Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Fees as They Apply to the Equity Options Platform, 39981-39984 [2016-14446]

Download as PDF Federal Register / Vol. 81, No. 118 / Monday, June 20, 2016 / Notices 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 Phlx. 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–2016–47 and should be submitted on or before July 11, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.16 Robert W. Errett, Deputy Secretary. [FR Doc. 2016–14444 Filed 6–17–16; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–78062; File No. SR– BatsEDGX–2016–21] 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 filed a proposal to amend the fee schedule applicable to Members 5 and non-members of the Exchange pursuant to EDGX Rules 15.1(a) and (c). The text of the proposed rule change is available at the Exchange’s Web site at www.batstrading.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 parts of such statements. (A) Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change June 14, 2016. asabaliauskas on DSK3SPTVN1PROD with NOTICES Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Fees as They Apply to the Equity Options Platform The Exchange proposes to amend its fee schedule for its equity options platform (‘‘EDGX Options’’) to: (1) Increase the Exchange’s standard rates for Customer 6 orders executed on the EDGX Options and to make related changes; (2) modify the criteria to qualify for a tier under the Exchange’s existing tiered pricing structure; and (3) modify the Exchange’s routing fees, as further described below. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on June 1, 2016, Bats EDGX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘EDGX’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II and III below, which Items have been prepared by the Exchange. The Exchange has designated the proposed rule change as one establishing or changing a member due, fee, or other charge imposed by the Exchange under Section 19(b)(3)(A)(ii) of the Act 3 and Rule 19b–4(f)(2) thereunder,4 which renders the proposed rule change effective upon filing with the Commission. The Commission is publishing this notice to 16 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(ii). 4 17 CFR 240.19b–4(f)(2). 1 15 VerDate Sep<11>2014 17:05 Jun 17, 2016 Jkt 238001 1. Purpose Customer Orders Fee codes PC and NC are currently appended to all Customer orders in Penny Pilot Securities 7 and Non-Penny 5 The term ‘‘Member’’ is defined as ‘‘any registered broker or dealer that has been admitted to membership in the Exchange.’’ See Exchange Rule 1.5(n). 6 The term ‘‘Customer’’ applies to any transaction identified by a Member for clearing in the Customer range at the Options Clearing Corporation (‘‘OCC’’), excluding any transaction for a Broker Dealer or a ‘‘Professional’’ as defined in Exchange Rule 16.1. 7 The term ‘‘Penny Pilot Security’’ applies to those issues that are quoted pursuant to Exchange Rule 21.5, Interpretation and Policy .01. PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 39981 Pilot Securities,8 respectively, and result in a standard rebate of $0.01 per contract. The Exchange proposes to increase the standard rate for all Customer orders in Penny Pilot Securities and Non-Penny Pilot Securities to a standard rebate of $0.05 per contract. In addition to reflecting the increase in the Fee Codes and Associated Fees portion of the Exchange’s fee schedule for fee codes PC and NC, the Exchange proposes to delete the reference to the $0.01 rebate on the Standard Rates table with respect to fee codes PC and NC. The Standard Rates table provides a range of rebates and fees applicable to executions on the Exchange in summary form. In addition to the standard rebate provided to all Customer orders, the Exchange offers several Customer Volume Tiers pursuant to footnote 1. The Customer Volume Tiers currently consist of six separate tiers, each providing an enhanced rebate to a Member’s Customer orders that yield fee codes PC or NC upon satisfying monthly volume criteria required by the respective tier. Pursuant to Customer Volume Tier 1, the lowest volume tier, a Member currently receives a rebate of $0.05 per contract where the Member has an ADV 9 in Customer orders equal to or greater than 0.10% of average TCV.10 Because the Exchange is increasing its standard rebate to $0.05 per share, the Exchange proposes to delete current Tier 1 and to re-number Tiers 2 through 6 as Tiers 1 through 5. Tiered Pricing Changes In addition to the Customer Volume Tiers described above and in footnote 1 of the fee schedule, the Exchange also provides reduced fees or enhanced rebates under the Market Maker Volume Tiers described in footnote 2. Fee codes PM and NM are currently appended to all Market Maker 11 orders in Penny Pilot Securities and Non-Penny Pilot Securities, respectively, and result in a standard fee of $0.19 per contract. The 8 The term ‘‘Non-Penny Pilot Security’’ applies to those issues that are not Penny Pilot Securities quoted pursuant to Exchange Rule 21.5, Interpretation and Policy .01. 9 ‘‘ADV’’ means average daily volume calculated as the number of contracts added or removed, combined, per day. 10 ‘‘TCV’’ means total consolidated volume calculated as the volume reported by all exchanges to the consolidated transaction reporting plan for the month for which the fees apply, excluding volume on any day that the Exchange experiences an Exchange System Disruption and on any day with a scheduled early market close. 