Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Establish Fees and Rebates Related to BX Price Improvement Auction (PRISM), 80408-80414 [2015-32389]

Download as PDF 80408 Federal Register / Vol. 80, No. 247 / Thursday, December 24, 2015 / Notices 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 (https://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–PHLX–2015–85 and should be submitted on or before January 14, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.21 Robert W. Errett, Deputy Secretary. [FR Doc. 2015–32383 Filed 12–23–15; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–76693; File No. SR–BX– 2015–079] Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Establish Fees and Rebates Related to BX Price Improvement Auction (PRISM) mstockstill on DSK4VPTVN1PROD with NOTICES December 18, 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 December 11, 2015, NASDAQ OMX BX, Inc. (‘‘BX’’ 21 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 17:57 Dec 23, 2015 Jkt 238001 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. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend its Options Pricing at Chapter XV, Section 2, entitled ‘‘BX Options Market—Fees and Rebates,’’ which governs pricing for BX members using the BX Options Market (‘‘BX Options’’). The Exchange proposes to adopt new subsection (5) to add fees and rebates for BX Price Improvement Auction (‘‘PRISM’’), which is a mechanism for price improvement on BX Options (‘‘Price Improvement Mechanism’’). The text of the proposed rule change is available on the Exchange’s Web site at https://nasdaqomxbx.cchwall street.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 proposes to amend its Chapter XV, Section 2 to adopt new subsection (5) to add fees and rebates for PRISM. Effective on or about November 16, 2015, BX Options is introducing PRISM, which is codified in BX Chapter VI, Section 9 (also known as the ‘‘PRISM Rule’’).3 PRISM is a Price Improvement 3 See Securities Exchange Act Release Nos. 76301 (October 29, 2015), 80 FR 68347 (November 4, 2015) (SR–BX–2015–032) (approval order) (‘‘PRISM Approval’’); and 75827 (September 3, 2015), 80 FR 54601 (September 10, 2015) (SR–BX–2015–032) PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 Mechanism for all-electronic BX Options whereby a buy and sell order may be submitted in one order message to initiate an auction at a ‘stop price’ and seek potential price improvement. Options are traded electronically on BX Options, and all options participants may respond to a PRISM Auction,4 the duration of which will be set at 200 milliseconds.5 PRISM includes automatch functionality in which a Participant (an ‘‘Initiating Participant’’) may electronically submit for execution an order it represents as agent on behalf of customer,6 broker dealer, or any other entity (‘‘PRISM Order’’) against principal interest or against any other order it represents as agent (an ‘‘Initiating Order’’) provided it submits the PRISM Order for electronic execution into the PRISM Auction pursuant to Chapter VI, Section 9.7 The PRISM Rule describes the circumstances under which an Initiating Participant may initiate an Auction. A PRISM Order that is for a Non-Customer (account of a broker-dealer or any other person or entity that is not a Public Customer) is always required to improve the same side of the BX BBO even if there is no resting limit order on the book. PRISM Orders that do not comply with the requirements set forth in the PRISM Rule are not eligible to initiate an Auction and will be immediately cancelled. Also, PRISM Orders submitted at or before the opening of trading are not eligible to initiate an Auction and will be rejected. PRISM Orders submitted during the final two seconds of the trading session in the (‘‘PRISM Filing’’). In the PRISM Approval the Exchange noted that it will file a rule change separately with the Commission to remove Price Improving and Post-Only Order types from its Rules. The Exchange will not commence offering BX PRISM until such time as it has an effective and operative rule in place from the Commission to remove Price Improving and Post-Only Orders and removes the ability to submit Price Improving and Post-Only Orders into the auction. In the event the Exchange determines to amend its order types to allow the entry of non-displayed order types, e.g. Price Improving or Post-Only Orders, the Exchange will file a proposed rule change pursuant to Section 19(b)(2) with the Commission to seek approval for such rule change. See also Options Technical Update #2015–6. 4 PRISM Auction eligibility requirements and the early conclusion of the PRISM Auction are, with certain other PRISM features, subject to a pilot program scheduled to expire July 18, 2016. See BX Chapter VI, Section 9. 5 Other exchanges that have price improvement auctions have developed different durations. See, e.g., CBOE Rule 6.74A(b)(1)(C) (CBOE’s AIM auction has a duration of one second); and BOX Rule 7150(f)(1) (BOX’s PIP auction has a duration of one hundred milliseconds, commencing on the dissemination of the PIP broadcast). 6 The term ‘‘Customer’’ is defined below for purposes of this fee proposal. 7 BX PRISM will only conduct an auction for simple (non-complex) Orders. E:\FR\FM\24DEN1.SGM 24DEN1 Federal Register / Vol. 80, No. 247 / Thursday, December 24, 2015 / Notices affected series are not eligible to initiate an Auction and will be immediately cancelled. Finally, an Initiating Order may not be a solicited order for the account of any BX Options Market Maker assigned in the affected series.8 The Exchange believes that the PRISM Auction will be beneficial to market participants, and in particular will encourage BX Market Makers 9 to quote at the National Best Bid or Offer (‘‘NBBO’’) with additional size and thereby result in tighter and deeper markets, resulting in more liquidity on BX. Specifically, by offering BX Market Makers the ability to receive priority in the proposed allocation during the PRISM Auction up to the size of their quote, a BX Market Maker will be encouraged to quote with additional size outside of the PRISM Auction at the best and most aggressive prices. BX believes that this incentive may result in a narrowing of quotes and thus further enhance BX’s market quality. BX believes that PRISM will encourage BX Market Makers to compete vigorously to provide the opportunity for price improvement in a competitive auction process.10 This proposal establishes the fee and rebate structure for PRISM (per contract), in particular two new fees and one new rebate. These would apply to Customers,11 BX Options Market Makers,12 and Non-Customers: Change 1. The Exchange proposes to establish fees for Submitted PRISM mstockstill on DSK4VPTVN1PROD with NOTICES 8 See BX Chapter VI, Section 9(i)(C) through (G). 9 BX Options Market Makers may also be referred to as ‘‘Market Makers’’. The term ‘‘BX Options Market Maker’’ means a Participant that has registered as a Market Maker on BX Options pursuant to Chapter VII, Section 2, and must also remain in good standing pursuant to Chapter VII, Section 4. In order to receive Market Maker pricing in all securities, the Participant must be registered as a BX Options Market Maker in at least one security. 10 For purposes of brevity, the Exchange does not endeavor to describe all the nuances of PRISM within this fee proposal. Additional detail regarding PRISM can be found in PRISM Approval, PRISM Filing, and PRISM FAQs at https:// nasdaqtrader.com/content/productsservices/ trading/PRISMFAQs.pdf. 11 The term ‘‘Customer’’ or (‘‘C’’) applies to any transaction that is identified by a Participant for clearing in the Customer range at The Options Clearing Corporation (‘‘OCC’’) which is not for the account of broker or dealer or for the account of a ‘‘Professional’’ (as that term is defined in Chapter I, Section 1(a)(48)). 12 BX Options Market Makers may also be referred to as ‘‘Market Makers’’. The term ‘‘BX Options Market Maker’’ or (‘‘M’’) means a Participant that has registered as a Market Maker on BX Options pursuant to Chapter VII, Section 2, and must also remain in good standing pursuant to Chapter VII, Section 4. In order to receive Market Maker pricing in all securities, the Participant must be registered as a BX Options Market Maker in at least one security. VerDate Sep<11>2014 17:57 Dec 23, 2015 Jkt 238001 Order 13 (Agency Order and Contra-Side Order). Change 2. The Exchange proposes to establish fees for Responded to PRISM Auction 14 (Penny Classes 15 and nonPenny Classes). Change 3. The Exchange proposes to establish rebates for PRISM Order Traded With PRISM Response.16 Each specific change is described in detail below. Change 1—Fees for Submitted PRISM Order: Agency Order and Contra-Side Order For Submitted PRISM Order the Exchange is proposing to establish fees for Agency Order (per contract), and fees for Contra-Side Order (per contract). Currently, the Exchange has no such fees. The fees for Submitted PRISM Order will range from $0.00 to $0.30 for Agency Order. The fees for Submitted PRISM Order will range from $0.00 to $0.05 for Contra-Side Order. Specifically, for Submitted PRISM Order proposed Chapter XV, Section 2 subsection (5) will state that for Customer there will be no fee ($0.00) for Agency Order and no fee ($0.00) for Contra-Side Order. Subsection (5) will state that for BX Options Market Maker there will be a $0.30 fee for Agency Order and a $0.05 fee for Contra-Side Order. Subsection (5) will state that for Non-Customer there will be a $0.30 fee for Agency Order and a $0.05 fee for Contra-Side Order. Change 2—Fees for Responded to PRISM Auction: Penny Classes and Non-Penny Classes For Responded to PRISM Auction the Exchange is proposing to establish fees for Penny Classes (per contract), and fees for non-Penny Classes (per contract). Currently, the Exchange has no such fees. The fees for Responded to PRISM Auction will be $0.49 (per executed 13 This relates to a market participant submitting an order into the PRISM Auction. 14 This relates to a market participant responding to a PRISM Auction. 15 Penny Classes are options listed pursuant to the Penny Pilot, which was established in June 2012 and extended in 2015. See Securities Exchange Act Release Nos. 67256 (June 26, 2012), 77 FR 39277 (July 2, 2012) (SR–BX–2012–030) (order approving BX option rules and establishing Penny Pilot); and 75326 (June 29, 2015), 80 FR 38481 (July 6, 2015) (SR–BX–2015–037) (notice of filing and immediate effectiveness extending the Penny Pilot through June 30, 2016). 