81 FR 46126 - Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Fees Under Rule 7018

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 136 (July 15, 2016)

[Federal Register Volume 81, Number 136 (Friday, July 15, 2016)]
[Notices]
[Pages 46126-46129]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-16719]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78278; File No. SR-BX-2016-041]


Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Fees Under 
Rule 7018

July 11, 2016.
    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 June 30, 2016, NASDAQ BX, Inc. (``BX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule

[[Page 46127]]

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 to: (i) Eliminate a $0.0017 per share executed credit tier 
that is provided for an order that accesses liquidity; and (ii) 
eliminate a $0.0019 per share executed fee tier charged for providing 
liquidity to the System.
    While these amendments are effective upon filing, the Exchange has 
designated the proposed amendments to be operative on July 1, 2016.
    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 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: (i) Eliminate a 
credit tier provided for an order that accesses liquidity; and (ii) 
eliminate a fee tier charged for providing liquidity to the System.
First Change
    The purpose of the first proposed change is to eliminate a $0.0017 
per share executed credit tier provided for an order that accesses 
liquidity. The Exchange currently provides a $0.0017 per share executed 
credit for an order that accesses liquidity (excluding orders with 
Midpoint pegging and excluding orders that receive price improvement 
and execute against an order with Midpoint pegging) entered by a member 
that accesses liquidity equal to or exceeding 0.20% of total 
Consolidated Volume \3\ during a month. The Exchange also has two other 
credit tiers based on Consolidated Volume. Specifically, the Exchange 
provides a $0.0016 and a $0.0015 per share executed credit for an order 
that accesses liquidity (excluding orders with Midpoint pegging and 
excluding orders that receive price improvement and execute against an 
order with Midpoint pegging) entered by a member that accesses 
liquidity equal to or exceeding 0.10% or 0.05% of total Consolidated 
Volume during a month, respectively. All other orders that remove 
liquidity (excluding orders with Midpoint pegging and excluding orders 
that receive price improvement and execute against an order with 
Midpoint pegging) receive a credit of $0.0006 per share executed. The 
Exchange has observed that very few members qualify for the $0.0017 per 
share executed credit tier and it has not been effective at providing 
incentive to market participants to achieve the level of Consolidated 
Volume needed to qualify for the credit. Accordingly, the Exchange is 
proposing to eliminate the $0.0017 per share executed credit tier.
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    \3\ Consolidated Volume is defined as 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. For purposes of calculating Consolidated Volume 
and the extent of a member's trading activity the date of the annual 
reconstitution of the Russell Investments Indexes shall be excluded 
from both total Consolidated Volume and the member's trading 
activity. As used in this rule, ``price improvement'' shall mean 
instances when the accepted price of an order differs from the 
executed price of an order. See Rule 7018.
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Second Change
    The purpose of the second proposed change is to eliminate a $0.0019 
per share executed fee tier charged for providing liquidity to the 
System. The Exchange currently assesses a fee of $0.0019 per share 
executed for a displayed order entered by a member that adds liquidity 
equal to or exceeding 0.10% of total Consolidated Volume during a 
month. The Exchange also has two other fee tiers based on Consolidated 
Volume. Specifically, the Exchange assesses a $0.0017 per share 
executed and $0.0014 per share executed charge for a displayed order 
entered by a member that adds liquidity equal to or exceeding 0.15% or 
0.25% of total Consolidated Volume during a month, respectively. All 
other displayed orders that provide liquidity are assessed a fee of 
$0.0020 per share executed. The Exchange has observed that few members 
qualify for the $0.0019 per share executed fee. Thus, the $0.0019 per 
share executed fee tier has been ineffective at providing incentive to 
members to provide the level of Consolidated Volume needed to qualify 
for the reduced fee and the Exchange believes that removing the tier 
from the fee schedule is appropriate.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \4\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act \5\ 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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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(4) and (5).
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First Change
    The Exchange believes that eliminating the $0.0017 per share 
executed credit tier provided for an order that accesses liquidity is 
reasonable because it is not providing adequate incentive to market 
participants to remove liquidity from the Exchange. The Exchange must, 
from time to time, assess the effectiveness of the criteria it applies 
in providing reduced charges and credits, including the nature of the 
market improving behavior required to receive the reduced charge or 
credit. The Exchange will modify or eliminate such criteria when it 
believes the criteria are ineffective, which in turn may allow the 
Exchange to offer other incentives instead. The Exchange may also 
adjust the level or reduced charge or credit based on its observations 
of market participant behavior. In this instance, the Exchange believes 
that both the criteria for the $0.0017 per share executed credit and 
the level of the credit itself were ineffective at providing meaningful 
incentive to market participants to improve the market appreciably. The 
Exchange is limited in terms of the levels of reduced fees and credits 
that it can offer, and has consequently determined that it should 
eliminate the credit tier at this juncture. The Exchange notes that it 
is continuing to provide other opportunities for members to receive 
credits, including credit tiers that are based on Consolidated Volume. 
Eliminating the credit tier will apply to all market participants 
equally, and will impact only a small number of members that,