11 The term ‘‘Market Maker’’ applies to any transaction identified by a Member for clearing in the Market Maker range at the OCC, where such Member is registered with the Exchange as a Market Maker as defined in Rule 16.1(a)(37). E:\FR\FM\20JNN1.SGM 20JNN1 asabaliauskas on DSK3SPTVN1PROD with NOTICES 39982 Federal Register / Vol. 81, No. 118 / Monday, June 20, 2016 / Notices Market Maker Volume Tiers in footnote 2 consist of seven separate tiers, each providing a reduced fee or rebate to a Member’s Market Maker orders that yield fee codes PM or NM upon satisfying monthly volume criteria required by the respective tier. The Exchange proposes to modify the qualifying criteria for Customer Volume Tier 6 (as described above, the Exchange proposes to re-number such tier as Customer Volume Tier 5, hereafter ‘‘current Customer Volume Tier 6’’) under footnote 1 and for Market Maker Volume Tier 7 under footnote 2, as further described below. Pursuant to current Customer Volume Tier 6, a Member currently will receive a rebate of $0.21 per contract where: (1) The Member has an ADV in Customer orders equal to or greater than 0.20% of average TCV; and (2) the Member has an ADV in Market Maker orders equal to or greater than 0.15% of average TCV. Similarly, pursuant to Market Maker Volume Tier 7, the Exchange provides a reduced fee of $0.10 per contract where: (1) The Member has an ADV in Customer orders equal to or greater than 0.20% of average TCV; and (2) the Member has an ADV in Market Maker orders equal to or greater than 0.15% of average TCV. Thus, the qualifying criteria for current Customer Volume Tier 6 and Market Maker Volume Tier 7 are identical. In order to encourage the entry of additional orders to the Exchange, the Exchange proposes to modify current Customer Volume Tier 6 and Market Maker Volume Tier 7 to reduce the criteria necessary to qualify. Specifically, the Exchange proposes to provide the same rebate, $0.21 per contract, and reduced fee, $0.10 per contract, as it currently provides for these tiers, respectively, and to provide such rebate or fee where: (1) The Member has an ADV in Customer orders equal to or greater than 0.20% of average TCV; and (2) the Member has an ADV in Market Maker orders equal to or greater than 0.10% of average TCV. Thus, the Exchange proposes to reduce the criteria of the second prong from 0.15% of average TCV to 0.10% of average TCV. The Exchange believes that this change will make current Customer Volume Tier 6 and Market Maker Volume Tier 7 more attainable for additional Members. Routing Fees The Exchange proposes to modify the fees charged for orders routed away from the Exchange and executed at VerDate Sep<11>2014 17:05 Jun 17, 2016 Jkt 238001 various away options exchanges.12 The Exchange currently charges flat rate routing fees for executions at away options exchanges that have been placed into groups based on the approximate cost of routing to such venues. The grouping of away options exchanges is based on the cost of transaction fees assessed by each venue as well as costs to the Exchange for routing (i.e., clearing fees, connectivity and other infrastructure costs, membership fees, etc.) (collectively, ‘‘Routing Costs’’). To address different fees at various other options exchanges, the Exchange proposes to increase fees applicable to routing to certain away options exchanges in Non-Penny Securities, as further described below. With respect to Non-Customer orders in Non-Penny Pilot Securities, the Exchange appends fee code RO to all such orders routed to and executed at other options exchanges. Pursuant to fee code RO, the Exchange charges a fee of $1.20 per contract. The Exchange proposes to increase this fee from $1.20 per contract to $1.25 per contract to account for additional Routing Costs incurred by the Exchange. With respect to Customer orders in Non-Penny Pilot Securities the Exchange applies one of two fee codes: (1) Fee code RP, which results in a fee of $0.25 per contract and applies to all Customer orders (including orders in Penny Pilot Securities) routed to and executed at AMEX, BOX, BX Options, CBOE, ISE Mercury, MIAX or PHLX; or (2) fee code RR, which results in a fee of $0.90 per contract and applies to all Customer orders in Non-Penny Pilot Securities routed to and executed at ARCA, BZX Options, C2, ISE, ISE Gemini or NOM. The Exchange proposes to increase the fee under fee code RR from $0.90 per contract to $1.00 per contract to account for additional Routing Costs incurred by the Exchange. The Exchange does not propose any change to fee code RP. As set forth above, the Exchange’s proposed approach to routing fees is to set forth in a simple manner certain flat fees that approximate the cost of routing to other options exchanges. The Exchange then monitors the fees 12 Other options exchanges to which the Exchange routes include: Bats BZX Exchange, Inc. (‘‘BZX Options’’), BOX Options Exchange LLC (‘‘BOX’’), Chicago Board Options Exchange, Inc. (‘‘CBOE’’), C2 Options Exchange, Inc. (‘‘C2’’), International Securities Exchange, Inc. (‘‘ISE’’), ISE Gemini, LLC (‘‘ISE Gemini’’), ISE Mercury, LLC (‘‘ISE Mercury’’), Miami International Securities Exchange, LLC (‘‘MIAX’’), Nasdaq Options Market LLC (‘‘NOM’’), Nasdaq OMX BX LLC (‘‘BX Options’’), Nasdaq OMX PHLX LLC (‘‘PHLX’’), NYSE Arca, Inc. (‘‘ARCA’’), and NYSE MKT LLC (‘‘AMEX’’). PO 00000 Frm 00096 Fmt 4703 Sfmt 4703 charged as compared to the costs of its routing services, as well as monitoring for specific fee changes by other options exchanges, and intends to adjust its flat routing fees and/or groupings to ensure that the Exchange’s fees do indeed result in a rough approximation of overall Routing Costs, and are not significantly higher or lower in any area. The increases are proposed primarily in order to account for increased Routing Costs incurred by the Exchange. Implementation Date The Exchange proposes to implement these amendments to its fee schedule immediately. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities exchange, and, in particular, with the requirements of Section 6 of the Act.13 Specifically, the Exchange believes that the proposed rule change is consistent with Section 6(b)(4) of the Act,14 in that it provides for the equitable allocation of reasonable dues, fees and other charges among members and other persons using any facility or system which the Exchange operates or controls. The Exchange believes its proposed increase to the standard rebate provided to Customer orders executed on the Exchange (as well as the related changes) is reasonable, fair and equitable, and non-discriminatory in that the rebate will provide additional incentive to all Members to enter Customer orders to the Exchange. The Exchange also believes the rebate for Customer orders remains consistent with pricing previously offered by the Exchange as well as other options exchanges and does not represent a significant departure from such pricing. Further, the Exchange believes that the proposed modifications to the tiered pricing structure are reasonable, fair and equitable, and non-discriminatory. The Exchange operates in a highly competitive market in which market participants may readily send order flow to many competing venues if they deem fees at the Exchange to be excessive. As a relatively new options exchange, the proposed fee structure remains intended to attract order flow to the Exchange by offering market participants a competitive yet simple pricing structure. At the same time, the Exchange believes it is reasonable to 13 15 14 15 E:\FR\FM\20JNN1.SGM U.S.C. 78f. U.S.C. 78f(b)(4). 20JNN1 asabaliauskas on DSK3SPTVN1PROD with NOTICES Federal Register / Vol. 81, No. 118 / Monday, June 20, 2016 / Notices offer and incrementally modify incentives intended to help to contribute to the growth of the Exchange. Volume-based rebates such as those currently maintained on the Exchange have been widely adopted by options exchanges and are equitable because they are open to all Members on an equal basis and provide additional benefits or discounts that are reasonably related to the value of an exchange’s market quality associated with higher levels of market activity, such as higher levels of liquidity provision and/or growth patterns, and introduction of higher volumes of orders into the price and volume discovery processes. The proposed modification to the criteria required to qualify for current Customer Volume Tier 6 and Market Maker Volume Tier 7 is intended to incentivize Members to send additional Customer orders and Market Maker orders to the Exchange in an effort to qualify for the enhanced rebate or lower fee made available by the tiers. The Exchange believes that the proposed tiers, as proposed to be amended are reasonable, fair and equitable, and non-discriminatory, for the reasons set forth above with respect to volume-based pricing generally and because such changes will incentivize participants to further contribute to market quality. The proposed tiers will provide an additional way for market participants to qualify for enhanced rebates or reduced fees. The Exchange also believes that the tiered pricing structure remains consistent with pricing previously offered by the Exchange as well as other options exchanges and does not represent a significant departure from such pricing structures. With respect to the proposed increases under the Exchange’s routing structure, the Exchange again notes that it operates in a highly competitive market in which market participants can readily direct order flow to competing venues or providers of routing services if they deem fee levels to be excessive. As explained above, the Exchange seeks to approximate the cost of routing to other options exchanges, including other applicable costs to the Exchange for routing, in order to provide a simplified and easy to understand pricing model. The Exchange believes that a pricing model based on approximate Routing Costs is a reasonable, fair and equitable approach to pricing. Specifically, the Exchange believes that its proposal to modify fees is fair, equitable and reasonable because the fees are generally an approximation of the cost to the Exchange for routing VerDate Sep<11>2014 17:05 Jun 17, 2016 Jkt 238001 orders to such exchanges. The Exchange believes that its flat fee structure for orders routed to various venues is a fair and equitable approach to pricing, as it will provide certainty with respect to execution fees at groups of away options exchanges. In order to achieve its flat fee structure, taking all costs to the Exchange into account, the Exchange will in some instances charge a higher premium to route to certain options exchanges than to others. As a general matter, the Exchange believes that the proposed fees will allow it to recoup and cover its costs of providing