16 This relates to a market participant submitting a PRISM Order pursuant to a PRISM Auction and the PRISM Order trading with (or being ‘‘contra to’’) PRISM Response. The rebate discussed is similar to the Miami International Securities Exchange (‘‘MIAX’’) PRIME break-up rebate. MIAX PRIME is, as discussed, similar in in nature to PRISM. PO 00000 Frm 00098 Fmt 4703 Sfmt 4703 80409 contract) for Penny Classes. The fees for Responded to PRISM Auction will be $0.94 (per executed contract) for nonPenny Classes. Specifically, for Responded to PRISM Auction proposed Chapter XV, Section 2 subsection (5) will state that for Customer there will be a $0.49 fee for Penny Classes and a $0.94 fee for non-Penny Classes. Subsection (5) will state that for BX Options Market Maker there will be a $0.49 fee for Penny Classes and a $0.94 fee for non-Penny Classes. Subsection (5) will state that for Non-Customer there will be a $0.49 fee for Penny Classes and a $0.94 fee for non-Penny Classes. Change 3—Rebates for PRISM Order Traded With PRISM Response: Penny Classes and Non-Penny Classes For PRISM Order Traded with PRISM Response the Exchange is proposing to establish rebates for Penny Classes (per contract), and rebates for non-Penny Classes (per contract). Currently, the Exchange has no such rebates. These rebates would be applied in conjunction with the Agency Order fees that the Submitted PRISM Order is assessed. The rebates for PRISM Order Traded with PRISM Response will range from $0.00 to $0.35 for Penny Classes. The rebates for PRISM Order Traded with PRISM Response will range from $0.00 to $0.70 for non-Penny Classes. Only Customers will get rebates. Specifically, for PRISM Order Traded with PRISM Response proposed Chapter XV, Section 2 subsection (5) will state that for Customer there will be a $0.35 rebate for Penny Classes and a $0.70 rebate for non-Penny Classes. Subsection (5) will state that for BX Options Market Maker and for Non-Customer there will be no rebate ($0.00) for Penny Classes and no rebate ($0.00) for non-Penny Classes. BX will apply the rebate to market participants that submitted a PRISM Order pursuant to a PRISM Auction and the PRISM Order Traded with PRISM Response. Moreover, the Agency Order fee for Submitted PRISM Order, which is discussed in Change 1 above, will be applicable to any contract(s) for which a rebate is provided (whether $0.00 or otherwise in the fees and rebates schedule) 17 for PRISM Order Traded with PRISM Response. Example 1 A Customer PRISM Agency Order in a Penny Class (one contract) trades against a PRISM Response in a Penny Class (one contract). The Customer Agency Order is assessed a fee of $0.00 and given a rebate of $0.35 for a total 17 Also E:\FR\FM\24DEN1.SGM known as fee and rebate schedule. 24DEN1 80410 Federal Register / Vol. 80, No. 247 / Thursday, December 24, 2015 / Notices trades against a PRISM Response in a Penny Class (one contract). The NonCustomer Agency Order is assessed a fee of $0.30 and given a rebate of $0.00 for a total fee of $0.30 (fee $0.30 + rebate $0.00). The market participant that rebate of $0.35 (fee $0.00 + rebate $0.35). The market participant that Responded to PRISM Auction will be assessed a fee of $0.49. Example 2 A Non-Customer PRISM Agency Order in a Penny Class (one contract) Responded to PRISM Auction will be assessed a fee of $0.49. As proposed, Chapter XV, Section 2 subsection (5) will read as follows: (5) Fees and rebates for BX Price Improvement Auction (‘‘PRISM’’) FEES AND REBATES (PER CONTACT) Submitted PRISM order fee Responded to PRISM auction fee PRISM order traded with PRISM response rebate Type of market participants Agency order Customer .......................................................................... BX Options Market Maker ............................................... Non-Customer .................................................................. $0.00 0.30 0.30 Contra-side order Penny classes $0.00 0.05 0.05 Non-penny classes $0.49 0.49 0.49 $0.94 0.94 0.94 Penny classes $0.35 0.00 0.00 Non-penny classes $0.70 0.00 0.00 BX will apply the rebate to market participants that submitted a PRISM Order pursuant to a PRISM Auction and the PRISM Order Traded with PRISM Response. The Agency Order fee for Submitted PRISM Order will be applicable to any contract(s) for which a rebate is provided (whether $0.00 or otherwise in this fees and rebates schedule) for PRISM Order Traded with PRISM Response. The Exchange is adopting these fees and rebates at this time because it believes that they will allow the Exchange to recoup some of the costs associated with PRISM, which promotes price improvement to the benefit of market participants, while also incentivizing the use of PRISM. mstockstill on DSK4VPTVN1PROD with NOTICES 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,18 in general, and with Section 6(b)(4) and 6(b)(5) of the Act,19 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 not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. 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, for example, the Commission indicated that market forces should generally determine the price of non-core market data because national market system regulation ‘‘has been remarkably successful in promoting market competition in its broader forms that are most important to investors and listed companies.’’ 20 Likewise, in 18 15 U.S.C. 78f. 19 15 U.S.C. 78f(b)(4) and (5). 20 Securities Exchange Act Release No. 51808 at 37499 (June 9, 2005) (‘‘Regulation NMS Adopting Release’’). VerDate Sep<11>2014 17:57 Dec 23, 2015 Jkt 238001 NetCoalition v. NYSE Arca, Inc.21 (‘‘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 costbased approach.22 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.’’ 23 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 brokerdealers 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’. . .’’ 24 Although the court and the SEC were discussing the cash equities markets, the Exchange believes that these views apply with equal force to the options markets. The Exchange’s proposal establishes fees and rebates regarding PRISM, which promotes price improvement to the benefit of market participants. The Exchange believes that PRISM will encourage market participants, and in particular BX Market Makers, to compete vigorously to provide the 21 NetCoalition v. NYSE Arca, Inc. 615 F.3d 525 (D.C. Cir. 2010). 22 See NetCoalition, at 534. 23 Id. at 537. 24 Id. at 539 (quoting ArcaBook Order, 73 FR at 74782–74783). PO 00000 Frm 00099 Fmt 4703 Sfmt 4703 opportunity for price improvement in a competitive auction process. The Exchange believes that its proposal will allow the Exchange to recoup costs associated with PRISM while also incentivizing its use. Change 1—Fees for Submitted PRISM Order: Agency Order and Contra-Side Order For Submitted PRISM Order, establishing that there will be no fee for Customer for Agency Order, while establishing a $0.30 fee per contract for BX Options Market Maker for Agency Order and a $0.30 fee per contract for Non-Customer for Agency Order, is reasonable because it encourages the desired Customer behavior. The fee is also reasonable because the associated revenue will allow the Exchange to maintain and enhance its services. For Submitted PRISM Order, establishing no Customer fee, while establishing a $0.05 fee per contract for BX Options Market Maker for Contra-Side Order and a $0.05 fee per contract fee for Non-Customer for Contra-Side Order, is reasonable because it encourages the desired Customer behavior. The fee is also reasonable because the associated revenue will allow the Exchange to maintain and enhance its services. Assessing Customers a lesser fee for Agency Order and for Contra-Side Order (in both cases $0.00) is reasonable because of the desirability of Customer activity. The proposed new fees and rebates for PRISM schedule is set up to encourage greater Customer trade volume to the Exchange. Customer activity enhances liquidity on the Exchange for the benefit of all market participants and benefits all market participants by providing more trading E:\FR\FM\24DEN1.SGM 24DEN1 Federal Register / Vol. 80, No. 247 / Thursday, December 24, 2015 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES opportunities, which attracts market makers. An increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. The practice of incentivizing increased Customer order flow through a fee and rebate schedule in order to attract professional liquidity providers (market-makers) is, and has been, commonly practiced in the options markets.25 The proposed fee and rebate schedule similarly attracts Customer order flow. The proposed fee and rebate schedule is reasonably designed because it is within the range of fees and rebates assessed by other exchanges employing similar fee structures for price improvement mechanisms.26 Other competing exchanges offer different fees and rebates for agency orders, contraside order, and responders to the auction in a manner similar to the proposal.27 Other competing exchanges also charge different rates for transactions in their price improvement mechanisms for customers versus their non-customers in a manner similar to the proposal.28 As proposed, all applicable fees and rebates are within the range of fees and rebates for executions in price improvement mechanisms assessed by other exchanges employing similar fee structures for price improvement mechanisms. The fee and rebate schedule as proposed continues to reflect differentiation among different market participants typically found in options fee and rebate schedules.29 The Exchange believes that the differentiation is reasonable and notes that unlike others (e.g. Customers) some market participants like BX Options Market Makers commit to various obligations. For example, transactions of a BX Market Maker must constitute a course of dealings reasonably calculated to contribute to the maintenance of a fair and orderly market, and Market Makers should not make bids or offers 25 See, e.g., MIAX Fee Schedule, NYSE Arca Fee Schedule, Nasdaq Options Market (‘‘NOM’’) Fee Schedule. 26 See MIAX Fee Schedule; and Securities Exchange Act Release No. 72943 (August 28, 2014), 80 FR 52785 (September 4, 2014) (SR–MIAX–2015– 45) (notice of filing and immediate effectiveness regarding MIAX PRIME). See also, e.g., NYSE Amex Options Fee Schedule; International Securities Exchange Fee Schedule; and BOX Options Exchange Fee Schedule. 