80 FR 11254 - Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Fee Schedule Under Exchange Rule 7018(a) and (e) With Respect to Transactions in Securities Priced at $1 per Share or More

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 40 (March 2, 2015)

[Federal Register Volume 80, Number 40 (Monday, March 2, 2015)]
[Notices]
[Pages 11254-11256]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-04189]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74363; File No. SR-BX-2015-013]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend the 
Fee Schedule Under Exchange Rule 7018(a) and (e) With Respect to 
Transactions in Securities Priced at $1 per Share or More

February 24, 2015.
    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 February 11, 2015, 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.
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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 fee schedule under Exchange Rule 
7018 with respect to transactions in securities priced at $1 or more 
per share.
    The text of the proposed rule change is also 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 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 is proposing to amend BX Rule 7018(a) and (e) to 
modify the fees and rebates assessed under the rule applicable to 
transactions in securities priced at $1 or more. Specifically, the 
Exchange proposes to clarify and make uniform throughout BX Rule 
7018(a) the term ``Midpoint pegging'', as well as in BX Rule 7018(e) 
regarding credits for retail orders. The Exchange also proposes to 
include within BX Rule 7018(a) a specific line item for a credit for an 
``Order with Midpoint pegging that removes liquidity'' of $0.0005 per 
share executed. The Exchange believes that these proposed changes 
increase transparency as to how a member's credit is determined, 
clarify the fee schedule, and do not change the overall current rate 
for such credits except for the one minor change noted above.\3\
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    \3\ The addition of the language concerning price improvement to 
BX Rule 7018 merely reflects how the system for credits and fees 
already currently operates, which is why this new language does not 
change the overall current rates for such credits.
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    Changing the language for non-displayed orders entered by a member 
that provides an average daily volume of 3.5 million or more shares 
(but less than 5 million shares) of non-displayed liquidity to include 
``other than orders with Midpoint pegging'' instead of ``including 
those pegged to the midpoint'' results in no actual change. Currently, 
a member would never receive the $0.0024 per share executed charge for 
an order with Midpoint pegging because instead the member would have 
qualified for the $0.0005 per share executed charge for an order with 
Midpoint pegging entered by a member that provides an average daily 
volume of 2 million or more shares of non-displayed liquidity during 
the month.
    Additionally, the Exchange proposes to define ``price improvement'' 
to mean instances when the accepted price of an order differs from the 
executed price of an order and incorporate it where applicable in BX 
Rule 7018(a) and (e). The accepted price is the price the matching 
engine assigns an order based on the instructions submitted by the 
member. It may differ from a customer's limit price because of the 
order type (e.g., pegging and post only orders) or for regulatory 
reasons (e.g., Reg SHO, Reg NMS compliance or other regulatory 
restrictions). The accepted price of an order will not be more 
aggressive than the customer's limit price, and is often the same as 
the customer's submitted limit price. An order can execute up to its 
accepted price and this is the least advantageous price at which an 
order can execute. Any execution price that is different than the 
accepted price must be more advantageous than the accepted price. Thus, 
executions where the accepted price does not equal the execution price 
are situations when the order is receiving price improvement versus its 
accepted price.
    The Exchange also proposes to change the fee assessed for BTFY and 
BCRT orders in securities listed on The NASDAQ Stock Market LLC 
(``NASDAQ'') (``Tape C''), the New York Stock Exchange (``NYSE'') 
(``Tape A'') and on exchanges other than NASDAQ and the NYSE (``Tape 
B'') (collectively, the ``Tapes'').
    BTFY \4\ is a routing option under which orders check the order 
execution and trade reporting system owned and operated by BX (the 
``System'') for available shares only if so instructed by the entering 
firm and are thereafter routed to destinations on the System routing 
table. If shares remain unexecuted after routing, they are posted to 
the System book. Once on the System book, should the order subsequently 
be locked or crossed by another market center, the System will not 
route the order to the locking or crossing market center.
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    \4\ See BX Rule 4758(a)(v).
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    BCRT \5\ is a routing option under which orders check the System 
and then route to PSX and NASDAQ. If shares remain unexecuted, they are 
posted to the System book or cancelled. Once on the System book, should 
the order subsequently be locked or crossed by another market center, 
the System will not route the order to the locking or crossing market 
center.
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    \5\ See BX Rule 4758(a)(vii).
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    For BTFY and BCRT orders, the Exchange currently passes through all 
fees and rebates for orders that execute on PSX or NASDAQ. BTFY and 
BCRT orders executed on BX result in a pass through charge of $0.0025 
or $0.0026 per share executed on PSX \6\ and $0.0030 per share executed 
on

[[Page 11255]]