routing services to such exchanges and to make some additional profit in exchange for the services it provides. The Exchange also believes that the proposed increase to the fee structure for orders routed to and executed at these away options exchanges is fair and equitable and not unreasonably discriminatory in that it applies equally to all Members. Finally, the Exchange notes that it intends to consistently evaluate its routing fees, including profit and loss attributable to routing, as applicable, in connection with the operation of a flat fee routing service, and would consider future adjustments to the proposed pricing structure to the extent it was recouping a significant profit or loss from routing to away options exchanges. (B) Self-Regulatory Organization’s Statement on Burden on Competition The Exchange believes the proposed amendments to its fee schedule would not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. Rather, the proposal is a competitive proposal that is seeking to further the growth of the Exchange and to update the Exchange’s fees for routing orders to away options exchanges based on Routing Costs. With respect to the increase to the standard Customer rebate and other tiered pricing changes, the Exchange has structured the proposed fees and rebates to attract additional volume to the Exchange. With respect to the proposed changes to the routing fee structure, the Exchange believes that the proposed fees are competitive in that they will continue to provide a simple approach to routing pricing that some Members may favor. Additionally, Members may opt to disfavor the Exchange’s pricing, including pricing for transactions on the Exchange as well as routing fees, if they believe that alternatives offer them better value. In particular, with respect to routing services, such services are available to Members from other broker-dealers as well as other options exchanges. The Exchange also notes that Members may PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 39983 choose to mark their orders as ineligible for routing to avoid incurring routing fees.15 Accordingly, the Exchange does not believe that the proposed change will impair the ability of Members or competing venues to maintain their competitive standing in the financial markets. (C) Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any written comments from members or other interested parties. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 16 and paragraph (f) of Rule 19b–4 thereunder.17 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. 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– BatsEDGX–2016–21 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–BatsEDGX–2016–21. This file number should be included on the subject line if email is used. To help the 15 See Exchange Rule 21.1(d)(7) (describing ‘‘Book Only’’ orders) and Exchange Rule 21.9(a)(1) (describing the Exchange’s routing process, which requires orders to be designated as available for routing). 16 15 U.S.C. 78s(b)(3)(A). 17 17 CFR 240.19b–4(f). E:\FR\FM\20JNN1.SGM 20JNN1 39984 Federal Register / Vol. 81, No. 118 / Monday, June 20, 2016 / Notices 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 such filing will also 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– BatsEDGX–2016–21 and should be submitted on or before July 11, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.18 Robert W. Errett, Deputy Secretary. [FR Doc. 2016–14446 Filed 6–17–16; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–78064; File No. SR–BX– 2016–029] Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 7018(a) asabaliauskas on DSK3SPTVN1PROD with NOTICES June 14, 2016. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on June 1, 2016, NASDAQ BX, Inc. (‘‘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. CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 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 the Rule 7018(a) to delete text from the preamble [sic] the rule concerning Consolidated Volume. 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 purpose of the proposed rule change is to delete rule text from the preamble of Rule 7018(a) concerning Consolidated Volume. The rule currently defines Consolidated Volume as the total consolidated volume reported to all consolidated transaction reporting plans by all exchanges and trade reporting facilities during a month in equity securities, excluding executed orders with a size of less than one round lot. The Exchange excludes from the calculations of fees and credits that have a Consolidated Volume component all trading that occurs on the date of the annual reconstitution of the Russell Investments. The annual reconstitution represents a day of abnormal trading volume, as the Russell Investment indexes adjust holdings to accurately reflect the current state of equity markets and their market segments.3 Consequently, the Exchange excludes the date of the Russell Investment reconstitution in all calculations of fees and credits because it is not reflective of a member’s normal trading. The Exchange expresses this under the rule by stating that, ‘‘[f]or purposes of calculating Consolidated Volume and the extent of a member’s trading activity, expressed as a percentage of or ratio to Consolidated Volume, the date of the annual reconstitution of the Russell Investments Indexes shall be excluded from both total Consolidated Volume and the member’s trading activity.’’ The Exchange believes that the text stating ‘‘expressed as a percentage of, or ratio to, Consolidated Volume’’ may be confusing to market participants in understanding how the Exchange excludes trading activity on the day of the Russell Investment reconstitution should the Exchange ever adopt a fee or credit tier based on a different measure of Consolidated Volume. Specifically, the Exchange seeks to clarify that all trading activity on the date of the Russell Investment reconstitution (including trading activity not based on a percentage or ratio of Consolidated Volume) is excluded from a member’s trading activity for determining credit and fee tiers. This proposed change has no impact on the Exchange at this time, as all tiers under the rule are currently expressed as a percentage of Consolidated Volume; however, if the Exchange adopted a new metric, such as a certain nominal level of share volume (e.g., a requirement to add 5 million shares), the Exchange wants to ensure that member understand that all trading activity on the day of the Russell Investment reconstitution would be excluded for purposes of determining what fees and credits a member qualifies for. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act 4 in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act 5 in particular, in that it provides for the equitable allocation of reasonable dues, fees and other charges among members and issuers and other persons using any facility or system which the Exchange operates or controls, and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. The Exchange believes that deleting rule text from the preamble of Rule 7018(a) concerning Consolidated Volume is reasonable because it will help clarify how credit and fee tiers that 18 17 1 15 VerDate Sep<11>2014 17:05 Jun 17, 2016 3 See https://www.ftserussell.com/researchinsights/russell-reconstitution. Jkt 238001 PO 00000 Frm 00098 Fmt 4703 Sfmt 4703 4 15 5 15 E:\FR\FM\20JNN1.SGM U.S.C. 78f(b). U.S.C. 78f(b)(4) and (5). 20JNN1

Agencies

[Federal Register Volume 81, Number 118 (Monday, June 20, 2016)]
[Notices]
[Pages 39981-39984]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-14446]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78062; File No. SR-BatsEDGX-2016-21]


Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change Related 
to Fees as They Apply to the Equity Options Platform

June 14, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on June 1, 2016, Bats EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II 
and III below, which Items have been prepared by the Exchange. The 
Exchange has designated the proposed rule change as one establishing or 
changing a member due, fee, or other charge imposed by the Exchange 
under Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) 
thereunder,\4\ which renders the proposed rule change effective upon 
filing with the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to amend the fee schedule applicable 
to Members \5\ and non-members of the Exchange pursuant to EDGX Rules 
15.1(a) and (c).
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    \5\ The term ``Member'' is defined as ``any registered broker or 
dealer that has been admitted to membership in the Exchange.'' See 
Exchange Rule 1.5(n).
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    The text of the proposed rule change is available at the Exchange's 
Web site at www.batstrading.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 parts 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 fee schedule for its equity 
options platform (``EDGX Options'') to: (1) Increase the Exchange's 
standard rates for Customer \6\ orders executed on the EDGX Options and 
to make related changes; (2) modify the criteria to qualify for a tier 
under the Exchange's existing tiered pricing structure; and (3) modify 
the Exchange's routing fees, as further described below.
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    \6\ The term ``Customer'' applies to any transaction identified 
by a Member for clearing in the Customer range at the Options 
Clearing Corporation (``OCC''), excluding any transaction for a 
Broker Dealer or a ``Professional'' as defined in Exchange Rule 
16.1.
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Customer Orders
    Fee codes PC and NC are currently appended to all Customer orders 
in Penny Pilot Securities \7\ and Non-Penny Pilot Securities,\8\ 
respectively, and result in a standard rebate of $0.01 per contract. 
The Exchange proposes to increase the standard rate for all Customer 
orders in Penny Pilot Securities and Non-Penny Pilot Securities to a 
standard rebate of $0.05 per contract. In addition to reflecting the 
increase in the Fee Codes and Associated Fees portion of the Exchange's 
fee schedule for fee codes PC and NC, the Exchange proposes to delete 
the reference to the $0.01 rebate on the Standard Rates table with 
respect to fee codes PC and NC. The Standard Rates table provides a 
range of rebates and fees applicable to executions on the Exchange in 
summary form.
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    \7\ The term ``Penny Pilot Security'' applies to those issues 
that are quoted pursuant to Exchange Rule 21.5, Interpretation and 
Policy .01.
    \8\ The term ``Non-Penny Pilot Security'' applies to those 
issues that are not Penny Pilot Securities quoted pursuant to 
Exchange Rule 21.5, Interpretation and Policy .01.