27 Id. 28 Id. 29 See, e.g., NOM Chapter XV, Section 2 and BX Chapter XV, Section 2. See also MIAX Fee Schedule. VerDate Sep<11>2014 17:57 Dec 23, 2015 Jkt 238001 or enter into transactions that are inconsistent with such course of dealings. Further, all Market Makers are designated as specialists on BX for all purposes under the Act or rules thereunder.30 For Submitted PRISM Order, establishing no fee for Customer (Agency Order and Contra-Side Order) and a fee for BX Market Maker and NonCustomer (Agency Order and ContraSide Order) is equitable and not unfairly discriminatory. This is because the Exchange’s proposal to assess such fee will apply the same to all similarly situated participants. Moreover, all similarly situated Submitted PRISM Orders are subject to the same proposed fee schedule, and access to the Exchange is offered on terms that are not unfairly discriminatory. In addition, fees for Submitted Prism Order are equitable and not unfairly discriminatory because, while each market participant (Customer, BX Options Market Maker, non-Customer) is assessed a fee the Customer fee is lowest because an increase in Customer order flow will bring greater volume and liquidity, which benefits all market participants by providing more trading opportunities and tighter spreads. Change 2—Fees for Responded to PRISM Auction: Penny Classes and Non-Penny Classes For Responded to PRISM Auction, establishing that there will be a $0.49 fee per contract for Customer for Agency Order, and the same fee for BX Options Market Maker and for Non-Customer for Agency Order, is reasonable because the associated revenue will allow the Exchange to maintain and enhance its services. The practice of incentivizing increased Customer order flow through a fee and rebate schedule in order to attract professional liquidity providers (market-makers) is, and has been, commonly practiced in the options markets.31 The proposed fee and rebate schedule similarly attracts Customer order flow. The proposed fee and rebate schedule is reasonably designed because it is within the range of fees and rebates assessed by other exchanges employing similar fee structures for price improvement mechanisms.32 Other 30 See Chapter VII, Section 5, entitled ‘‘Obligations of Market Makers’’. 31 See MIAX Fee Schedule, NYSE Arca Fee Schedule, NOM Fee Schedule. 32 See MIAX Fee Schedule; and Securities Exchange Act Release No. 72943 (August 28, 2014), 80 FR 52785 (September 4, 2014) (SR–MIAX–2015– 45) (notice of filing and immediate effectiveness regarding MIAX PRIME). See also, e.g., NYSE Amex Options Fee Schedule; International Securities PO 00000 Frm 00100 Fmt 4703 Sfmt 4703 80411 competing exchanges offer different fees and rebates for agency orders, contraside order, and responders to the auction in a manner similar to the proposal.33 Other competing exchanges also charge different rates for transactions in their price improvement mechanisms for customers versus their non-customers in a manner similar to the proposal.34 As proposed, all applicable fees and rebates are within the range of fees and rebates for executions in price improvement mechanisms assessed by other exchanges employing similar fee structures for price improvement mechanisms. For Responded to PRISM Auction, establishing that there will be a $0.94 fee per contract for Customer for ContraSide Order, and the same fee for BX Options Market Maker and for NonCustomer for Contra-Side Order, is reasonable because the associated revenue will allow the Exchange to maintain and enhance its services. The practice of incentivizing increased Customer order flow through a fee and rebate schedule in order to attract professional liquidity providers (marketmakers) is, and has been, commonly practiced in the options markets.35 The proposed fee and rebate schedule similarly attracts Customer order flow. The proposed fee and rebate schedule is reasonably designed because it is within the range of fees and rebates assessed by other exchanges employing similar fee structures for price improvement mechanisms.36 Other competing exchanges offer different fees and rebates for agency orders, contraside order, and responders to the auction in a manner similar to the proposal.37 Other competing exchanges also charge different rates for transactions in their price improvement mechanisms for customers versus their non-customers in a manner similar to the proposal.38 As proposed, all applicable fees and rebates are within the range of fees and rebates for executions in price improvement mechanisms assessed by other Exchange Fee Schedule; and BOX Options Exchange Fee Schedule. 33 Id. 34 Id. 35 See MIAX Fee Schedule, NYSE Arca Fee Schedule, NOM Fee Schedule. 36 See MIAX Fee Schedule; and Securities Exchange Act Release No. 72943 (August 28, 2014), 80 FR 52785 (September 4, 2014) (SR–MIAX–2015– 45) (notice of filing and immediate effectiveness regarding MIAX PRIME). See also, e.g., NYSE Amex Options Fee Schedule; International Securities Exchange Fee Schedule; and BOX Options Exchange Fee Schedule. 37 Id. 38 Id. E:\FR\FM\24DEN1.SGM 24DEN1 80412 Federal Register / Vol. 80, No. 247 / Thursday, December 24, 2015 / Notices similar fee structures for price improvement mechanisms.41 Other competing exchanges offer different fees and rebates for agency orders, contraside order, and responders to the auction in a manner similar to the proposal.42 Other competing exchanges also charge different rates for transactions in their price improvement mechanisms for customers versus their non-customers in a manner similar to the proposal.43 As proposed, all applicable fees and rebates are within the range of fees and rebates for executions in price improvement mechanisms assessed by other exchanges employing similar fee structures for price improvement Change 3—Rebates for PRISM Order mechanisms. Traded With PRISM Response: Penny For PRISM Order Traded with PRISM Classes and Non-Penny Classes Response, establishing a rebate for For PRISM Order Traded with PRISM Customer (Penny Classes and nonResponse, establishing that there will be Penny Classes) and no rebate for BX no rebate for BX Options Market Maker Market Maker and Non-Customer and Non-Customer for Penny Classes, (Penny Classes and non-Penny Classes) while establishing a $0.35 rebate per is equitable and not unfairly contract for Customer for Penny Classes discriminatory. This is because the and a $0.70 rebate per contract for Exchange’s proposal to pay such rebate Customer for non-Penny Pilot Classes, is will apply the same to all similarly reasonable because it encourages the situated participants. The Exchange is desired Customer behavior. The rebate adopting the proposed fees and rebates is also reasonable because paying the at this time because it believes that the rebate only to Customers will allow the associated revenue will allow it to Exchange to maintain and enhance its continue and enhance PRISM, which is services. The rebate is also reasonable beneficial to market participants. because paying the rebate only to Moreover, all similarly situated PRISM Customers will allow the Exchange to Order Traded with PRISM Response are maintain and enhance its services.39 subject to the same proposed rebate Offering a rebate only for Customer schedule, and access to the Exchange is ($0.35 or $0.70) is reasonable because of offered on terms that are not unfairly the significance of Customer activity. discriminatory. In addition, rebates for Customer activity enhances liquidity on PRISM Order Traded with PRISM the Exchange for the benefit of all Response are equitable and not unfairly market participants and benefits all discriminatory because, while only market participants by providing more Customer, can earn a rebate, Customer trading opportunities, which attracts order flow will bring greater volume and market makers. An increase in the liquidity, which benefits all market activity of these market participants in participants by providing more trading turn facilitates tighter spreads, which opportunities and tighter spreads. may cause an additional corresponding The rebate schedule as proposed increase in order flow from other market continues to reflect differentiation participants. The practice of among different market participants incentivizing increased Customer order typically found in options fee and rebate flow through a fee and rebate schedule schedules.44 The Exchange believes that in order to attract professional liquidity the differentiation is reasonable and providers (market-makers) is, and has notes that unlike others (e.g. Customers) been, commonly practiced in the some market participants like BX options markets.40 The proposed fee and Options Market Makers commit to rebate schedule similarly attracts 41 See MIAX Fee Schedule; and Securities Customer order flow. The proposed fee and rebate schedule Exchange Act Release No. 72943 (August 28, 2014), 80 FR 52785 (September 4, 2014) (SR–MIAX–2015– is reasonably designed because it is 45) (notice of filing and immediate effectiveness within the range of fees and rebates regarding MIAX PRIME). See also, e.g., NYSE Amex assessed by other exchanges employing Options Fee Schedule; International Securities mstockstill on DSK4VPTVN1PROD with NOTICES exchanges employing similar fee structures for price improvement mechanisms. For Responded to PRISM Auction, establishing a fee for Customer, BX Market Maker and Non-Customer (Agency Order and Contra-Side Order) is equitable and not unfairly discriminatory. This is because the Exchange’s proposal to assess such fee will apply the same to all similarly situated participants. Moreover, all similarly situated Submitted PRISM Orders are subject to the same proposed fee schedule, and access to the Exchange is offered on terms that are not unfairly discriminatory. 39 As noted, such rebate would be applied in conjunction with any Agency Order fee that the Submitted PRISM Order is assessed. 40 See MIAX Fee Schedule, NYSE Arca Fee Schedule, NOM Fee Schedule. VerDate Sep<11>2014 17:57 Dec 23, 2015 Jkt 238001 Exchange Fee Schedule; and BOX Options Exchange Fee Schedule. 42 Id. 43 Id. 44 See, e.g., NOM Chapter XV, Section 2 and BX Chapter XV, Section 2. PO 00000 Frm 00101 Fmt 4703 Sfmt 4703 various obligations. For example, transactions of a BX Market Maker must constitute a course of dealings reasonably calculated to contribute to the maintenance of a fair and orderly market, and Market Makers should not make bids or offers or enter into transactions that are inconsistent with such course of dealings. Further, all Market Makers are designated as specialists on BX for all purposes under the Act or rules thereunder.45 In sum the Exchange believes that the proposed fee and rebate structure is designed to attract Customer liquidity, which benefits all market participants by providing more trading opportunities. This attracts BX Market Makers and an increase in the activity of these market participants in turn facilitates tighter spreads, which may cause an additional corresponding increase in order flow from other market participants. Moreover, the Exchange believes that assessing market participants other than Customers a higher effective rate for certain PRISM Order transactions is reasonable, equitable, and not unfairly discriminatory because these types of market participants are more sophisticated and have higher levels of order flow activity and system usage. This level of trading activity draws on a greater amount of system resources than that of Customers, and thus, generates greater ongoing operational costs. The proposed fees and rebates will allow it to continue and enhance PRISM, which is beneficial to market participants. 