NASDAQ.\7\ The Exchange is proposing to now assess a set charge of 
$0.0030 per share executed for BTFY orders that execute on NYSE, NASDAQ 
or PSX and $0.0007 per share executed for BTFY orders executed on any 
other venue. The Exchange is also proposing to now assess a set charge 
of $0.0030 per share executed for BCRT orders that executes on PSX or 
NASDAQ in lieu of passing through credits and rebates.
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    \6\ See NASDAQ OMX PHLX LLC Pricing Schedule, Section 
VIII(a)(1).
    \7\ See NASDAQ Rule 7018(a).
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    BX is proposing to eliminate pass through fees and assess a set fee 
of $0.0030 per share executed for both BTFY and BCRT. The Exchange 
currently passes through any routing fees charged and rebates to NASDAQ 
or PSX for these orders, which currently is $0.0030 per share executed 
on NASDAQ and varies by tape on PSX but also may vary based on changes 
to those exchange's respective fee schedules.
2. Statutory Basis
    BX believes that the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\8\ in general, and with 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 or 
system which the Exchange operates or controls, and is designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest; and are not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers.
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    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the proposed changes (i) to make the 
term ``Midpoint pegging'' uniform throughout BX Rule 7018(a) and (e), 
to define ``price improvement' to mean instances when the accepted 
price of an order differs from the executed price of an order and 
incorporate it where applicable in BX Rule 7018(a) and (e), (ii) to 
include within BX Rule 7018(a) a specific line item for a credit for an 
``Order with Midpoint pegging that removes liquidity'' of $0.0005 per 
share executed, and (iii) to change the language for non-displayed 
orders entered by a member that provides an average daily volume of 3.5 
million or more shares (but less than 5 million shares) of non-
displayed liquidity to include ``other than orders with Midpoint 
pegging'' instead of ``including those pegged to the midpoint'' are 
reasonable because they increase transparency as to how a member's 
charges and credits are determined. The Exchange also believes that 
these changes are consistent with an equitable allocation of fees and 
are not unfairly discriminatory because the overall current rate for 
such credits will not change except for the one minor change noted 
above and they apply uniformly to all market participants to whom the 
fee schedule is applicable.
    Additionally, the Exchange believes that the proposed changes to 
the charges assessed for BTFY and BCRT orders in securities of any Tape 
that execute on PSX are reasonable because they more closely align the 
fee received with the costs associated with providing routing services. 
The Exchange incurs costs in operating and supporting the routing 
function, which are in addition to the fees of other exchanges that it 
incurs when a routed order executes on another venue. To cover such 
costs, the Exchange assesses the proposed fee for other routed orders, 
such as BSTG and BSCN orders, which are assessed a charge of $0.0030 
per share executed.\10\ Thus, the current pass through fee results in a 
discount to the fee assessed for use of the routing function for other 
routed orders.
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    \10\ For a description of BSTG and BSCN routing strategies, see 
BX Rules 4758(a)(1)(A)(iii) and (iv).
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    The Exchange also believes that the proposed changes are reasonable 
because they remove complexity from the fee schedule and assess a fee 
that is not dependent on knowing what the current liquidity removal 
rates are on PSX and NASDAQ. The Exchange believes that the proposed 
changes to BTFY and BCRT order fees are equitably allocated because all 
member firms that receive an execution on PSX and NASDAQ will be 
assessed a fee that is more closely aligned with the costs incurred by 
the Exchange, as noted above. Also, the Exchange believes that the 
proposed changes to BTFY and BCRT order fees as to PSX do not 
discriminate unfairly because they eliminate a distinction in the fees 
whereby discounted fees are charged for use of the Exchange's routing 
functionality. Moreover, the proposed changes do not discriminate 
unfairly because they eliminate a distinction in the routing fees 
whereby some fees are fixed and others are based on fee assessed by 
other markets. As noted above, most routing fees are based on a set 
fee, and are not tied to the fees of other markets.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule changes will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended.\11\ 
BX notes that it operates in a highly competitive market in which 
market participants can readily favor over 40 different competing 
exchanges and alternative trading systems 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, BX must 
continually adjust its fees to remain competitive with other exchanges. 
Because competitors are free to modify their own fees in response, and 
because market participants may readily adjust their order routing 
practices, BX believes that the degree to which fee changes in this 
market may impose any burden on competition is extremely limited.
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    \11\ 15 U.S.C. 78f(b)(8).
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    In this instance, the changes to routing fees and credits do not 
impose a burden on competition because the Exchange's routing services 
are optional and are the subject of competition from other exchanges 
and broker-dealers that offer routing services, as well as the ability 
of members to develop their own routing capabilities. The 
standardization of fees for execution of BTFY and BCRT orders that 
route from BX to PSX or NASDAQ are reflective of a need to better align 
the fees received with the costs incurred in operating and supporting 
the routing function. It removes an unnecessarily complex process to 
determine the fee assessed with a set fee, which is consistent with 
other BX routing fees. Under the current fees, a member firm must know 
what the fee schedule is on PSX and NASDAQ at any given time. Thus, the 
changes will simplify the fee schedule by providing certainty to the 
fee assessed. For these reasons, 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. Finally, the changes relating to Midpoint pegging

[[Page 11256]]

also will not result in any burden on competition because they serve to 
clarify and enhance the understanding of members as to how rates are 
assigned.
    Accordingly, BX does not believe that the proposed rule 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 change has become effective pursuant to Section 
19(b)(3)(A) of the Act \12\ and paragraph (f) of Rule 19b-4 \13\ 
thereunder. 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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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 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:

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-2015-013 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-BX-2015-013. 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-
2015-013, and should be submitted on or before March 23, 2015.


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Jill M. Peterson,
Assistant Secretary.
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    \14\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2015-04189 Filed 2-27-15; 8:45 am]
BILLING CODE 8011-01-P