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    In addition to the standard rebate provided to all Customer orders, 
the Exchange offers several Customer Volume Tiers pursuant to footnote 
1. The Customer Volume Tiers currently consist of six separate tiers, 
each providing an enhanced rebate to a Member's Customer orders that 
yield fee codes PC or NC upon satisfying monthly volume criteria 
required by the respective tier. Pursuant to Customer Volume Tier 1, 
the lowest volume tier, a Member currently receives a rebate of $0.05 
per contract where the Member has an ADV \9\ in Customer orders equal 
to or greater than 0.10% of average TCV.\10\ Because the Exchange is 
increasing its standard rebate to $0.05 per share, the Exchange 
proposes to delete current Tier 1 and to re-number Tiers 2 through 6 as 
Tiers 1 through 5.
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    \9\ ``ADV'' means average daily volume calculated as the number 
of contracts added or removed, combined, per day.
    \10\ ``TCV'' means total consolidated volume calculated as the 
volume reported by all exchanges to the consolidated transaction 
reporting plan for the month for which the fees apply, excluding 
volume on any day that the Exchange experiences an Exchange System 
Disruption and on any day with a scheduled early market close.
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Tiered Pricing Changes
    In addition to the Customer Volume Tiers described above and in 
footnote 1 of the fee schedule, the Exchange also provides reduced fees 
or enhanced rebates under the Market Maker Volume Tiers described in 
footnote 2. Fee codes PM and NM are currently appended to all Market 
Maker \11\ orders in Penny Pilot Securities and Non-Penny Pilot 
Securities, respectively, and result in a standard fee of $0.19 per 
contract. The

[[Page 39982]]

Market Maker Volume Tiers in footnote 2 consist of seven separate 
tiers, each providing a reduced fee or rebate to a Member's Market 
Maker orders that yield fee codes PM or NM upon satisfying monthly 
volume criteria required by the respective tier.
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    \11\ The term ``Market Maker'' applies to any transaction 
identified by a Member for clearing in the Market Maker range at the 
OCC, where such Member is registered with the Exchange as a Market 
Maker as defined in Rule 16.1(a)(37).
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    The Exchange proposes to modify the qualifying criteria for 
Customer Volume Tier 6 (as described above, the Exchange proposes to 
re-number such tier as Customer Volume Tier 5, hereafter ``current 
Customer Volume Tier 6'') under footnote 1 and for Market Maker Volume 
Tier 7 under footnote 2, as further described below.
    Pursuant to current Customer Volume Tier 6, a Member currently will 
receive a rebate of $0.21 per contract where: (1) The Member has an ADV 
in Customer orders equal to or greater than 0.20% of average TCV; and 
(2) the Member has an ADV in Market Maker orders equal to or greater 
than 0.15% of average TCV. Similarly, pursuant to Market Maker Volume 
Tier 7, the Exchange provides a reduced fee of $0.10 per contract 
where: (1) The Member has an ADV in Customer orders equal to or greater 
than 0.20% of average TCV; and (2) the Member has an ADV in Market 
Maker orders equal to or greater than 0.15% of average TCV. Thus, the 
qualifying criteria for current Customer Volume Tier 6 and Market Maker 
Volume Tier 7 are identical.
    In order to encourage the entry of additional orders to the 
Exchange, the Exchange proposes to modify current Customer Volume Tier 
6 and Market Maker Volume Tier 7 to reduce the criteria necessary to 
qualify. Specifically, the Exchange proposes to provide the same 
rebate, $0.21 per contract, and reduced fee, $0.10 per contract, as it 
currently provides for these tiers, respectively, and to provide such 
rebate or fee where: (1) The Member has an ADV in Customer orders equal 
to or greater than 0.20% of average TCV; and (2) the Member has an ADV 
in Market Maker orders equal to or greater than 0.10% of average TCV. 
Thus, the Exchange proposes to reduce the criteria of the second prong 
from 0.15% of average TCV to 0.10% of average TCV. The Exchange 
believes that this change will make current Customer Volume Tier 6 and 
Market Maker Volume Tier 7 more attainable for additional Members.
Routing Fees
    The Exchange proposes to modify the fees charged for orders routed 
away from the Exchange and executed at various away options 
exchanges.\12\ The Exchange currently charges flat rate routing fees 
for executions at away options exchanges that have been placed into 
groups based on the approximate cost of routing to such venues. The 
grouping of away options exchanges is based on the cost of transaction 
fees assessed by each venue as well as costs to the Exchange for 
routing (i.e., clearing fees, connectivity and other infrastructure 
costs, membership fees, etc.) (collectively, ``Routing Costs''). To 
address different fees at various other options exchanges, the Exchange 
proposes to increase fees applicable to routing to certain away options 
exchanges in Non-Penny Securities, as further described below.
