Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Affiliated Entities, 48864-48869 [2016-17586]
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48864
Federal Register / Vol. 81, No. 143 / Tuesday, July 26, 2016 / Notices
requirement would not be inconsistent
with the Exchange’s obligations under
the Exchange Act to prevent fraudulent
or manipulative acts and practices
because Exchange member
organizations are subject to the same
supervisory requirements as FINRA
member firms, including an annual
certification requirement regarding
compliance and supervisory processes
set forth in Rule 3130. To the extent the
Exchange has proposed changes that
differ from the FINRA version of the
Exchange rules, such changes are
generally technical in nature and do not
change the substance of the proposed
rules. The Exchange also believes that
the proposed conforming changes will
update and add specificity to the
Exchange’s rules, which will promote
just and equitable principles of trade
and help to protect investors.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
In accordance with Section 6(b)(8) of
the Act,26 the Exchange does not believe
that the proposed rule changes will
impose any burden on competition that
is not necessary or appropriate in
furtherance of the purposes of the Act.
The proposed rule changes are not
intended to address competitive issues
but rather to achieve greater
transparency and consistency between
the Exchange’s rules and FINRA’s
requirements concerning payments to
unregistered persons, the effect of
suspensions, revocations, cancellations,
bars or other disqualifications, and
research analyst annual attestation
requirements.
srobinson on DSK5SPTVN1PROD with NOTICES
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 27 and Rule
19b–4(f)(6) thereunder.28 Because the
proposed rule change does not: (i)
Significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)(iii)
thereunder.
A proposed rule change filed under
Rule 19b–4(f)(6) 29 normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b4(f)(6)(iii),30 the Commission
may designate a shorter time if such
action is consistent with the protection
of investors and the public interest.
At any time within 60 days of the
filing of such 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. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 31 of the Act to
determine whether the proposed rule
change 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–
NYSE–2016–50 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSE–2016–50. 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
U.S.C. 78f(b)(8).
U.S.C. 78s(b)(3)(A)(iii).
28 17 CFR 240.19b–4(f)(6).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.32
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–17584 Filed 7–25–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78375; File No. SR–BX–
2016–034]
Self-Regulatory Organizations;
NASDAQ BX, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Relating to Affiliated
Entities
July 20, 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 July 8,
2016, NASDAQ 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.
26 15
29 17
32 17
27 15
30 17
1 15
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CFR 240.19b–4(f)(6).
CFR 240.19b–4(f)(6)(iii).
31 15 U.S.C. 78s(b)(2)(B).
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–NYSE–
2016–50 and should be submitted on or
before August 16, 2016.
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CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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Federal Register / Vol. 81, No. 143 / Tuesday, July 26, 2016 / Notices
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
Exchange’s transaction fees at chapter
XV to permit certain affiliated market
participants to aggregate eligible volume
to all pricing in chapter XV, section 2(1)
for which a volume threshold or volume
percentage is required to obtain the
pricing.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://nasdaqbx.cchwallstreet.com/,
at the principal office of the Exchange,
and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
srobinson on DSK5SPTVN1PROD with NOTICES
1. Purpose
The purpose of the proposed rule
change is to permit certain affiliated
market participants to aggregate volume
in chapter XV, section 2(1) for which a
volume threshold or volume percentage
is required to obtain the pricing and
qualify for various pricing incentives.
The Exchange’s proposal is intended to
incentivize Participants to submit for
execution a greater amount of order flow
on BX to obtain more advantageous
pricing.
Affiliated Entity
The Exchange proposes to add three
definitions to chapter XV of BX Options
Rules. The Exchange proposes to define
the terms ‘‘Appointed MM,’’
‘‘Appointed OFP’’ and ‘‘Affiliated
Entity.’’ The Exchange proposes to
define the term ‘‘Appointed MM’’ as a
BX Options Market Maker 3 who has
3 The term ‘‘BX Options Market Maker’’ or (‘‘M’’)
is 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
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been appointed by an Order Flow
Provider (‘‘OFP’’) for purposes of
qualifying as an Affiliated Entity. An
OFP means is a Participant that submits
orders, as agent or principal, to the
Exchange.4 The Exchange proposes to
define the term ‘‘Appointed OFP’’ as an
OFP who has been appointed by a BX
Options Market Maker for purposes of
qualifying as an Affiliated Entity. The
Exchange proposes to define the term
‘‘Affiliated Entity’’ as a relationship
between an Appointed MM and an
Appointed OFP for purposes of
aggregating eligible volume for pricing
in chapter XV, section 2(1) for which a
volume threshold or volume percentage
is required to qualify for higher rebates
or lower fees. In order to become an
Affiliated Entity, BX Options Market
Makers and OFPs will be required to
send an email to the Exchange to
appoint their counterpart, at least 3
business days prior to the last day of the
month to qualify for the next month.5
For example, with this proposal, market
participants may submit emails to the
Exchange to become Affiliated Entities
eligible to qualify for discounted pricing
starting August 1, 2016, provided the
emails are sent at least 3 business days
prior to the first business day of August
2016. The Exchange will acknowledge
receipt of the emails and specify the
date the Affiliated Entity is eligible for
applicable pricing in chapter XV,
section 2(1). Each Affiliated Entity
relationship will commence on the 1st
of a month and may not be terminated
prior to the end of any month. An
Affiliated Entity relationship will
terminate after a one (1) year period,
unless either party terminates earlier in
writing by sending an email to the
Exchange at least 3 business days prior
to the last day of the month to terminate
for the next month. Affiliated Entity
relationships must be renewed
annually. For example, if the start date
of the Affiliated Entity relationship is
August 1, 2016, the counterparties may
determine to commence a new
relationship as of August 1, 2017 by
sending two new emails by July 27,
2017 (3 business days prior to the end
of the month). Participants under
Participant must be registered as a BX Options
Market Maker in at least one security.
4 Market Makers submitting quotes to the
Exchange shall not be considered Appointed OFPs
for the purpose of becoming an Affiliated Entity.
5 The Exchange shall issue an Options Trader
Alert specifying the email address and details
required to apply to become an Affiliated Entity.
Once the Exchange receives both emails, from the
Affiliated [sic] MM and the Affiliated [sic] OFP, the
Exchange will send a confirming email with the
date of approval of the one (1) year term.
