[Federal Register Volume 82, Number 76 (Friday, April 21, 2017)]
[Pages 18798-18800]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-08063]



[Release No. 34-80475; File No. SR-BX-2017-020]

Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Exchange's Transaction Fees at Rule 7018

April 17, 2017.
    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 11, 2017, 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 the Exchange's transaction fees at 
Rule 7018 to limit the availability of credits provided for removing 
non-displayed liquidity.
    The text of the proposed rule change is available on the Exchange's 
Web site 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

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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 limit the credits 
provided for removing liquidity on BX under Rule 7018(a).\3\ The 
Exchange operates on the ``taker-maker'' model, whereby it pays rebates 
to members that take liquidity and charges fees to members that provide 
liquidity. Under Rule 7018(a), the Exchange assesses fees for adding 
liquidity, and provides credits for removing liquidity, applied to the 
use of the Order \4\ execution and routing services of the NASDAQ OMX 
BX Equities System by members for all securities priced at $1 or more 
per share that it trades. Currently, the Exchange will provide a credit 
under Rule 7018(a) to a member that removes liquidity when its Order is 
priced-improved by the System. Specifically, an Order (excluding Orders 
with Midpoint pegging \5\ and excluding Orders that receive price 
improvement and execute against an Order with Midpoint pegging) that 
accesses liquidity may receive a credit of $0.0006, $0.0015 or $0.0016 
per share executed. Such Orders include Orders that receive price 
improvement, other than those that execute against an Order with 
Midpoint pegging.

    \3\ The Exchange initially filed the proposed rule change on 
April 3, 2017 (SR-BX-2017-019). On April 11, 2017, the Exchange 
withdrew that filing and submitted this filing.
    \4\ As defined by Rule 4702(a).
    \5\ Pegging is an Order Attribute that allows an Order to have 
its price automatically set with reference to the NBBO. Midpoint 
pegging means Pegging with reference to the midpoint between the 
Inside Bid and the Inside Offer (the ``Midpoint''). An Order with 
Midpoint Pegging is not displayed. See Rule 4703(d).

    The Exchange excludes liquidity removing Orders that execute 
against resting Orders with Midpoint pegging from receiving a credit 
because the member received the benefit of receiving price improvement 
from executing against an Order that is priced better than the NBBO. 
Moreover, the member receiving the price improvement did not undertake 
any additional risk to receive the benefit, but was rather a 
beneficiary of the midpoint liquidity. For similar reasons, the 
Exchange is proposing to expand the applicability of the zero credit 
tier to include a liquidity removing Order that is price improved by 
other resting orders with Non-display prices. Thus, in addition to 
Orders with Midpoint Pegging, other Orders that may have a non-display 
price are: Price to Comply Orders,\6\ Non-Displayed Orders,\7\ Post-
Only Orders,\8\ and Orders with a Reserve Size \9\ attribute.

    \6\ See Rule 4702(b)(1).
    \7\ See Rule 4702(b)(3).
    \8\ See Rule 4702(b)(4).
    \9\ See Rule 4703(h).

    As an example, if the NBBO is $10 x $10.02, with Market A showing a 
bid of 100 shares at $10, Market B showing an offer of 100 shares at 
$10.02 and the Exchange displaying a best bid of $9.99 and offer of 
$10.03, a member that enters an Order with a Non-display attribute to 
buy 100 shares at $10.01 would not have a marketable Order and would 
post to the Exchange book as a Non-displayed Order at $10.01. If a 
second member enters an Order to sell 100 shares at $10, the Order 
would execute against the Non-displayed Order to buy at $10.01 resting 
on the Exchange Book. Such an execution would represent price 
improvement to the second member without taking on any additional risk 
or market-improving behavior. Accordingly, the Exchange does not 
believe that it is necessary also to pay a rebate to encourage the 
submission of such Orders. Rather, the execution of such Orders will be 
free of charge.
    Last, the Exchange is proposing to make conforming changes to two 
credits under Rule 7018(a) that currently exclude orders that receive 
price improvement and execute against an order with Midpoint pegging 
from the eligibility criteria of the credit. Specifically, under the 
$0.0016 and $0.0015 per executed share credits of Rule 7018(a) the 
Exchange is proposing to replace references to orders that receive 
price improvement and execute against an order with Midpoint pegging to 
make it clear that orders with a Non-Displayed price are excluded from 
the rule. Thus, the exclusion under these two credits will continue to 
remain consistent with the proposed amended zero credit tier.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\10\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\11\ 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.

    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4) and (5).

    The Exchange believes that offering Orders that remove liquidity 
and receive price improvement at no cost is reasonable because the 
execution of such Orders is free of charge. Generally, the Exchange 
offers reduced transaction fees and credits in return for market-
improving behavior. The Exchange determined to not provide a credit to 
members for Orders that remove liquidity when the Order receives price 
improvement by executing against a Mid-point Order, since the member 
removing liquidity is benefitting from the price improvement. Likewise, 
the Exchange is expanding the existing credit tier to include all 
Orders with a Non-Displayed price that provide price improvement.
    The Exchange believes that offering Orders that remove liquidity 
and receive price improvement at no cost is consistent with an 
equitable allocation of fees and is not unfairly discriminatory because 
such Orders invariably receive price improvement of at least $0.005 per 
share, and therefore do not need an additional rebate of $0.0006 to 
$0.0016 to encourage their submission to the Exchange. Moreover, the 
Exchange believes that the change is not unfairly discriminatory 
because the price improvement provided to these Orders provides a 
rational basis for treating them differently from other Orders that 
access liquidity at the Exchange.

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 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

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burden on competition is extremely limited.
    In this instance, the proposed changes to the charges assessed and 
credits available to members for execution of securities in securities 
of all three Tapes do 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. The proposed expansion of the zero credit tier is not a burden 
on competition because the Exchange has limited resources to apply as 
credits and such resources must be applied in a manner that the 
Exchange believes will best improve market quality thereon. The 
Exchange believes that providing credits to members that are already 
receiving price improvement is not the most efficient allocation of 
such limited resources, since such Orders do not need to be 
incentivized. As a consequence, the Exchange believes that offering 
such executions at no cost will not place a burden on competition, but 
rather will allow the Exchange to apply its limited resources to other 
areas wherein it can promote market-improving behavior by its 
participants. Thus, the proposed changes have the potential to make the 
Exchange a more attractive trading venue, and consequently may promote 
competition among markets. In sum, 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.\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-2017-020 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-2017-020. 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 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; 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-2017-020 and should be 
submitted on or before May 12, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\

    \13\ 17 CFR 200.30-3(a)(12).

Brent J. Fields,
[FR Doc. 2017-08063 Filed 4-20-17; 8:45 am]