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    \12\ Other options exchanges to which the Exchange routes 
include: Bats BZX Exchange, Inc. (``BZX Options''), BOX Options 
Exchange LLC (``BOX''), Chicago Board Options Exchange, Inc. 
(``CBOE''), C2 Options Exchange, Inc. (``C2''), International 
Securities Exchange, Inc. (``ISE''), ISE Gemini, LLC (``ISE 
Gemini''), ISE Mercury, LLC (``ISE Mercury''), Miami International 
Securities Exchange, LLC (``MIAX''), Nasdaq Options Market LLC 
(``NOM''), Nasdaq OMX BX LLC (``BX Options''), Nasdaq OMX PHLX LLC 
(``PHLX''), NYSE Arca, Inc. (``ARCA''), and NYSE MKT LLC (``AMEX'').
---------------------------------------------------------------------------

    With respect to Non-Customer orders in Non-Penny Pilot Securities, 
the Exchange appends fee code RO to all such orders routed to and 
executed at other options exchanges. Pursuant to fee code RO, the 
Exchange charges a fee of $1.20 per contract. The Exchange proposes to 
increase this fee from $1.20 per contract to $1.25 per contract to 
account for additional Routing Costs incurred by the Exchange.
    With respect to Customer orders in Non-Penny Pilot Securities the 
Exchange applies one of two fee codes: (1) Fee code RP, which results 
in a fee of $0.25 per contract and applies to all Customer orders 
(including orders in Penny Pilot Securities) routed to and executed at 
AMEX, BOX, BX Options, CBOE, ISE Mercury, MIAX or PHLX; or (2) fee code 
RR, which results in a fee of $0.90 per contract and applies to all 
Customer orders in Non-Penny Pilot Securities routed to and executed at 
ARCA, BZX Options, C2, ISE, ISE Gemini or NOM. The Exchange proposes to 
increase the fee under fee code RR from $0.90 per contract to $1.00 per 
contract to account for additional Routing Costs incurred by the 
Exchange. The Exchange does not propose any change to fee code RP.
    As set forth above, the Exchange's proposed approach to routing 
fees is to set forth in a simple manner certain flat fees that 
approximate the cost of routing to other options exchanges. The 
Exchange then monitors the fees charged as compared to the costs of its 
routing services, as well as monitoring for specific fee changes by 
other options exchanges, and intends to adjust its flat routing fees 
and/or groupings to ensure that the Exchange's fees do indeed result in 
a rough approximation of overall Routing Costs, and are not 
significantly higher or lower in any area. The increases are proposed 
primarily in order to account for increased Routing Costs incurred by 
the Exchange.
Implementation Date
    The Exchange proposes to implement these amendments to its fee 
schedule immediately.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities exchange, and, 
in particular, with the requirements of Section 6 of the Act.\13\ 
Specifically, the Exchange believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\14\ in that it provides for 
the equitable allocation of reasonable dues, fees and other charges 
among members and other persons using any facility or system which the 
Exchange operates or controls.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f.
    \14\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes its proposed increase to the standard rebate 
provided to Customer orders executed on the Exchange (as well as the 
related changes) is reasonable, fair and equitable, and non-
discriminatory in that the rebate will provide additional incentive to 
all Members to enter Customer orders to the Exchange. The Exchange also 
believes the rebate for Customer orders remains consistent with pricing 
previously offered by the Exchange as well as other options exchanges 
and does not represent a significant departure from such pricing.
    Further, the Exchange believes that the proposed modifications to 
the tiered pricing structure are reasonable, fair and equitable, and 
non-discriminatory. The Exchange operates in a highly competitive 
market in which market participants may readily send order flow to many 
competing venues if they deem fees at the Exchange to be excessive. As 
a relatively new options exchange, the proposed fee structure remains 
intended to attract order flow to the Exchange by offering market 
participants a competitive yet simple pricing structure. At the same 
time, the Exchange believes it is reasonable to

[[Page 39983]]

offer and incrementally modify incentives intended to help to 
contribute to the growth of the Exchange.
    Volume-based rebates such as those currently maintained on the 
Exchange have been widely adopted by options exchanges and are 
equitable because they are open to all Members on an equal basis and 
provide additional benefits or discounts that are reasonably related to 
the value of an exchange's market quality associated with higher levels 
of market activity, such as higher levels of liquidity provision and/or 
growth patterns, and introduction of higher volumes of orders into the 
price and volume discovery processes. The proposed modification to the 
criteria required to qualify for current Customer Volume Tier 6 and 
Market Maker Volume Tier 7 is intended to incentivize Members to send 
additional Customer orders and Market Maker orders to the Exchange in 
an effort to qualify for the enhanced rebate or lower fee made 
available by the tiers.