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. Specifically, the Exchange does not believe that its proposal to establish fees and rebates for PRISM will impose any burden on competition, as discussed below. The Exchange operates in a highly competitive market in which many sophisticated and knowledgeable market participants can readily and do send order flow to competing exchanges if they deem fee levels or rebate incentives at a particular exchange to be excessive or inadequate. Additionally, new competitors have entered the market and still others are reportedly entering the market shortly. These market forces ensure that the Exchange’s fees and rebates remain competitive 45 See Chapter VII, Section 5, entitled ‘‘Obligations of Market Makers’’. E:\FR\FM\24DEN1.SGM 24DEN1 mstockstill on DSK4VPTVN1PROD with NOTICES Federal Register / Vol. 80, No. 247 / Thursday, December 24, 2015 / Notices with the fee structures at other trading platforms. In that sense, the Exchange’s proposal is actually pro-competitive because the Exchange is simply establishing rebates and fees in order to remain competitive in the current environment. 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 in respect of PRISM do not impose a burden on competition because the Exchange’s execution and routing services are completely voluntary and subject to extensive competition both from other exchanges and from off-exchange venues. 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. Additionally, the changes proposed herein are pro-competitive to the extent that they continue to allow the Exchange to promote and maintain PRISM, which has the potential to result in more efficient, price improved executions to the benefit of market participants. The Exchange believes that the proposed change would increase both inter-market and intra-market competition by incentivizing members to direct their orders, and particularly Customer orders, to the Exchange, which benefits all market participants by providing more trading VerDate Sep<11>2014 17:57 Dec 23, 2015 Jkt 238001 opportunities, which attracts market makers. To the extent that there is a differentiation between proposed fees assessed and rebates offered to Customers as opposed other market participants, the Exchange believes that this is appropriate because the fees and rebate should incentivize members to direct additional order flow to the Exchange and thus provide additional liquidity that enhances the quality of its markets and increases the volume of contracts traded on the Exchange. To the extent that this purpose is achieved, all the Exchange’s market participants should benefit from the improved market liquidity. Enhanced market quality and increased transaction volume that results from the anticipated increase in order flow directed to the Exchange will benefit all market participants and improve competition on the Exchange. 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. The Exchange believes that the proposed fees and rebates for participation in the PRISM Auction are not going to have an impact on intramarket competition based on the total cost for participants to transact as respondents to the Auction as compared to the cost for participants to engage in non-Auction electronic transactions on the Exchange. As noted above, the Exchange believes that the proposed pricing for the PRISM Auction is comparable to that of other exchanges offering similar electronic price improvement mechanisms, and the Exchange believes that, based on experience with electronic price improvement crossing mechanisms on other markets, market participants understand that the price-improving benefits offered by the Auction justify and offset the transaction costs associated with Auction. To the extent that there is a difference between nonPRISM transactions and PRISM transactions, the Exchange does not believe this difference will cause participants to refrain from submitting or responding to PRISM. In addition, the Exchange does not believe that the proposed transaction fees and credits burden competition by creating a disparity of transaction fees between the PRISM Order and the transaction fees a responder pays would result in certain participants being unable to compete with the contra side order. The Exchange expects to see robust competition within the PRISM Auction. As discussed, the Exchange notes that it PO 00000 Frm 00102 Fmt 4703 Sfmt 4703 80413 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. In such an environment, the Exchange must continually adjust its fees to remain competitive with other exchanges and to attract order flow to the Exchange. The Exchange believes that the proposed rule change reflects this competitive environment because it establishes a fee structure in a manner that encourages market participants to direct their order flow, to provide liquidity, and to attract additional transaction volume to the Exchange. 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 Pursuant to Section 19(b)(3)(A)(ii) of the Act,46 the Exchange has designated this proposal as establishing or changing a due, fee, or other charge imposed by the self-regulatory organization on any person, whether or not the person is a member of the self-regulatory organization, which renders the proposed rule change effective upon filing. 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 (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– BX–2015–079 on the subject line. 46 15 E:\FR\FM\24DEN1.SGM U.S.C. 78s(b)(3)(A)(ii). 24DEN1 80414 Federal Register / Vol. 80, No. 247 / Thursday, December 24, 2015 / Notices 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–2015–079. 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 (https://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– 2015–079 and should be submitted on or before January 14, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.47 Robert W. Errett, Deputy Secretary. [FR Doc. 2015–32389 Filed 12–23–15; 8:45 am] mstockstill on DSK4VPTVN1PROD with NOTICES BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–76696; File No. SR–ICEEU– 2015–020] Self-Regulatory Organizations; ICE Clear Europe Limited; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to ICC End-of-Day Price Discovery Policy December 18, 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 December 3, 2015, ICE Clear Europe Limited (‘‘ICE Clear Europe’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule changes as described in Items I, II, and III below, which Items have been prepared primarily by ICE Clear Europe. ICE Clear Europe filed the proposed rule changes pursuant to Section 19(b)(3)(A) of the Act,3 and Rule 19b–4(f)(4)(i) 4 thereunder, so that the proposal was effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule changes from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The principal purpose of the proposed rule changes is to revise the ICE Clear Europe End-of-Day Price Discovery Policy (the ‘‘Price Discovery Policy’’) to accommodate industry changes regarding the reduction of the frequency for which Single Name (‘‘SN’’) Credit Default Swap (‘‘CDS’’) contracts roll to the new on-the-runcontract. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, ICE Clear Europe included statements concerning the purpose of and basis for the proposed rule changes. The text of these statements may be examined at the places specified in Item IV below. ICE Clear Europe has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b–4(f)(4)(i). 2 17 47 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 17:57 Dec 23, 2015 Jkt 238001 PO 00000 Frm 00103 Fmt 4703 Sfmt 4703 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose ICE Clear Europe proposes revising its Price Discovery Policy to accommodate industry change regarding the reduction of the frequency for which SN CDS contracts roll to the new on-the-runcontract. The changes affect the labeling convention for cleared SN CDS contracts for price reporting purposes, but will not alter the terms of the contracts or the range of tenors of SN CDS contracts currently cleared by ICE Clear Europe. ICE Clear Europe believes such revisions will facilitate the prompt and accurate clearance and settlement of securities transactions and derivative agreements, contracts, and transactions cleared by ICE Clear Europe. The proposed revisions are described in detail as follows. As part of ICE Clear Europe’s end-ofday price discovery process, ICE Clear Europe Clearing Members are required to submit end-of-day prices for specific instruments related to their open interest at ICE Clear Europe, in accordance with Rule 503(g) and the ICE Clear Europe Procedures. These end-ofday price submissions are used by ICE Clear Europe in its calculation of settlement prices. ICE Clear Europe refers to a group of SN instruments with the same risk subfactor and coupon as a ‘‘curve.’’ Each point, or tenor, along the curve is labeled with a tenor name. Currently for SN instruments, the market convention is to describe tenors based on the period remaining until the scheduled termination date of the contract. Under this convention, the nearest-to-expiring contract is referred to as the 0M tenor, the next nearest to expiring is referred to as the three month (3M) tenor, and so on (with scheduled termination dates spaced at 3 month intervals), up to ten years (10Y). ICE Clear Europe supports the clearing of all 41 SN tenors from 0M to 10Y. As such, ICE Clear Europe also calculates settlement prices for the 41 SN tenors on the curve. However, ICE Clear Europe defines a subset of the 41 tenors as ‘‘benchmark-tenors’’, which are tenors for which Clearing Members provide submissions in the end-of-day price discovery process. The nine benchmark tenors are 0M, 6M, 1Y, 2Y, 3Y, 4Y, 5Y, 7Y, and 10Y, which correspond to so-called ‘‘on-the-run’’ contracts. Currently, as a matter of CDS market practice, the on-the-run contract for a particular tenor is the contract expiring E:\FR\FM\24DEN1.SGM 24DEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 80, Number 247 (Thursday, December 24, 2015)]
[Notices]
[Pages 80408-80414]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-32389]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76693; File No. SR-BX-2015-079]

Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Establish
Fees and Rebates Related to BX Price Improvement Auction (PRISM)

December 18, 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 December 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.
---------------------------------------------------------------------------

\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 its Options Pricing at Chapter XV,
Section 2, entitled ``BX Options Market--Fees and Rebates,'' which
governs pricing for BX members using the BX Options Market (``BX
Options''). The Exchange proposes to adopt new subsection (5) to add
fees and rebates for BX Price Improvement Auction (``PRISM''), which is
a mechanism for price improvement on BX Options (``Price Improvement
Mechanism'').
The text of the proposed rule change is available on the Exchange's
Web site at https://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 proposes to amend its Chapter XV, Section 2 to adopt
new subsection (5) to add fees and rebates for PRISM.
Effective on or about November 16, 2015, BX Options is introducing
PRISM, which is codified in BX Chapter VI, Section 9 (also known as the
``PRISM Rule'').\3\ PRISM is a Price Improvement Mechanism for all-
electronic BX Options whereby a buy and sell order may be submitted in
one order message to initiate an auction at a `stop price' and seek
potential price improvement. Options are traded electronically on BX
Options, and all options participants may respond to a PRISM
Auction,\4\ the duration of which will be set at 200 milliseconds.\5\
PRISM includes auto-match functionality in which a Participant (an
``Initiating Participant'') may electronically submit for execution an
order it represents as agent on behalf of customer,\6\ broker dealer,
or any other entity (``PRISM Order'') against principal interest or
against any other order it represents as agent (an ``Initiating
Order'') provided it submits the PRISM Order for electronic execution
into the PRISM Auction pursuant to Chapter VI, Section 9.\7\ The PRISM
Rule describes the circumstances under which an Initiating Participant
may initiate an Auction. A PRISM Order that is for a Non-Customer
(account of a broker-dealer or any other person or entity that is not a
Public Customer) is always required to improve the same side of the BX
BBO even if there is no resting limit order on the book. PRISM Orders
that do not comply with the requirements set forth in the PRISM Rule
are not eligible to initiate an Auction and will be immediately
cancelled. Also, PRISM Orders submitted at or before the opening of
trading are not eligible to initiate an Auction and will be rejected.
PRISM Orders submitted during the final two seconds of the trading
session in the

[[Page 80409]]

affected series are not eligible to initiate an Auction and will be
immediately cancelled. Finally, an Initiating Order may not be a
solicited order for the account of any BX Options Market Maker assigned
in the affected series.\8\
---------------------------------------------------------------------------

\3\ See Securities Exchange Act Release Nos. 76301 (October 29,
2015), 80 FR 68347 (November 4, 2015) (SR-BX-2015-032) (approval
order) (``PRISM Approval''); and 75827 (September 3, 2015), 80 FR
54601 (September 10, 2015) (SR-BX-2015-032) (``PRISM Filing''). In
the PRISM Approval the Exchange noted that it will file a rule
change separately with the Commission to remove Price Improving and
Post-Only Order types from its Rules. The Exchange will not commence
offering BX PRISM until such time as it has an effective and
operative rule in place from the Commission to remove Price
Improving and Post-Only Orders and removes the ability to submit
Price Improving and Post-Only Orders into the auction. In the event
the Exchange determines to amend its order types to allow the entry
of non-displayed order types, e.g. Price Improving or Post-Only
Orders, the Exchange will file a proposed rule change pursuant to
Section 19(b)(2) with the Commission to seek approval for such rule
change. See also Options Technical Update #2015-6.
\4\ PRISM Auction eligibility requirements and the early
conclusion of the PRISM Auction are, with certain other PRISM
features, subject to a pilot program scheduled to expire July 18,
2016. See BX Chapter VI, Section 9.
\5\ Other exchanges that have price improvement auctions have
developed different durations. See, e.g., CBOE Rule 6.74A(b)(1)(C)
(CBOE's AIM auction has a duration of one second); and BOX Rule
7150(f)(1) (BOX's PIP auction has a duration of one hundred
milliseconds, commencing on the dissemination of the PIP broadcast).
\6\ The term ``Customer'' is defined below for purposes of this
fee proposal.
\7\ BX PRISM will only conduct an auction for simple (non-
complex) Orders.
\8\ See BX Chapter VI, Section 9(i)(C) through (G).
---------------------------------------------------------------------------

The Exchange believes that the PRISM Auction will be beneficial to
market participants, and in particular will encourage BX Market Makers
\9\ to quote at the National Best Bid or Offer (``NBBO'') with
additional size and thereby result in tighter and deeper markets,
resulting in more liquidity on BX. Specifically, by offering BX Market
Makers the ability to receive priority in the proposed allocation
during the PRISM Auction up to the size of their quote, a BX Market
Maker will be encouraged to quote with additional size outside of the
PRISM Auction at the best and most aggressive prices. BX believes that
this incentive may result in a narrowing of quotes and thus further
enhance BX's market quality. BX believes that PRISM will encourage BX
Market Makers to compete vigorously to provide the opportunity for
price improvement in a competitive auction process.\10\
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\9\ BX Options Market Makers may also be referred to as ``Market
Makers''. The term ``BX Options Market Maker'' means a Participant
that has registered as a Market Maker on BX Options pursuant to
Chapter VII, Section 2, and must also remain in good standing
pursuant to Chapter VII, Section 4. In order to receive Market Maker
pricing in all securities, the Participant must be registered as a
BX Options Market Maker in at least one security.
\10\ For purposes of brevity, the Exchange does not endeavor to
describe all the nuances of PRISM within this fee proposal.
Additional detail regarding PRISM can be found in PRISM Approval,
PRISM Filing, and PRISM FAQs at https://nasdaqtrader.com/content/productsservices/trading/PRISMFAQs.pdf.
---------------------------------------------------------------------------

This proposal establishes the fee and rebate structure for PRISM
(per contract), in particular two new fees and one new rebate. These
would apply to Customers,\11\ BX Options Market Makers,\12\ and Non-
Customers:
---------------------------------------------------------------------------

\11\ The term ``Customer'' or (``C'') applies to any transaction
that is identified by a Participant for clearing in the Customer
range at The Options Clearing Corporation (``OCC'') which is not for
the account of broker or dealer or for the account of a
``Professional'' (as that term is defined in Chapter I, Section
1(a)(48)).
\12\ BX Options Market Makers may also be referred to as
``Market Makers''. The term ``BX Options Market Maker'' or (``M'')
means a Participant that has registered as a Market Maker on BX
Options pursuant to Chapter VII, Section 2, and must also remain in
good standing pursuant to Chapter VII, Section 4. In order to
receive Market Maker pricing in all securities, the Participant must
be registered as a BX Options Market Maker in at least one security.
---------------------------------------------------------------------------

Change 1. The Exchange proposes to establish fees for Submitted
PRISM Order \13\ (Agency Order and Contra-Side Order).
---------------------------------------------------------------------------

\13\ This relates to a market participant submitting an order
into the PRISM Auction.
---------------------------------------------------------------------------

Change 2. The Exchange proposes to establish fees for Responded to
PRISM Auction \14\ (Penny Classes \15\ and non-Penny Classes).
---------------------------------------------------------------------------