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Common Ownership 6 may not qualify
as a counterparty comprising an
Affiliated Entity. Each Participant may
qualify for only one (1) Affiliated Entity
relationship at any given time.
As proposed, an Affiliated Entity shall
be eligible to aggregate their volume for
purposes of qualifying for certain
pricing in chapter XV, section 2(1) for
which a volume threshold or volume
percentage is required to obtain a higher
rebate or lower fee. With this proposal,
Affiliated Entities will be eligible to tier
pricing in section 2(1) in both Penny
and Non-Penny Pilot Options.7
Chapter XV, Section 2(1)—Penny Pilot
and Non-Penny Pilot Options Pricing
Currently, the Exchange offers
Customers,8 when trading with NonCustomers,9 BX Options Market Makers
or Firms 10 the ability to obtain higher
Penny Pilot Options Rebates to Add
Liquidity in Penny Pilot Options Tiers
Schedule which exclude Select Symbols
(‘‘non-Select Symbols’’) with a tiered
pricing model.11 Also, the Exchange
offers Customers, when trading with
Customers, Non-Customers, BX Options
Market Makers or Firms the ability to
obtain higher Penny Pilot Options
Rebates to Remove Liquidity in nonSelect Symbols with a tiered pricing
model.12 Finally, the Exchange offers
BX Options Market Makers, when
trading with Customers the ability to
obtain lower Penny Pilot Options Fees
to Remove Liquidity in non-Select
Symbols with a tiered pricing model. 13
This pricing is reflected at chapter XV,
section 2(1) and would be subject to
aggregation by Affiliated Entities.
The Exchange offers Customers, when
trading with Non-Customers, BX
6 The term ‘‘Common Ownership’’ means
Participants under 75% common ownership or
control. See chapter XV. Participants that are under
75% common ownership or control shall be
considered under Common Ownership for purposes
of pricing.
7 See BX Rules at Section 2(1) of chapter XV.
8 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 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)).
9 A Non-Customer includes a Professional,
Broker-Dealer and Non-BX Options Market Maker.
10 The term ‘‘Firm’’ or (‘‘F’’) applies to any
transaction that is identified by a Participant for
clearing in the Firm range at The Options Clearing
Corporation.
11 The Penny Pilot Options Rebates to Add
Liquidity in non-Select Symbols ranges from $0.00
to $0.20 per contract.
12 The Penny Pilot Options Rebates to Remove
Liquidity in non-Select Symbols ranges from $0.00
to $0.35 per contract.
13 Penny Pilot Options Fees to Remove Liquidity
in non-Select Symbols ranges from $0.30 to $0.39
per contract.
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Federal Register / Vol. 81, No. 143 / Tuesday, July 26, 2016 / Notices
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Options Market Makers or Firms, the
ability to obtain higher Penny Pilot
Options Rebates to Add Liquidity in
Select Symbols 14 with a tiered pricing
model.15 The Exchange offers BX
Options Market Makers, when trading
with Customers, the ability to obtain a
lower Penny Pilot Options Fees to Add
Liquidity in Select Symbols with a
tiered pricing model.16 The Exchange
offers Customers, when trading with
Non-Customers, BX Options Market
Makers, Customers or Firms, the ability
to obtain higher Penny Pilot Options
Rebates to Remove Liquidity in Select
Symbols with a tiered pricing model.17
The Exchange offers BX Options Market
Makers, when trading with Customers,
the ability to obtain a lower Penny Pilot
Options Fees to Remove Liquidity in
Select Symbols with a tiered pricing
model.18 Finally, the Exchange offers
BX Options Market Makers, when
trading with Non-Customers, BX
Options Market Makers or Firms, the
ability to obtain lower Fees to Add
Liquidity in Select Symbols with a
tiered pricing model.19 This pricing is
reflected at chapter XV, section 2(1) and
would be subject to aggregation by
Affiliated Entities.
Currently, the Exchange offers
Customers, when trading with NonCustomers, BX Options Market Makers
or Firms, the ability to obtain higher
Non-Penny Pilot Options Rebates to
Add Liquidity with a tiered pricing
model.20 Also, the Exchange offers BX
Options Market Makers, when trading
with Customers, the ability to obtain
lower Non-Penny Pilot Options Fees to
Remove Liquidity with a tiered pricing
model.21 This pricing is reflected at
chapter XV, section 2(1) and would be
14 The Select Symbols are: ASHR, DIA, DXJ, EEM,
EFA, EWJ, EWT, EWW, EWY, EWZ, FAS, FAZ,
FXE, FXI, FXP, GDX, GLD, HYG, IWM, IYR, KRE,
OIH, QID, QLD, QQQ, RSX, SDS, SKF, SLV, SRS,
SSO, TBT, TLT, TNA, TZA, UNG, URE, USO, UUP,
UVXY, UYG, VXX, XHB, XLB, XLE, XLF, XLI, XLK,
XLP, XLU, XLV, XLY, XME, XOP, XRT. See BX
chapter XV, section 2(1) pricing.
15 Penny Pilot Options Rebates to Add Liquidity
in Select Symbols ranges from $0.00 to $0.25 per
contract.
16 Penny Pilot Options Fees to Add Liquidity in
Select Symbols ranges from $0.29 to $0.44 per
contract.
17 Penny Pilot Options Rebates to Remove
Liquidity in Select Symbols ranges from $0.00 to
$0.37 per contract.
18 Penny Pilot Options Fees to Remove Liquidity
in Select Symbols ranges from $0.25 to $0.42 per
contract.
19 Penny Pilot Options Fees to Add Liquidity in
Select Symbols ranges from $0.00 to $0.14 per
contract.
20 Non-Penny Pilot Options Rebates to Add
Liquidity ranges from $0.00 to $0.20 per contract.
21 Non-Penny Pilot Options Fees to Remove
Liquidity ranges from $0.60 to $0.89 per contract.
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subject to aggregation by Affiliated
Entities.
The pricing noted herein
demonstrates instances where the tiered
pricing would provide a higher rebate or
lower fee. In those cases where the
pricing is the same for all tiers, the
aggregation would not yield a higher
rebate or lower fee.
