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Federal Register / Vol. 86, No. 104 / Wednesday, June 2, 2021 / Notices
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Securities for which UTP has been suspended in order to guard against a potential disruption in trading access.
The Exchange would maintain the ability to automatically fail over to the other live or hot parallel system in the event of any disruption to the primary system.
In addition, because Thinly Traded Securities would no longer trade on other exchanges via UTP at the election of an issuer and a determination by the Exchange that the Security qualifies as a Thinly Traded Security, the Exchange plans to remove quotation and trading activity in Thinly Traded Securities from the revenue allocation formulas of the appropriate NMS plan for consolidated market data through an amendment to such plans.69 The Exchange believes that it would be appropriate to exclude such Thinly Traded Securities from the revenue allocation formula so that the Exchange does not receive undue compensation from the NMS plan for consolidated market data arising from the Thinly Traded Securities. The existing and proposed revenue allocation formulas apportion revenues from the NMS plan in part based on the amount of trading and quoting occurring on each exchange in Eligible Securities as defined under the NMS plan.70 As a result, BSTX
might receive additional profits under the revenue allocation formula if Thinly Traded Securities were not excluded from Eligible Securities given that BSTX would be the only venue able to quote and trade Thinly Traded Securities.
Finally, the Exchange proposes to make available each month anonymized trade and quotation data relating to Thinly Traded Securities to regulators, academics, and others requesting such market data from the Exchange for the purpose of studying the effects of the suspension of UTP. The Exchange intends to additionally perform its own analysis on the impact of the suspension of UTP for Thinly Traded Securities to evaluate its efficacy. The Exchange will evaluate market quality for Thinly Traded Securities across a variety of metrics including an analysis of: i Relative trading volumes on BSTX
versus OTC; ii improvements in ADV;
69 The Exchange notes that certain exchanges have challenged the Commissions May 6, 2020, order directing the self-regulatory organizations to develop a new NMS plan for consolidated market data. Exchange Act Release No. 88827 May 5, 2020, 85 FR 28702 May 13, 2020. The Exchange would seek to amend the new NMS plan or the existing NMS plans as appropriate.
70 See e.g., Exchange Act Release No. 90096 Oct.
6, 2020, 85 FR 64565, Exhibit D Oct. 13, 2020
https www.sec.gov/rules/sro/nms/2020/3490096.pdf.

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iii changes in quotation size; iv changes in the depth of liquidity; v changes in spreads quoted spread and realized spread; and vi changes in trade size. The Exchange will perform this analysis at least annually provided there is sufficient sample data from the preceding year and make public its findings with respect to how the market for Thinly Traded Securities has changed as a result of the suspension of UTP.
Request for Exemptive Relief The Exchange believes that it is in the public interest and consistent with protection of investors, pursuant to Section 6b5 of the Exchange Act,71 as well as in furtherance of the perfection of a free and open market and national market system to suspend UTP under this proposal with respect to Thinly Traded Securities to improve liquidity and overall market quality for such Securities. Consistent with the Department of the Treasurys recommendations, the Exchange believes that consolidating trading to fewer venues would simplify the process of making markets in those stocks and thereby encourage more market makers to provide more liquidity in those issues. 72 Also consistent with the Department of the Treasurys recommendations, the Exchange proposes that there be no limitation on trading OTC in order maintain a basic level of competition for execution and that an issuer would be provided a choice as to whether its qualifying Thinly Traded Security have UTP
suspended.73
In addition, the Exchange believes that, consistent with the OAR Report which found that NMS stocks with an ADV of less than 100,000 shares experience more trading on offexchange venues than on-exchange and have less quoted depth at the inside of the market, much of the poor market quality is attributable to deficiencies in displayed quotations of Thinly Traded Securities. As a result the Exchange believes that it is appropriate to suspend trading on other exchangesi.e., other venues displaying liquidityin order to concentrate displayed liquidity on a single exchange, while still allowing trading to occur in the OTC market.
The Exchange does not believe that the suspension of UTP for Thinly Traded Securities will impose a burden on competition not necessary or appropriate in furtherance of the 71 15

U.S.C. 78fb5.
Report at 60.

Exchange Act 74 because other exchanges could similarly be granted a suspension of UTP for qualifying thinly traded securities listed on their markets.
Exchanges can compete with each other in attracting issuers of thinly traded securities to be singly-listed and traded on their respective exchanges.
Exchanges would still be able to compete with one another for listings and the market for all thinly traded securities could be improved. Moreover, if the suspension of UTP has the desired effect of improving the overall liquidity of a Thinly Traded Security, such Security should hopefully exceed the 100,000 share ADV or $1 billion market capitalization thresholds and become available for UTP, thus removing any barrier to competition once the purpose for which the suspension of UTP was initiated has been fulfilled.
Similarly, consistent with Section 6b5 of the Exchange Act,75 the Exchange believes that the proposed suspension of UTP for Thinly Traded Securities would not permit unfair discrimination between customers, issuers, brokers or dealers, because the suspension is for the purpose of furthering the regulatory objective of improving market quality for securities that are thinly traded. Although nonThinly Traded Securities would not be able to have UTP suspended, this discriminatory treatment is not unfair given the substantial public interest, as demonstrated through the Commissions statements and by market participants at the Roundtable, in improving market conditions for thinly traded securities.
The Exchange believes that the proposed suspension of UTP would help protect investors and the public interest, consistent with Section 6b5, by concentrating displayed liquidity on a single venue, thereby providing greater incentives for market makers in Thinly Traded Securities and in turn making it easier for investors to buy and sell shares of Thinly Traded Securities.
The Exchange believes that there is a general consensus among members of Commission staff, former Commissioners including former Chairman Jay Clayton, the Department of the Treasury, and market participants, as well as empirical evidence, making clear that operating company stocks with an ADV of less than 100,000 shares suffer significant liquidity and market quality challenges not faced by stocks with greater trading volume. It is for this reason, the Exchange believes, that the Commission specifically solicited requests from
72 Treasury
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73 Id.

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