\14\ This relates to a market participant responding to a PRISM
Auction.
\15\ Penny Classes are options listed pursuant to the Penny
Pilot, which was established in June 2012 and extended in 2015. See
Securities Exchange Act Release Nos. 67256 (June 26, 2012), 77 FR
39277 (July 2, 2012) (SR-BX-2012-030) (order approving BX option
rules and establishing Penny Pilot); and 75326 (June 29, 2015), 80
FR 38481 (July 6, 2015) (SR-BX-2015-037) (notice of filing and
immediate effectiveness extending the Penny Pilot through June 30,
2016).
---------------------------------------------------------------------------

Change 3. The Exchange proposes to establish rebates for PRISM
Order Traded With PRISM Response.\16\
---------------------------------------------------------------------------

\16\ This relates to a market participant submitting a PRISM
Order pursuant to a PRISM Auction and the PRISM Order trading with
(or being ``contra to'') PRISM Response. The rebate discussed is
similar to the Miami International Securities Exchange (``MIAX'')
PRIME break-up rebate. MIAX PRIME is, as discussed, similar in in
nature to PRISM.
---------------------------------------------------------------------------

Each specific change is described in detail below.
Change 1--Fees for Submitted PRISM Order: Agency Order and Contra-Side
Order
For Submitted PRISM Order the Exchange is proposing to establish
fees for Agency Order (per contract), and fees for Contra-Side Order
(per contract). Currently, the Exchange has no such fees.
The fees for Submitted PRISM Order will range from $0.00 to $0.30
for Agency Order. The fees for Submitted PRISM Order will range from
$0.00 to $0.05 for Contra-Side Order. Specifically, for Submitted PRISM
Order proposed Chapter XV, Section 2 subsection (5) will state that for
Customer there will be no fee ($0.00) for Agency Order and no fee
($0.00) for Contra-Side Order. Subsection (5) will state that for BX
Options Market Maker there will be a $0.30 fee for Agency Order and a
$0.05 fee for Contra-Side Order. Subsection (5) will state that for
Non-Customer there will be a $0.30 fee for Agency Order and a $0.05 fee
for Contra-Side Order.
Change 2--Fees for Responded to PRISM Auction: Penny Classes and Non-
Penny Classes
For Responded to PRISM Auction the Exchange is proposing to
establish fees for Penny Classes (per contract), and fees for non-Penny
Classes (per contract). Currently, the Exchange has no such fees.
The fees for Responded to PRISM Auction will be $0.49 (per executed
contract) for Penny Classes. The fees for Responded to PRISM Auction
will be $0.94 (per executed contract) for non-Penny Classes.
Specifically, for Responded to PRISM Auction proposed Chapter XV,
Section 2 subsection (5) will state that for Customer there will be a
$0.49 fee for Penny Classes and a $0.94 fee for non-Penny Classes.
Subsection (5) will state that for BX Options Market Maker there will
be a $0.49 fee for Penny Classes and a $0.94 fee for non-Penny Classes.
Subsection (5) will state that for Non-Customer there will be a $0.49
fee for Penny Classes and a $0.94 fee for non-Penny Classes.
Change 3--Rebates for PRISM Order Traded With PRISM Response: Penny
Classes and Non-Penny Classes
For PRISM Order Traded with PRISM Response the Exchange is
proposing to establish rebates for Penny Classes (per contract), and
rebates for non-Penny Classes (per contract). Currently, the Exchange
has no such rebates. These rebates would be applied in conjunction with
the Agency Order fees that the Submitted PRISM Order is assessed.
The rebates for PRISM Order Traded with PRISM Response will range
from $0.00 to $0.35 for Penny Classes. The rebates for PRISM Order
Traded with PRISM Response will range from $0.00 to $0.70 for non-Penny
Classes. Only Customers will get rebates. Specifically, for PRISM Order
Traded with PRISM Response proposed Chapter XV, Section 2 subsection
(5) will state that for Customer there will be a $0.35 rebate for Penny
Classes and a $0.70 rebate for non-Penny Classes. Subsection (5) will
state that for BX Options Market Maker and for Non-Customer there will
be no rebate ($0.00) for Penny Classes and no rebate ($0.00) for non-
Penny Classes.
BX will apply the rebate to market participants that submitted a
PRISM Order pursuant to a PRISM Auction and the PRISM Order Traded with
PRISM Response. Moreover, the Agency Order fee for Submitted PRISM
Order, which is discussed in Change 1 above, will be applicable to any
contract(s) for which a rebate is provided (whether $0.00 or otherwise
in the fees and rebates schedule) \17\ for PRISM Order Traded with
PRISM Response.
---------------------------------------------------------------------------

\17\ Also known as fee and rebate schedule.
---------------------------------------------------------------------------

Example 1
A Customer PRISM Agency Order in a Penny Class (one contract)
trades against a PRISM Response in a Penny Class (one contract). The
Customer Agency Order is assessed a fee of $0.00 and given a rebate of
$0.35 for a total

[[Page 80410]]

rebate of $0.35 (fee $0.00 + rebate $0.35). The market participant that
Responded to PRISM Auction will be assessed a fee of $0.49.
Example 2
A Non-Customer PRISM Agency Order in a Penny Class (one contract)
trades against a PRISM Response in a Penny Class (one contract). The
Non-Customer Agency Order is assessed a fee of $0.30 and given a rebate
of $0.00 for a total fee of $0.30 (fee $0.30 + rebate $0.00). The
market participant that Responded to PRISM Auction will be assessed a
fee of $0.49.
As proposed, Chapter XV, Section 2 subsection (5) will read as
follows:
(5) Fees and rebates for BX Price Improvement Auction (``PRISM'')

Fees and Rebates (Per Contact)
----------------------------------------------------------------------------------------------------------------
Submitted PRISM order Responded to PRISM PRISM order traded with
fee auction fee PRISM response rebate
Type of market participants -----------------------------------------------------------------------------
Agency Contra-side Penny Non-penny Penny Non-penny
order order classes classes classes classes
----------------------------------------------------------------------------------------------------------------
Customer.......................... $0.00 $0.00 $0.49 $0.94 $0.35 $0.70
BX Options Market Maker........... 0.30 0.05 0.49 0.94 0.00 0.00
Non-Customer...................... 0.30 0.05 0.49 0.94 0.00 0.00
----------------------------------------------------------------------------------------------------------------
BX will apply the rebate to market participants that submitted a PRISM Order pursuant to a PRISM Auction and the
PRISM Order Traded with PRISM Response. The Agency Order fee for Submitted PRISM Order will be applicable to
any contract(s) for which a rebate is provided (whether $0.00 or otherwise in this fees and rebates schedule)
for PRISM Order Traded with PRISM Response.

The Exchange is adopting these fees and rebates at this time
because it believes that they will allow the Exchange to recoup some of
the costs associated with PRISM, which promotes price improvement to
the benefit of market participants, while also incentivizing the use of
PRISM.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\18\ in general, and with
Section 6(b)(4) and 6(b)(5) of the Act,\19\ 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 not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------

\18\ 15 U.S.C. 78f.
\19\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

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, for example, the Commission indicated that market forces should
generally determine the price of non-core market data because national
market system regulation ``has been remarkably successful in promoting
market competition in its broader forms that are most important to
investors and listed companies.'' \20\ Likewise, in NetCoalition v.
NYSE Arca, Inc.\21\ (``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.\22\ 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.'' \23\
---------------------------------------------------------------------------

\20\ Securities Exchange Act Release No. 51808 at 37499 (June 9,
2005) (``Regulation NMS Adopting Release'').
\21\ NetCoalition v. NYSE Arca, Inc. 615 F.3d 525 (D.C. Cir.
2010).
\22\ See NetCoalition, at 534.
\23\ Id. at 537.
---------------------------------------------------------------------------

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'. . .'' \24\ Although the court and the
SEC were discussing the cash equities markets, the Exchange believes
that these views apply with equal force to the options markets.
---------------------------------------------------------------------------

\24\ Id. at 539 (quoting ArcaBook Order, 73 FR at 74782-74783).
---------------------------------------------------------------------------

The Exchange's proposal establishes fees and rebates regarding
PRISM, which promotes price improvement to the benefit of market
participants. The Exchange believes that PRISM will encourage market
participants, and in particular BX Market Makers, to compete vigorously
to provide the opportunity for price improvement in a competitive
auction process. The Exchange believes that its proposal will allow the
Exchange to recoup costs associated with PRISM while also incentivizing
its use.
Change 1--Fees for Submitted PRISM Order: Agency Order and Contra-Side
Order
For Submitted PRISM Order, establishing that there will be no fee
for Customer for Agency Order, while establishing a $0.30 fee per
contract for BX Options Market Maker for Agency Order and a $0.30 fee
per contract for Non-Customer for Agency Order, is reasonable because
it encourages the desired Customer behavior. The fee is also reasonable
because the associated revenue will allow the Exchange to maintain and
enhance its services. For Submitted PRISM Order, establishing no
Customer fee, while establishing a $0.05 fee per contract for BX
Options Market Maker for Contra-Side Order and a $0.05 fee per contract
fee for Non-Customer for Contra-Side Order, is reasonable because it
encourages the desired Customer behavior. The fee is also reasonable
because the associated revenue will allow the Exchange to maintain and
enhance its services.
Assessing Customers a lesser fee for Agency Order and for Contra-
Side Order (in both cases $0.00) is reasonable because of the
desirability of Customer activity. The proposed new fees and rebates
for PRISM schedule is set up to encourage greater Customer trade volume
to the Exchange. Customer activity enhances liquidity on the Exchange
for the benefit of all market participants and benefits all market
participants by providing more trading