Currently, the Exchange also offers
Customers, when trading with NonCustomers, BX Options Market Makers,
Customers or Firms, the ability to obtain
higher Rebates to Remove Liquidity in
SPY Options in a tiered pricing model.22
This pricing is reflected at chapter XV,
section 2(1) and would be subject to
aggregation by Affiliated Entities.
The Exchange’s proposal would
incentivize certain Participants, who are
not by definition under Common
Ownership, to enter into an Affiliated
Entity relationship for the purpose of
aggregating Customer volume to qualify
for reduced Penny Pilot Options and
non-Penny Pilot Options fees and higher
Penny Pilot Options and non-Penny
Pilot Options rebates. With respect to
the pricing and the Affiliated Entity
relationship, Appointed MMs would
receive lower fees and Appointed OFPs
would receive higher rebates, as
applicable with this aggregated pricing.
2. Statutory Basis
The Exchange believes that its
proposal to amend its Pricing Schedule
is consistent with section 6(b) of the
Act,23 in general, and furthers the
objectives of section 6(b)(4) and (b)(5) of
the Act,24 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, while
adopting a series of steps to improve the
current market model, the Commission
highlighted the importance of market
forces in determining prices and SRO
revenues and, also, recognized that
current regulation of the market system
‘‘has been remarkably successful in
promoting market competition in its
22 The SPY rebate ranges from $0.10 to $0.51 per
contract.
23 15 U.S.C. 78f(b).
24 15 U.S.C. 78f(b)(4), (5).
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broader forms that are most important to
investors and listed companies.’’ 25
Likewise, in NetCoalition v. Securities
and Exchange Commission 26
(‘‘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.27 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.’’ 28
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’. . . .’’ 29 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 to amend
chapter XV, section 2 to add the
definitions of ‘‘Appointed MM,’’
‘‘Appointed OFP’’ and ‘‘Affiliated
Entity’’ is reasonable because the
Exchange is proposing to identify the
applicable market participants that may
qualify to aggregate volume as an
Affiliated Entity. Further the Exchange
seeks to make clear the manner in
which Participants may participate on
the Exchange as Affiliated Entities by
setting timeframes for communicating
agreements among market participants
and terms of early termination. The
Exchange also clearly states that no
Participant under Common Ownership
may become a counterparty to an
Affiliated Entity. Any Participant who
meets the definition of Common
Ownership shall not be eligible to
become an Affiliated Entity. The
Exchange believes that these terms are
reasonable because they would allow
25 Securities Exchange Act Release No. 51808
(June 29, 2005), 70 FR 37496 at 37499 (File No. S7–
10–04) (‘‘Regulation NMS Adopting Release’’).
26 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
2010).
27 See id. at 534–535.
28 See id. at 537.
29 See id. at 539 (quoting Securities Exchange Act
Commission at Release No. 59039 (December 2,
2008), 73 FR 74770 at 74782–74783 (December 9,
2008) (SR–NYSEArca–2006–21)).
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Federal Register / Vol. 81, No. 143 / Tuesday, July 26, 2016 / Notices
Participants to elect to become a
counterparty to an Affiliated Entity,
provided they are not under Common
Ownership.
The Exchange’s proposal to amend
chapter XV, section 2 to add the
definitions of ‘‘Appointed MM,’’
‘‘Appointed OFP’’ and ‘‘Affiliated
Entity’’ is equitable and not
unreasonably discriminatory because all
Participants that are not under Common
Ownership by definition may choose to
enter into an Affiliated Entity
relationship.
srobinson on DSK5SPTVN1PROD with NOTICES
Chapter XV, Section 2(1)—Penny Pilot
and Non-Penny Pilot Options Pricing
The Exchange’s proposal to permit
Affiliated Entities to aggregate volume
for purposes of qualifying Appointed
OFPs for higher Penny Pilot and NonPenny Pilot Options, including SPY,
rebates 30 and qualifying Appointed
MMs for lower fees 31 is reasonable
because it will attract additional
Customer and non-Customer order flow
to the Exchange. Customer liquidity
benefits all market participants by
providing more trading opportunities,
which attracts BX Options 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. Also, the Exchange is
incentivizing Participants to send nonCustomer order flow to BX, which order
flow will benefit all Participants
because they may interact with the
liquidity. Market participants directing
order flow as OFPs may be eligible to
qualify for higher rebates with this
proposal as a result of aggregating
volume with an Appointed MM and
thereby qualifying for higher rebates.
Permitting Participants to affiliate for
purposes of qualifying Appointed OFPs
for higher rebates and qualifying
Appointed MMs for lower fees may also
encourage Affiliated Entities to
incentivize each other to attract and
seek to execute more volume on BX. In
30 The Exchange would permit Affiliated Entities
to aggregate volume to obtain higher Penny Pilot
Options Rebates to Add Liquidity in non-Select
Symbols, Penny Pilot Options Rebates to Remove
Liquidity in non-Select Symbols, Penny Pilot
Options Rebates to Add Liquidity in Select
Symbols, Penny Pilot Options Rebates to Remove
Liquidity in Select Symbols and Non-Penny Pilot
Options Rebates to Add Liquidity.
31 The Exchange would permit Affiliated Entities
to aggregate volume to obtain lower Penny Pilot
Options Fees to Remove Liquidity in non-Select
Symbols, Penny Pilot Options Fees to Add
Liquidity in Select Symbols, Penny Pilot Options
Fees to Remove Liquidity in Select Symbols, Penny
Pilot Options Fees to Remove Liquidity in Select
Symbols and Non-Penny Pilot Options Fees to
Remove Liquidity.
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turn, market participants would benefit
from the increased liquidity with which
to interact and potentially tighter
spreads on orders. Overall, incentivizing
market participants with increased
opportunities to earn higher rebates or
lower fees may increase the quality of
the liquidity available on BX.
The Exchange’s proposal to permit
Affiliated Entities to aggregate volume
for purposes of qualifying Appointed
OFPs for higher Penny Pilot and NonPenny Pilot Options, including SPY,
rebates and qualifying Appointed MMs
for lower fees is equitable and not
unfairly discriminatory because all BX
Participants, other than those that meet
the definition of Common Ownership,
may elect to become an Affiliated Entity
as either an Appointed MM or an
Appointed OFP.32 Also, each BX
Participant may participate in only one
Affiliated Entity relationship at a given
time, which imposes a measure of
exclusivity among market participants,
allowing each party to rely on the
other’s executed volume on BX to
receive a corresponding benefit in terms
of a higher rebate or lower fee. Any
market participant that by definition is
not under Common Ownership may
elect to become a counterparty of an
Affiliated Entity. Also, BX Options
Market Makers are valuable market
participants that provide liquidity in the
marketplace and incur costs that other
market participants do not incur. BX
Options Market Makers are subject to
burdensome quoting obligations 33 to
the market that do not apply to other
market participants. Incentivizing these
market participants to execute volume
on BX may result in tighter spreads.
