will impair the ability of
members or competing order execution venues to maintain their
competitive standing in the financial markets. Moreover, because there
are numerous competitive alternatives to the use of the Exchange, it is
likely that BX will lose market share as a result of the changes if
they are unattractive to market participants.
Likewise, the Exchange's proposed fee increase does not impose a
burden on competition because the Exchange's execution services are
completely voluntary and subject to extensive competition both from
other exchanges and from off-exchange venues. Again, if the proposed
fee increase 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 proposal 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.\15\
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\15\ 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.
[[Page 35505]]
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-2018-032 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-2018-032. 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-2018-032 and should be submitted on
or before August 16, 2018.
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\16\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
Brent J. Fields,
Secretary.
[FR Doc. 2018-15944 Filed 7-25-18; 8:45 am]
BILLING CODE 8011-01-P