    The Exchange believes that the proposed tiers, as proposed to be 
amended are reasonable, fair and equitable, and non-discriminatory, for 
the reasons set forth above with respect to volume-based pricing 
generally and because such changes will incentivize participants to 
further contribute to market quality. The proposed tiers will provide 
an additional way for market participants to qualify for enhanced 
rebates or reduced fees. The Exchange also believes that the tiered 
pricing structure remains consistent with pricing previously offered by 
the Exchange as well as other options exchanges and does not represent 
a significant departure from such pricing structures.
    With respect to the proposed increases under the Exchange's routing 
structure, the Exchange again notes that it operates in a highly 
competitive market in which market participants can readily direct 
order flow to competing venues or providers of routing services if they 
deem fee levels to be excessive. As explained above, the Exchange seeks 
to approximate the cost of routing to other options exchanges, 
including other applicable costs to the Exchange for routing, in order 
to provide a simplified and easy to understand pricing model. The 
Exchange believes that a pricing model based on approximate Routing 
Costs is a reasonable, fair and equitable approach to pricing. 
Specifically, the Exchange believes that its proposal to modify fees is 
fair, equitable and reasonable because the fees are generally an 
approximation of the cost to the Exchange for routing orders to such 
exchanges. The Exchange believes that its flat fee structure for orders 
routed to various venues is a fair and equitable approach to pricing, 
as it will provide certainty with respect to execution fees at groups 
of away options exchanges. In order to achieve its flat fee structure, 
taking all costs to the Exchange into account, the Exchange will in 
some instances charge a higher premium to route to certain options 
exchanges than to others. As a general matter, the Exchange believes 
that the proposed fees will allow it to recoup and cover its costs of 
providing routing services to such exchanges and to make some 
additional profit in exchange for the services it provides. The 
Exchange also believes that the proposed increase to the fee structure 
for orders routed to and executed at these away options exchanges is 
fair and equitable and not unreasonably discriminatory in that it 
applies equally to all Members. Finally, the Exchange notes that it 
intends to consistently evaluate its routing fees, including profit and 
loss attributable to routing, as applicable, in connection with the 
operation of a flat fee routing service, and would consider future 
adjustments to the proposed pricing structure to the extent it was 
recouping a significant profit or loss from routing to away options 
exchanges.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes the proposed amendments to its fee schedule 
would not impose any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. Rather, the 
proposal is a competitive proposal that is seeking to further the 
growth of the Exchange and to update the Exchange's fees for routing 
orders to away options exchanges based on Routing Costs. With respect 
to the increase to the standard Customer rebate and other tiered 
pricing changes, the Exchange has structured the proposed fees and 
rebates to attract additional volume to the Exchange. With respect to 
the proposed changes to the routing fee structure, the Exchange 
believes that the proposed fees are competitive in that they will 
continue to provide a simple approach to routing pricing that some 
Members may favor. Additionally, Members may opt to disfavor the 
Exchange's pricing, including pricing for transactions on the Exchange 
as well as routing fees, if they believe that alternatives offer them 
better value. In particular, with respect to routing services, such 
services are available to Members from other broker-dealers as well as 
other options exchanges. The Exchange also notes that Members may 
choose to mark their orders as ineligible for routing to avoid 
incurring routing fees.\15\ Accordingly, the Exchange does not believe 
that the proposed change will impair the ability of Members or 
competing venues to maintain their competitive standing in the 
financial markets.
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    \15\ See Exchange Rule 21.1(d)(7) (describing ``Book Only'' 
orders) and Exchange Rule 21.9(a)(1) (describing the Exchange's 
routing process, which requires orders to be designated as available 
for routing).
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(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants or Others

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any written comments from members or other interested parties.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \16\ and paragraph (f) of Rule 19b-4 
thereunder.\17\ At any time within 60 days of the filing of the 
proposed rule change, the Commission summarily may temporarily suspend 
such rule change if it appears to the Commission that such action is 
necessary or appropriate in the public interest, for the protection of 
investors, or otherwise in furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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-BatsEDGX-2016-21 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-BatsEDGX-2016-21. This 
file number should be included on the subject line if email is used. To 
help the

[[Page 39984]]

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 such filing will also 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-BatsEDGX-2016-21 and should 
be submitted on or before July 11, 2016.
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    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-14446 Filed 6-17-16; 8:45 am]
 BILLING CODE 8011-01-P
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