The Exchange’s proposal to exclude
Participants that are under Common
Ownership from qualifying as an
Affiliated Entity is reasonable because
Participants under Common Ownership
may aggregate volume today for
purposes of chapter XV, section 2(1)
pricing.34 The Exchange’s proposal to
32 Both Participants must elect each other to
qualify as an Affiliated Entity for one year.
Participation is effected by an agreement of both
parties. One party may elect to terminate the
agreement at any time.
33 Pursuant to BX Rules at chapter VII, section 5,
entitled ‘‘Obligations of Market Makers,’’ in
registering as a market maker, an Options
Participant commits himself to various obligations.
Transactions of a BX Options Market Maker must
constitute a course of dealings reasonably
calculated to contribute to the maintenance of a fair
and orderly market, and BX Options Market Makers
should not make bids or offers or enter into
transactions that are inconsistent with such course
of dealings. Further, all BX Options Market Makers
are designated as specialists on BX for all purposes
under the Act or rules thereunder. See chapter VII,
section 2.
34 See BX Rules at chapter XV for Common
Ownership.
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exclude Participants that by definition
are under Common Ownership from
qualifying as an Affiliated Entity is
equitable and not unfairly
discriminatory because the Exchange
will apply all qualifications in a
uniform manner when approving
Affiliated Entities. Excluding
Participants under Common Ownership
from also qualifying as an Affiliated
Entity is equitable and not unfairly
discriminatory because they are able to
aggregate volume today and qualify for
higher rebates or lower fees.
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
permitting Affiliated Entities to
aggregate volume to qualify for certain
rebates and reduced fees will impose
any undue 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
with the fee structures at other trading
platforms.
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
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Federal Register / Vol. 81, No. 143 / Tuesday, July 26, 2016 / Notices
burden on competition is extremely
limited.
In sum, 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. In terms of intermarket competition, the Exchange notes
that other options markets have similar
incentives in place to attract volume to
their markets.35
The Exchange’s proposal to amend
chapter XV, section 2 to add the
definitions of ‘‘Appointed MM,’’
‘‘Appointed OFP’’ and ‘‘Affiliated
Entity’’ does not impose an undue
burden on competition because these
definitions apply to all Participants
uniformly.
srobinson on DSK5SPTVN1PROD with NOTICES
Chapter XV, Section 2(1)—Penny Pilot
and Non-Penny Pilot Options Pricing
In terms of intra-market competition,
the Exchange does not believe that its
proposal to permit counterparties of an
Affiliated Entity to aggregate volume for
purposes of qualifying Appointed OFPs
for higher rebates, including SPY, and
qualifying Appointed MMs for lower
fees within chapter XV, section 2(1)
imposes an undue burden on intramarket competition because all BX
Participants, other than those under
Common Ownership, may become an
Affiliated Entity as either an Appointed
MM or an Appointed OFP. Also, each
BX Participant may participate in only
one Affiliated Entity relationship at a
given time, which imposes a measure of
exclusivity among market participants,
allowing each party to rely on the
other’s executed BX volume on BX to
receive a corresponding benefit in terms
of a higher rebate or lower fee. The
Exchange will apply all qualifications in
a uniform manner to all market
participants that elect to become
counterparties of an Affiliated Entity.
Any market participant that by
definition is a Participant under
Common Ownership may not become a
counterparty of an Affiliated Entity.
Also, BX Options Market Makers are
valuable market participants that
35 See NYSE MKT LLC’s (‘‘NYSE Amex’’) pricing
at NYSE Amex Options Fee Schedule). NYSE Amex
permits aggregation of volume to qualify for the
Amex Customer Engagement or ACE Program. See
Bats BZX Exchange, Inc.’s (‘‘BZX’’) fee schedule.
BZX permits aggregation of volume to qualify for
tiered pricing. See the Chicago Board Options
Exchange Incorporated (‘‘CBOE’’) Fees Schedule.
CBOE permits aggregation of volume to qualify for
credits available under an Affiliated Volume Plan
or ‘‘AVP.’’
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20:28 Jul 25, 2016
Jkt 238001
provide liquidity in the marketplace and
incur costs that other market
participants do not incur. BX Options
Market Makers are subject to
burdensome quoting obligations 36 to
the market that do not apply to other
market participants. Incentivizing these
market participants to execute volume
on BX may result in tighter spreads. 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.
Appointed OFPs directing order flow to
the Exchange may be eligible to qualify
for a higher rebate and Appointed MMs
may be eligible to qualify for lower fees,
with this proposal, as a result of
aggregating volume. Permitting
Participants to affiliate for purposes of
qualifying for chapter XV, section 2(1)
higher rebates or lower fees may also
encourage the counterparties that
comprise the Affiliated Entities to
incentivize each other to attract and
seek to execute more volume on BX.
The Exchange’s proposal to exclude
Participants that are under Common
Ownership from becoming an Affiliated
Entity does not impose and [sic] undue
burden on intra-market competition
because Participants under Common
Ownership may aggregate volume today
for purposes of qualifying for higher
rebates or lower fees.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to section
19(b)(3)(A)(ii) of the Act.37
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.
PO 00000
36 See
37 15
note 33 above.
U.S.C. 78s(b)(3)(A)(ii).
Frm 00133
Fmt 4703
Sfmt 4703
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–2016–034 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–BX–2016–034. 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–2016–034 and should
be submitted on or before August 16,
2016.