[[Page 80411]]

opportunities, which attracts market makers. An increase in the
activity of these market participants in turn facilitates tighter
spreads, which may cause an additional corresponding increase in order
flow from other market participants. The practice of incentivizing
increased Customer order flow through a fee and rebate schedule in
order to attract professional liquidity providers (market-makers) is,
and has been, commonly practiced in the options markets.\25\ The
proposed fee and rebate schedule similarly attracts Customer order
flow.
---------------------------------------------------------------------------

\25\ See, e.g., MIAX Fee Schedule, NYSE Arca Fee Schedule,
Nasdaq Options Market (``NOM'') Fee Schedule.
---------------------------------------------------------------------------

The proposed fee and rebate schedule is reasonably designed because
it is within the range of fees and rebates assessed by other exchanges
employing similar fee structures for price improvement mechanisms.\26\
Other competing exchanges offer different fees and rebates for agency
orders, contra-side order, and responders to the auction in a manner
similar to the proposal.\27\ Other competing exchanges also charge
different rates for transactions in their price improvement mechanisms
for customers versus their non-customers in a manner similar to the
proposal.\28\ As proposed, all applicable fees and rebates are within
the range of fees and rebates for executions in price improvement
mechanisms assessed by other exchanges employing similar fee structures
for price improvement mechanisms.
---------------------------------------------------------------------------

\26\ See MIAX Fee Schedule; and Securities Exchange Act Release
No. 72943 (August 28, 2014), 80 FR 52785 (September 4, 2014) (SR-
MIAX-2015-45) (notice of filing and immediate effectiveness
regarding MIAX PRIME). See also, e.g., NYSE Amex Options Fee
Schedule; International Securities Exchange Fee Schedule; and BOX
Options Exchange Fee Schedule.
\27\ Id.
\28\ Id.
---------------------------------------------------------------------------

The fee and rebate schedule as proposed continues to reflect
differentiation among different market participants typically found in
options fee and rebate schedules.\29\ The Exchange believes that the
differentiation is reasonable and notes that unlike others (e.g.
Customers) some market participants like BX Options Market Makers
commit to various obligations. For example, transactions of a BX Market
Maker must constitute a course of dealings reasonably calculated to
contribute to the maintenance of a fair and orderly market, and Market
Makers should not make bids or offers or enter into transactions that
are inconsistent with such course of dealings. Further, all Market
Makers are designated as specialists on BX for all purposes under the
Act or rules thereunder.\30\
---------------------------------------------------------------------------

\29\ See, e.g., NOM Chapter XV, Section 2 and BX Chapter XV,
Section 2. See also MIAX Fee Schedule.
\30\ See Chapter VII, Section 5, entitled ``Obligations of
Market Makers''.
---------------------------------------------------------------------------

For Submitted PRISM Order, establishing no fee for Customer (Agency
Order and Contra-Side Order) and a fee for BX Market Maker and Non-
Customer (Agency Order and Contra-Side Order) is equitable and not
unfairly discriminatory. This is because the Exchange's proposal to
assess such fee will apply the same to all similarly situated
participants. Moreover, all similarly situated Submitted PRISM Orders
are subject to the same proposed fee schedule, and access to the
Exchange is offered on terms that are not unfairly discriminatory. In
addition, fees for Submitted Prism Order are equitable and not unfairly
discriminatory because, while each market participant (Customer, BX
Options Market Maker, non-Customer) is assessed a fee the Customer fee
is lowest because an increase in Customer order flow will bring greater
volume and liquidity, which benefits all market participants by
providing more trading opportunities and tighter spreads.
Change 2--Fees for Responded to PRISM Auction: Penny Classes and Non-
Penny Classes
For Responded to PRISM Auction, establishing that there will be a
$0.49 fee per contract for Customer for Agency Order, and the same fee
for BX Options Market Maker and for Non-Customer for Agency Order, is
reasonable because the associated revenue will allow the Exchange to
maintain and enhance its services. The practice of incentivizing
increased Customer order flow through a fee and rebate schedule in
order to attract professional liquidity providers (market-makers) is,
and has been, commonly practiced in the options markets.\31\ The
proposed fee and rebate schedule similarly attracts Customer order
flow.
---------------------------------------------------------------------------

\31\ See MIAX Fee Schedule, NYSE Arca Fee Schedule, NOM Fee
Schedule.
---------------------------------------------------------------------------

The proposed fee and rebate schedule is reasonably designed because
it is within the range of fees and rebates assessed by other exchanges
employing similar fee structures for price improvement mechanisms.\32\
Other competing exchanges offer different fees and rebates for agency
orders, contra-side order, and responders to the auction in a manner
similar to the proposal.\33\ Other competing exchanges also charge
different rates for transactions in their price improvement mechanisms
for customers versus their non-customers in a manner similar to the
proposal.\34\ As proposed, all applicable fees and rebates are within
the range of fees and rebates for executions in price improvement
mechanisms assessed by other exchanges employing similar fee structures
for price improvement mechanisms.
---------------------------------------------------------------------------

\32\ See MIAX Fee Schedule; and Securities Exchange Act Release
No. 72943 (August 28, 2014), 80 FR 52785 (September 4, 2014) (SR-
MIAX-2015-45) (notice of filing and immediate effectiveness
regarding MIAX PRIME). See also, e.g., NYSE Amex Options Fee
Schedule; International Securities Exchange Fee Schedule; and BOX
Options Exchange Fee Schedule.
\33\ Id.
\34\ Id.
---------------------------------------------------------------------------

For Responded to PRISM Auction, establishing that there will be a
$0.94 fee per contract for Customer for Contra-Side Order, and the same
fee for BX Options Market Maker and for Non-Customer for Contra-Side
Order, is reasonable because the associated revenue will allow the
Exchange to maintain and enhance its services. The practice of
incentivizing increased Customer order flow through a fee and rebate
schedule in order to attract professional liquidity providers (market-
makers) is, and has been, commonly practiced in the options
markets.\35\ The proposed fee and rebate schedule similarly attracts
Customer order flow.
---------------------------------------------------------------------------

\35\ See MIAX Fee Schedule, NYSE Arca Fee Schedule, NOM Fee
Schedule.
---------------------------------------------------------------------------

The proposed fee and rebate schedule is reasonably designed because
it is within the range of fees and rebates assessed by other exchanges
employing similar fee structures for price improvement mechanisms.\36\
Other competing exchanges offer different fees and rebates for agency
orders, contra-side order, and responders to the auction in a manner
similar to the proposal.\37\ Other competing exchanges also charge
different rates for transactions in their price improvement mechanisms
for customers versus their non-customers in a manner similar to the
proposal.\38\ As proposed, all applicable fees and rebates are within
the range of fees and rebates for executions in price improvement
mechanisms assessed by other

[[Page 80412]]

exchanges employing similar fee structures for price improvement
mechanisms.
---------------------------------------------------------------------------

\36\ See MIAX Fee Schedule; and Securities Exchange Act Release
No. 72943 (August 28, 2014), 80 FR 52785 (September 4, 2014) (SR-
MIAX-2015-45) (notice of filing and immediate effectiveness
regarding MIAX PRIME). See also, e.g., NYSE Amex Options Fee
Schedule; International Securities Exchange Fee Schedule; and BOX
Options Exchange Fee Schedule.
\37\ Id.
\38\ Id.
---------------------------------------------------------------------------

For Responded to PRISM Auction, establishing a fee for Customer, BX
Market Maker and Non-Customer (Agency Order and Contra-Side Order) is
equitable and not unfairly discriminatory. This is because the
Exchange's proposal to assess such fee will apply the same to all
similarly situated participants. Moreover, all similarly situated
Submitted PRISM Orders are subject to the same proposed fee schedule,
and access to the Exchange is offered on terms that are not unfairly
discriminatory.
Change 3--Rebates for PRISM Order Traded With PRISM Response: Penny
Classes and Non-Penny Classes
For PRISM Order Traded with PRISM Response, establishing that there
will be no rebate for BX Options Market Maker and Non-Customer for
Penny Classes, while establishing a $0.35 rebate per contract for
Customer for Penny Classes and a $0.70 rebate per contract for Customer
for non-Penny Pilot Classes, is reasonable because it encourages the
desired Customer behavior. The rebate is also reasonable because paying
the rebate only to Customers will allow the Exchange to maintain and
enhance its services. The rebate is also reasonable because paying the
rebate only to Customers will allow the Exchange to maintain and
enhance its services.\39\
---------------------------------------------------------------------------