[[Page 46128]]

in any given month, qualify for the credit. Such members will continue 
to have opportunity to qualify for the lower Consolidated Volume-based 
credit tiers. Thus, the Exchange believes that the proposed elimination 
of the $0.0017 per share executed credit tier is an equitable 
allocation and is not unfairly discriminatory.
Second Change
    The Exchange believes that elimination of the $0.0019 per share 
executed fee tier charged for providing liquidity to the System is 
reasonable because it is not providing adequate incentive to market 
participants to remove liquidity from the Exchange. As discussed above, 
the Exchange must, from time to time, assess the effectiveness of the 
criteria it applies in providing reduced charges and credits, including 
the nature of the market improving behavior required to receive the 
reduced charge or credit. The Exchange has observed that very few 
members qualify for the $0.0019 per share executed fee, with more 
members qualifying for the lower fee tiers. The Exchange believes that 
both the criteria for the $0.0019 per share executed fee and the level 
of the reduced fee itself were ineffective at providing meaningful 
incentive to market participants to improve the market appreciably. As 
a consequence, the Exchange has determined to eliminate the fee tier at 
this juncture. The Exchange notes that it is continuing to provide 
other opportunities for members to receive reduced fees, including 
reduced fee tiers that are based on Consolidated Volume. Eliminating 
the fee tier will apply to all market participants equally, and will 
impact only a small number of members that in any given month qualify 
for the reduced fee. All members, including the small number that 
currently would qualify for the eliminated fee tier, will continue to 
have opportunity to qualify for the lower Consolidated Volume-based fee 
tiers. Thus, the Exchange believes that elimination of the $0.0019 per 
share executed fee tier is an equitable allocation and is not unfairly 
discriminatory.

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 burden on competition is extremely limited.
    In this instance, the proposed changes to the charges assessed and 
credits available to member firms 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 changes to the charges assessed and 
credits provided to members for execution of orders 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 changes are 
reflective of this competition and the Exchange's desire to offer lower 
fees and credits in return for market-improving liquidity, which is 
ultimately limited by the Exchange's need to cover costs and make a 
profit. Thus, the Exchange must carefully adjust its fees and credits 
with the understanding that if the proposed changes are unattractive to 
market participants, it is likely that the Exchange will lose market 
share to other exchanges and off-exchange venues as a result. In this 
proposal, the Exchange is eliminating a credit tier and a fee tier, 
neither of which have proved effective at providing market participants 
with incentive to provide the market-improving behavior required to 
qualify for the two tiers. Accordingly, the Exchange is eliminating the 
tiers, and may offer other tiers in the future better designed to 
provide incentive to market participants to improve the market. The 
Exchange believes that the changes are pro-competitive, since any other 
market is free to provide similar, if not better, incentives fees and 
credits should they choose to do so, which may attract market 
participants to those markets to the detriment of the Exchange. For 
these reasons, 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.\6\
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    \6\ 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.

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-2016-041 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-2016-041. 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

[[Page 46129]]

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-2016-041 and should be submitted on or before August 
5, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-16719 Filed 7-14-16; 8:45 am]
 BILLING CODE 8011-01-P