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Federal Register / Vol. 81, No. 143 / Tuesday, July 26, 2016 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.38
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–17586 Filed 7–25–16; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–78373; File No. SR–
NYSEArca–2016–97]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change Relating to the Listing
and Trading of Shares of PowerShares
Government Collateral Pledge Portfolio
Under NYSE Arca Equities Rule 8.600
July 20, 2016.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on July 6,
2016, NYSE Arca, Inc. (the ‘‘Exchange’’
or ‘‘NYSE Arca’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. 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 list and
trade shares of the following under
NYSE Arca Equities Rule 8.600
(‘‘Managed Fund Shares’’): PowerShares
Government Collateral Pledge Portfolio.
The proposed rule change is available
on the Exchange’s Web site at
www.nyse.com, at the principal office of
the Exchange, and at the Commission’s
Public Reference Room.
srobinson on DSK5SPTVN1PROD with NOTICES
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
self-regulatory organization 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 those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
VerDate Sep<11>2014
20:28 Jul 25, 2016
Jkt 238001
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
SECURITIES AND EXCHANGE
COMMISSION
38 17
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
The Exchange proposes to list and
trade shares (‘‘Shares’’) of the following
under NYSE Arca Equities Rule 8.600,4
which governs the listing and trading of
Managed Fund Shares: 5 PowerShares
Government Collateral Pledge Portfolio
(‘‘Fund’’). The Fund is a series of the
PowerShares Actively Managed
Exchange Traded Trust (the ‘‘Trust’’).6
Invesco PowerShares Capital
Management LLC is the investment
advisor for the Fund (‘‘Adviser’’).
Invesco Advisers, Inc. is the sub-adviser
for the Fund (‘‘Invesco’’ or ‘‘SubAdviser’’). The Bank of New York
Mellon (‘‘BNYM’’ or ‘‘Custodian’’) will
be the administrator, custodian and
transfer agent for the Fund. Invesco
4 The Commission has previously approved
listing and trading on the Exchange of actively
managed funds under Rule 8.600. See, e.g.,
Securities Exchange Act Release Nos. 57801 (May
8, 2008), 73 FR 27878 (May 14, 2008) (SR–
NYSEArca–2008–31) (order approving Exchange
listing and trading of twelve actively-managed
funds of the WisdomTree Trust); 66321 (February
3, 2012), 77 FR 6850 (February 9, 2012) (SR–
NYSEArca–2011–95) (order approving listing and
trading of PIMCO Total Return Exchange Traded
Fund); 66670 (March 28, 2012), 77 FR 20087 (April
3, 2012) (SR–NYSEArca–2012–09) (order approving
listing and trading of PIMCO Global Advantage
Inflation-Linked Bond Strategy Fund).
5 A Managed Fund Share is a security that
represents an interest in an investment company
registered under the Investment Company Act of
1940 (15 U.S.C. 80a–1) (‘‘1940 Act’’) organized as
an open-end investment company or similar entity
that invests in a portfolio of securities selected by
its investment adviser consistent with its
investment objectives and policies. In contrast, an
open-end investment company that issues
Investment Company Units, listed and traded on
the Exchange under NYSE Arca Equities Rule
5.2(j)(3), seeks to provide investment results that
correspond generally to the price and yield
performance of a specific foreign or domestic stock
index, fixed income securities index or combination
thereof.
6 The Trust is registered under the 1940 Act. On
May 20, 2016, the Trust filed with the Commission
an amendment to its registration statement on Form
N–1A under the Securities Act of 1933 (15 U.S.C.
77a) (‘‘Securities Act’’) and the 1940 Act relating to
the Fund (File Nos. 333–147622 and 811–22148)
(the ‘‘Registration Statement’’). The description of
the operation of the Trust and the Fund herein is
based, in part, on the Registration Statement. In
addition, the Commission has issued an order
granting certain exemptive relief to the Trust and
the Adviser (as defined below) under the 1940 Act.
See Investment Company Act Release No. 28171
(February 27, 2008) (File No. 812–13386)
(‘‘Exemptive Order’’). The Fund will be offered in
reliance upon the Exemptive Order issued to the
Trust and the Adviser.
PO 00000
Frm 00134
Fmt 4703
Sfmt 4703
48869
Distributors, Inc. will be the Fund’s
distributor (‘‘Distributor’’).
Commentary .06 to Rule 8.600
provides that, if the investment adviser
to the investment company issuing
Managed Fund Shares is affiliated with
a broker-dealer, such investment adviser
shall erect a ‘‘fire wall’’ between the
investment adviser and the brokerdealer with respect to access to
information concerning the composition
and/or changes to such investment
company portfolio.7 In addition,
Commentary .06 further requires that
personnel who make decisions on the
open-end fund’s portfolio composition
must be subject to procedures designed
to prevent the use and dissemination of
material nonpublic information
regarding the open-end fund’s portfolio.
The Adviser and Sub-Adviser each is
not registered as a broker-dealer but is
affiliated with a broker-dealer. The
Adviser and Sub-Adviser each has
implemented and will maintain a fire
wall with respect to its affiliated brokerdealer regarding access to information
concerning the composition and/or
changes to the Fund’s portfolio. In the
event (a) the Adviser or Sub-Adviser
becomes registered as a broker-dealer or
newly affiliated with a broker-dealer, or
(b) any new adviser or sub-adviser
becomes registered as a broker-dealer or
newly affiliated with a broker-dealer, it
will implement a fire wall with respect
to its relevant personnel or such brokerdealer affiliate regarding access to
information concerning the composition
and/or changes to the portfolio, and will
be subject to procedures designed to
7 An investment adviser to an open-end fund is
required to be registered under the Investment
Advisers Act of 1940 (the ‘‘Advisers Act’’). As a
result, the Adviser and Sub-Adviser and their
related personnel are subject to the provisions of
Rule 204A–1 under the Advisers Act relating to
codes of ethics. This Rule requires investment
advisers to adopt a code of ethics that reflects the
fiduciary nature of the relationship to clients as
well as compliance with other applicable securities
laws. Accordingly, procedures designed to prevent
the communication and misuse of non-public
information by an investment adviser must be
consistent with Rule 204A–1 under the Advisers
Act. The Exchange represents that the Adviser and
its related personnel are subject to Investment
Advisers Act Rule 204A–1. In addition, Rule
206(4)–7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment
advice to clients unless such investment adviser has
(i) adopted and implemented written policies and
procedures reasonably designed to prevent
violation, by the investment adviser and its
supervised persons, of the Advisers Act and the
Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review
regarding the adequacy of the policies and
procedures established pursuant to subparagraph (i)
above and the effectiveness of their
implementation; and (iii) designated an individual
(who is a supervised person) responsible for
administering the policies and procedures adopted
under subparagraph (i) above.