\39\ As noted, such rebate would be applied in conjunction with
any Agency Order fee that the Submitted PRISM Order is assessed.
---------------------------------------------------------------------------

Offering a rebate only for Customer ($0.35 or $0.70) is reasonable
because of the significance of Customer activity. Customer activity
enhances liquidity on the Exchange for the benefit of all market
participants and benefits all market participants by providing more
trading opportunities, which attracts market makers. An increase in the
activity of these market participants in turn facilitates tighter
spreads, which may cause an additional corresponding increase in order
flow from other market participants. The practice of incentivizing
increased Customer order flow through a fee and rebate schedule in
order to attract professional liquidity providers (market-makers) is,
and has been, commonly practiced in the options markets.\40\ The
proposed fee and rebate schedule similarly attracts Customer order
flow.
---------------------------------------------------------------------------

\40\ See MIAX Fee Schedule, NYSE Arca Fee Schedule, NOM Fee
Schedule.
---------------------------------------------------------------------------

The proposed fee and rebate schedule is reasonably designed because
it is within the range of fees and rebates assessed by other exchanges
employing similar fee structures for price improvement mechanisms.\41\
Other competing exchanges offer different fees and rebates for agency
orders, contra-side order, and responders to the auction in a manner
similar to the proposal.\42\ Other competing exchanges also charge
different rates for transactions in their price improvement mechanisms
for customers versus their non-customers in a manner similar to the
proposal.\43\ As proposed, all applicable fees and rebates are within
the range of fees and rebates for executions in price improvement
mechanisms assessed by other exchanges employing similar fee structures
for price improvement mechanisms.
---------------------------------------------------------------------------

\41\ See MIAX Fee Schedule; and Securities Exchange Act Release
No. 72943 (August 28, 2014), 80 FR 52785 (September 4, 2014) (SR-
MIAX-2015-45) (notice of filing and immediate effectiveness
regarding MIAX PRIME). See also, e.g., NYSE Amex Options Fee
Schedule; International Securities Exchange Fee Schedule; and BOX
Options Exchange Fee Schedule.
\42\ Id.
\43\ Id.
---------------------------------------------------------------------------

For PRISM Order Traded with PRISM Response, establishing a rebate
for Customer (Penny Classes and non-Penny Classes) and no rebate for BX
Market Maker and Non-Customer (Penny Classes and non-Penny Classes) is
equitable and not unfairly discriminatory. This is because the
Exchange's proposal to pay such rebate will apply the same to all
similarly situated participants. The Exchange is adopting the proposed
fees and rebates at this time because it believes that the associated
revenue will allow it to continue and enhance PRISM, which is
beneficial to market participants. Moreover, all similarly situated
PRISM Order Traded with PRISM Response are subject to the same proposed
rebate schedule, and access to the Exchange is offered on terms that
are not unfairly discriminatory. In addition, rebates for PRISM Order
Traded with PRISM Response are equitable and not unfairly
discriminatory because, while only Customer, can earn a rebate,
Customer order flow will bring greater volume and liquidity, which
benefits all market participants by providing more trading
opportunities and tighter spreads.
The rebate schedule as proposed continues to reflect
differentiation among different market participants typically found in
options fee and rebate schedules.\44\ The Exchange believes that the
differentiation is reasonable and notes that unlike others (e.g.
Customers) some market participants like BX Options Market Makers
commit to various obligations. For example, transactions of a BX Market
Maker must constitute a course of dealings reasonably calculated to
contribute to the maintenance of a fair and orderly market, and Market
Makers should not make bids or offers or enter into transactions that
are inconsistent with such course of dealings. Further, all Market
Makers are designated as specialists on BX for all purposes under the
Act or rules thereunder.\45\
---------------------------------------------------------------------------

\44\ See, e.g., NOM Chapter XV, Section 2 and BX Chapter XV,
Section 2.
\45\ See Chapter VII, Section 5, entitled ``Obligations of
Market Makers''.
---------------------------------------------------------------------------

In sum the Exchange believes that the proposed fee and rebate
structure is designed to attract Customer liquidity, which benefits all
market participants by providing more trading opportunities. This
attracts BX Market Makers and an increase in the activity of these
market participants in turn facilitates tighter spreads, which may
cause an additional corresponding increase in order flow from other
market participants. Moreover, the Exchange believes that assessing
market participants other than Customers a higher effective rate for
certain PRISM Order transactions is reasonable, equitable, and not
unfairly discriminatory because these types of market participants are
more sophisticated and have higher levels of order flow activity and
system usage. This level of trading activity draws on a greater amount
of system resources than that of Customers, and thus, generates greater
ongoing operational costs. The proposed fees and rebates will allow it
to continue and enhance PRISM, which is beneficial to market
participants.

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. Specifically, the Exchange does
not believe that its proposal to establish fees and rebates for PRISM
will impose any burden on competition, as discussed below.
The Exchange operates in a highly competitive market in which many
sophisticated and knowledgeable market participants can readily and do
send order flow to competing exchanges if they deem fee levels or
rebate incentives at a particular exchange to be excessive or
inadequate. Additionally, new competitors have entered the market and
still others are reportedly entering the market shortly. These market
forces ensure that the Exchange's fees and rebates remain competitive

[[Page 80413]]

with the fee structures at other trading platforms. In that sense, the
Exchange's proposal is actually pro-competitive because the Exchange is
simply establishing rebates and fees in order to remain competitive in
the current environment.
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 in respect of PRISM do not impose a
burden on competition because the Exchange's execution and routing
services are completely voluntary and subject to extensive competition
both from other exchanges and from off-exchange venues. 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. Additionally, the
changes proposed herein are pro-competitive to the extent that they
continue to allow the Exchange to promote and maintain PRISM, which has
the potential to result in more efficient, price improved executions to
the benefit of market participants.
The Exchange believes that the proposed change would increase both
inter-market and intra-market competition by incentivizing members to
direct their orders, and particularly Customer orders, to the Exchange,
which benefits all market participants by providing more trading
opportunities, which attracts market makers. To the extent that there
is a differentiation between proposed fees assessed and rebates offered
to Customers as opposed other market participants, the Exchange
believes that this is appropriate because the fees and rebate should
incentivize members to direct additional order flow to the Exchange and
thus provide additional liquidity that enhances the quality of its
markets and increases the volume of contracts traded on the Exchange.
To the extent that this purpose is achieved, all the Exchange's market
participants should benefit from the improved market liquidity.
Enhanced market quality and increased transaction volume that results
from the anticipated increase in order flow directed to the Exchange
will benefit all market participants and improve competition on the
Exchange. 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.
The Exchange believes that the proposed fees and rebates for
participation in the PRISM Auction are not going to have an impact on
intra-market competition based on the total cost for participants to
transact as respondents to the Auction as compared to the cost for
participants to engage in non-Auction electronic transactions on the
Exchange. As noted above, the Exchange believes that the proposed
pricing for the PRISM Auction is comparable to that of other exchanges
offering similar electronic price improvement mechanisms, and the
Exchange believes that, based on experience with electronic price
improvement crossing mechanisms on other markets, market participants
understand that the price-improving benefits offered by the Auction
justify and offset the transaction costs associated with Auction. To
the extent that there is a difference between non-PRISM transactions
and PRISM transactions, the Exchange does not believe this difference
will cause participants to refrain from submitting or responding to
PRISM. In addition, the Exchange does not believe that the proposed
transaction fees and credits burden competition by creating a disparity
of transaction fees between the PRISM Order and the transaction fees a
responder pays would result in certain participants being unable to
compete with the contra side order. The Exchange expects to see robust
competition within the PRISM Auction. As discussed, 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. In such an environment, the
Exchange must continually adjust its fees to remain competitive with
other exchanges and to attract order flow to the Exchange. The Exchange
believes that the proposed rule change reflects this competitive
environment because it establishes a fee structure in a manner that
encourages market participants to direct their order flow, to provide
liquidity, and to attract additional transaction volume to the
Exchange.

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

Pursuant to Section 19(b)(3)(A)(ii) of the Act,\46\ the Exchange
has designated this proposal as establishing or changing a due, fee, or
other charge imposed by the self-regulatory organization on any person,
whether or not the person is a member of the self-regulatory
organization, which renders the proposed rule change effective upon
filing.
---------------------------------------------------------------------------

\46\ 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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-BX-2015-079 on the subject line.

[[Page 80414]]

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-2015-079. 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 (https://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-2015-079 and should be
submitted on or before January 14, 2016.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\47\
---------------------------------------------------------------------------

\47\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-32389 Filed 12-23-15; 8:45 am]
BILLING CODE 8011-01-P

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