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]]>Agencies
[Federal Register Volume 81, Number 143 (Tuesday, July 26, 2016)]
[Notices]
[Pages 48864-48869]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-17586]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-78375; File No. SR-BX-2016-034]
Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Relating to
Affiliated Entities
July 20, 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 July 8, 2016, NASDAQ 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.
---------------------------------------------------------------------------
[[Page 48865]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the Exchange's transaction fees at
chapter XV to permit certain affiliated market participants to
aggregate eligible volume to all pricing in chapter XV, section 2(1)
for which a volume threshold or volume percentage is required to obtain
the pricing.
The text of the proposed rule change is available on the Exchange's
Web site at https://nasdaqbx.cchwallstreet.com/, at the principal office
of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to permit certain
affiliated market participants to aggregate volume in chapter XV,
section 2(1) for which a volume threshold or volume percentage is
required to obtain the pricing and qualify for various pricing
incentives. The Exchange's proposal is intended to incentivize
Participants to submit for execution a greater amount of order flow on
BX to obtain more advantageous pricing.
Affiliated Entity
The Exchange proposes to add three definitions to chapter XV of BX
Options Rules. The Exchange proposes to define the terms ``Appointed
MM,'' ``Appointed OFP'' and ``Affiliated Entity.'' The Exchange
proposes to define the term ``Appointed MM'' as a BX Options Market
Maker \3\ who has been appointed by an Order Flow Provider (``OFP'')
for purposes of qualifying as an Affiliated Entity. An OFP means is a
Participant that submits orders, as agent or principal, to the
Exchange.\4\ The Exchange proposes to define the term ``Appointed OFP''
as an OFP who has been appointed by a BX Options Market Maker for
purposes of qualifying as an Affiliated Entity. The Exchange proposes
to define the term ``Affiliated Entity'' as a relationship between an
Appointed MM and an Appointed OFP for purposes of aggregating eligible
volume for pricing in chapter XV, section 2(1) for which a volume
threshold or volume percentage is required to qualify for higher
rebates or lower fees. In order to become an Affiliated Entity, BX
Options Market Makers and OFPs will be required to send an email to the
Exchange to appoint their counterpart, at least 3 business days prior
to the last day of the month to qualify for the next month.\5\ For
example, with this proposal, market participants may submit emails to
the Exchange to become Affiliated Entities eligible to qualify for
discounted pricing starting August 1, 2016, provided the emails are
sent at least 3 business days prior to the first business day of August
2016. The Exchange will acknowledge receipt of the emails and specify
the date the Affiliated Entity is eligible for applicable pricing in
chapter XV, section 2(1). Each Affiliated Entity relationship will
commence on the 1st of a month and may not be terminated prior to the
end of any month. An Affiliated Entity relationship will terminate
after a one (1) year period, unless either party terminates earlier in
writing by sending an email to the Exchange at least 3 business days
prior to the last day of the month to terminate for the next month.
Affiliated Entity relationships must be renewed annually. For example,
if the start date of the Affiliated Entity relationship is August 1,
2016, the counterparties may determine to commence a new relationship
as of August 1, 2017 by sending two new emails by July 27, 2017 (3
business days prior to the end of the month). Participants under Common
Ownership \6\ may not qualify as a counterparty comprising an
Affiliated Entity. Each Participant may qualify for only one (1)
Affiliated Entity relationship at any given time.
---------------------------------------------------------------------------
\3\ The term ``BX Options Market Maker'' or (``M'') is 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.
\4\ Market Makers submitting quotes to the Exchange shall not be
considered Appointed OFPs for the purpose of becoming an Affiliated
Entity.
\5\ The Exchange shall issue an Options Trader Alert specifying
the email address and details required to apply to become an
Affiliated Entity. Once the Exchange receives both emails, from the
Affiliated [sic] MM and the Affiliated [sic] OFP, the Exchange will
send a confirming email with the date of approval of the one (1)
year term.
\6\ The term ``Common Ownership'' means Participants under 75%
common ownership or control. See chapter XV. Participants that are
under 75% common ownership or control shall be considered under
Common Ownership for purposes of pricing.
---------------------------------------------------------------------------
As proposed, an Affiliated Entity shall be eligible to aggregate
their volume for purposes of qualifying for certain pricing in chapter
XV, section 2(1) for which a volume threshold or volume percentage is
required to obtain a higher rebate or lower fee. With this proposal,
Affiliated Entities will be eligible to tier pricing in section 2(1) in
both Penny and Non-Penny Pilot Options.\7\
---------------------------------------------------------------------------
\7\ See BX Rules at Section 2(1) of chapter XV.
---------------------------------------------------------------------------
Chapter XV, Section 2(1)--Penny Pilot and Non-Penny Pilot Options
Pricing
Currently, the Exchange offers Customers,\8\ when trading with Non-
Customers,\9\ BX Options Market Makers or Firms \10\ the ability to
obtain higher Penny Pilot Options Rebates to Add Liquidity in Penny
Pilot Options Tiers Schedule which exclude Select Symbols (``non-Select
Symbols'') with a tiered pricing model.\11\ Also, the Exchange offers
Customers, when trading with Customers, Non-Customers, BX Options
Market Makers or Firms the ability to obtain higher Penny Pilot Options
Rebates to Remove Liquidity in non-Select Symbols with a tiered pricing
model.\12\ Finally, the Exchange offers BX Options Market Makers, when
trading with Customers the ability to obtain lower Penny Pilot Options
Fees to Remove Liquidity in non-Select Symbols with a tiered pricing
model. \13\ This pricing is reflected at chapter XV, section 2(1) and
would be subject to aggregation by Affiliated Entities.
---------------------------------------------------------------------------
\8\ 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 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)).
\9\ A Non-Customer includes a Professional, Broker-Dealer and
Non-BX Options Market Maker.
\10\ The term ``Firm'' or (``F'') applies to any transaction
that is identified by a Participant for clearing in the Firm range
at The Options Clearing Corporation.
\11\ The Penny Pilot Options Rebates to Add Liquidity in non-
Select Symbols ranges from $0.00 to $0.20 per contract.
\12\ The Penny Pilot Options Rebates to Remove Liquidity in non-
Select Symbols ranges from $0.00 to $0.35 per contract.
\13\ Penny Pilot Options Fees to Remove Liquidity in non-Select
Symbols ranges from $0.30 to $0.39 per contract.
---------------------------------------------------------------------------
The Exchange offers Customers, when trading with Non-Customers, BX
[[Page 48866]]
Options Market Makers or Firms, the ability to obtain higher Penny
Pilot Options Rebates to Add Liquidity in Select Symbols \14\ with a
tiered pricing model.\15\ The Exchange offers BX Options Market Makers,
when trading with Customers, the ability to obtain a lower Penny Pilot
Options Fees to Add Liquidity in Select Symbols with a tiered pricing
model.\16\ The Exchange offers Customers, when trading with Non-
Customers, BX Options Market Makers, Customers or Firms, the ability to
obtain higher Penny Pilot Options Rebates to Remove Liquidity in Select
Symbols with a tiered pricing model.\17\ The Exchange offers BX Options
Market Makers, when trading with Customers, the ability to obtain a
lower Penny Pilot Options Fees to Remove Liquidity in Select Symbols
with a tiered pricing model.\18\ Finally, the Exchange offers BX
Options Market Makers, when trading with Non-Customers, BX Options
Market Makers or Firms, the ability to obtain lower Fees to Add
Liquidity in Select Symbols with a tiered pricing model.\19\ This
pricing is reflected at chapter XV, section 2(1) and would be subject
to aggregation by Affiliated Entities.
---------------------------------------------------------------------------
\14\ The Select Symbols are: ASHR, DIA, DXJ, EEM, EFA, EWJ, EWT,
EWW, EWY, EWZ, FAS, FAZ, FXE, FXI, FXP, GDX, GLD, HYG, IWM, IYR,
KRE, OIH, QID, QLD, QQQ, RSX, SDS, SKF, SLV, SRS, SSO, TBT, TLT,
TNA, TZA, UNG, URE, USO, UUP, UVXY, UYG, VXX, XHB, XLB, XLE, XLF,
XLI, XLK, XLP, XLU, XLV, XLY, XME, XOP, XRT. See BX chapter XV,
section 2(1) pricing.
\15\ Penny Pilot Options Rebates to Add Liquidity in Select
Symbols ranges from $0.00 to $0.25 per contract.
\16\ Penny Pilot Options Fees to Add Liquidity in Select Symbols
ranges from $0.29 to $0.44 per contract.
\17\ Penny Pilot Options Rebates to Remove Liquidity in Select
Symbols ranges from $0.00 to $0.37 per contract.
\18\ Penny Pilot Options Fees to Remove Liquidity in Select
Symbols ranges from $0.25 to $0.42 per contract.
\19\ Penny Pilot Options Fees to Add Liquidity in Select Symbols
ranges from $0.00 to $0.14 per contract.
---------------------------------------------------------------------------
Currently, the Exchange offers Customers, when trading with Non-
Customers, BX Options Market Makers or Firms, the ability to obtain
higher Non-Penny Pilot Options Rebates to Add Liquidity with a tiered
pricing model.\20\ Also, the Exchange offers BX Options Market Makers,
when trading with Customers, the ability to obtain lower Non-Penny
Pilot Options Fees to Remove Liquidity with a tiered pricing model.\21\
This pricing is reflected at chapter XV, section 2(1) and would be
subject to aggregation by Affiliated Entities.
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\20\ Non-Penny Pilot Options Rebates to Add Liquidity ranges
from $0.00 to $0.20 per contract.
\21\ Non-Penny Pilot Options Fees to Remove Liquidity ranges
from $0.60 to $0.89 per contract.
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The pricing noted herein demonstrates instances where the tiered
pricing would provide a higher rebate or lower fee. In those cases
where the pricing is the same for all tiers, the aggregation would not
yield a higher rebate or lower fee.
Currently, the Exchange also offers Customers, when trading with
Non-Customers, BX Options Market Makers, Customers or Firms, the
ability to obtain higher Rebates to Remove Liquidity in SPY Options in
a tiered pricing model.\22\ This pricing is reflected at chapter XV,
section 2(1) and would be subject to aggregation by Affiliated
Entities.
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\22\ The SPY rebate ranges from $0.10 to $0.51 per contract.
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The Exchange's proposal would incentivize certain Participants, who
are not by definition under Common Ownership, to enter into an
Affiliated Entity relationship for the purpose of aggregating Customer
volume to qualify for reduced Penny Pilot Options and non-Penny Pilot
Options fees and higher Penny Pilot Options and non-Penny Pilot Options
rebates. With respect to the pricing and the Affiliated Entity
relationship, Appointed MMs would receive lower fees and Appointed OFPs
would receive higher rebates, as applicable with this aggregated
pricing.
2. Statutory Basis
The Exchange believes that its proposal to amend its Pricing
Schedule is consistent with section 6(b) of the Act,\23\ in general,
and furthers the objectives of section 6(b)(4) and (b)(5) of the
Act,\24\ 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.
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\23\ 15 U.S.C. 78f(b).
\24\ 15 U.S.C. 78f(b)(4), (5).
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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, while adopting a series of steps to improve the current market
model, the Commission highlighted the importance of market forces in
determining prices and SRO revenues and, also, recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \25\
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\25\ Securities Exchange Act Release No. 51808 (June 29, 2005),
70 FR 37496 at 37499 (File No. S7-10-04) (``Regulation NMS Adopting
Release'').
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Likewise, in NetCoalition v. Securities and Exchange Commission
\26\ (``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.\27\ 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.'' \28\
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\26\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\27\ See id. at 534-535.
\28\ See id. at 537.
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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'. . . .'' \29\ 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.
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\29\ See id. at 539 (quoting Securities Exchange Act Commission
at Release No. 59039 (December 2, 2008), 73 FR 74770 at 74782-74783
(December 9, 2008) (SR-NYSEArca-2006-21)).
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The Exchange's proposal to amend chapter XV, section 2 to add the
definitions of ``Appointed MM,'' ``Appointed OFP'' and ``Affiliated
Entity'' is reasonable because the Exchange is proposing to identify
the applicable market participants that may qualify to aggregate volume
as an Affiliated Entity. Further the Exchange seeks to make clear the
manner in which Participants may participate on the Exchange as
Affiliated Entities by setting timeframes for communicating agreements
among market participants and terms of early termination. The Exchange
also clearly states that no Participant under Common Ownership may
become a counterparty to an Affiliated Entity. Any Participant who
meets the definition of Common Ownership shall not be eligible to
become an Affiliated Entity. The Exchange believes that these terms are
reasonable because they would allow
[[Page 48867]]
Participants to elect to become a counterparty to an Affiliated Entity,
provided they are not under Common Ownership.
The Exchange's proposal to amend chapter XV, section 2 to add the
definitions of ``Appointed MM,'' ``Appointed OFP'' and ``Affiliated
Entity'' is equitable and not unreasonably discriminatory because all
Participants that are not under Common Ownership by definition may
choose to enter into an Affiliated Entity relationship.
Chapter XV, Section 2(1)--Penny Pilot and Non-Penny Pilot Options
Pricing
The Exchange's proposal to permit Affiliated Entities to aggregate
volume for purposes of qualifying Appointed OFPs for higher Penny Pilot
and Non-Penny Pilot Options, including SPY, rebates \30\ and qualifying
Appointed MMs for lower fees \31\ is reasonable because it will attract
additional Customer and non-Customer order flow to the Exchange.
Customer liquidity benefits all market participants by providing more
trading opportunities, which attracts BX Options 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.
Also, the Exchange is incentivizing Participants to send non-Customer
order flow to BX, which order flow will benefit all Participants
because they may interact with the liquidity. Market participants
directing order flow as OFPs may be eligible to qualify for higher
rebates with this proposal as a result of aggregating volume with an
Appointed MM and thereby qualifying for higher rebates. Permitting
Participants to affiliate for purposes of qualifying Appointed OFPs for
higher rebates and qualifying Appointed MMs for lower fees may also
encourage Affiliated Entities to incentivize each other to attract and
seek to execute more volume on BX. In turn, market participants would
benefit from the increased liquidity with which to interact and
potentially tighter spreads on orders. Overall, incentivizing market
participants with increased opportunities to earn higher rebates or
lower fees may increase the quality of the liquidity available on BX.
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\30\ The Exchange would permit Affiliated Entities to aggregate
volume to obtain higher Penny Pilot Options Rebates to Add Liquidity
in non-Select Symbols, Penny Pilot Options Rebates to Remove
Liquidity in non-Select Symbols, Penny Pilot Options Rebates to Add
Liquidity in Select Symbols, Penny Pilot Options Rebates to Remove
Liquidity in Select Symbols and Non-Penny Pilot Options Rebates to
Add Liquidity.
\31\ The Exchange would permit Affiliated Entities to aggregate
volume to obtain lower Penny Pilot Options Fees to Remove Liquidity
in non-Select Symbols, Penny Pilot Options Fees to Add Liquidity in
Select Symbols, Penny Pilot Options Fees to Remove Liquidity in
Select Symbols, Penny Pilot Options Fees to Remove Liquidity in
Select Symbols and Non-Penny Pilot Options Fees to Remove Liquidity.
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The Exchange's proposal to permit Affiliated Entities to aggregate
volume for purposes of qualifying Appointed OFPs for higher Penny Pilot
and Non-Penny Pilot Options, including SPY, rebates and qualifying
Appointed MMs for lower fees is equitable and not unfairly
discriminatory because all BX Participants, other than those that meet
the definition of Common Ownership, may elect to become an Affiliated
Entity as either an Appointed MM or an Appointed OFP.\32\ Also, each BX
Participant may participate in only one Affiliated Entity relationship
at a given time, which imposes a measure of exclusivity among market
participants, allowing each party to rely on the other's executed
volume on BX to receive a corresponding benefit in terms of a higher
rebate or lower fee. Any market participant that by definition is not
under Common Ownership may elect to become a counterparty of an
Affiliated Entity. Also, BX Options Market Makers are valuable market
participants that provide liquidity in the marketplace and incur costs
that other market participants do not incur. BX Options Market Makers
are subject to burdensome quoting obligations \33\ to the market that
do not apply to other market participants. Incentivizing these market
participants to execute volume on BX may result in tighter spreads.
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\32\ Both Participants must elect each other to qualify as an
Affiliated Entity for one year. Participation is effected by an
agreement of both parties. One party may elect to terminate the
agreement at any time.
\33\ Pursuant to BX Rules at chapter VII, section 5, entitled
``Obligations of Market Makers,'' in registering as a market maker,
an Options Participant commits himself to various obligations.
Transactions of a BX Options Market Maker must constitute a course
of dealings reasonably calculated to contribute to the maintenance
of a fair and orderly market, and BX Options Market Makers should
not make bids or offers or enter into transactions that are
inconsistent with such course of dealings. Further, all BX Options
Market Makers are designated as specialists on BX for all purposes
under the Act or rules thereunder. See chapter VII, section 2.
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The Exchange's proposal to exclude Participants that are under
Common Ownership from qualifying as an Affiliated Entity is reasonable
because Participants under Common Ownership may aggregate volume today
for purposes of chapter XV, section 2(1) pricing.\34\ The Exchange's
proposal to exclude Participants that by definition are under Common
Ownership from qualifying as an Affiliated Entity is equitable and not
unfairly discriminatory because the Exchange will apply all
qualifications in a uniform manner when approving Affiliated Entities.
Excluding Participants under Common Ownership from also qualifying as
an Affiliated Entity is equitable and not unfairly discriminatory
because they are able to aggregate volume today and qualify for higher
rebates or lower fees.
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\34\ See BX Rules at chapter XV for Common Ownership.
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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 permitting Affiliated Entities to aggregate volume to
qualify for certain rebates and reduced fees will impose any undue
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
with the fee structures at other trading platforms.
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
[[Page 48868]]
burden on competition is extremely limited.
In sum, 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.
In terms of inter-market competition, the Exchange notes that other
options markets have similar incentives in place to attract volume to
their markets.\35\
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\35\ See NYSE MKT LLC's (``NYSE Amex'') pricing at NYSE Amex
Options Fee Schedule). NYSE Amex permits aggregation of volume to
qualify for the Amex Customer Engagement or ACE Program. See Bats
BZX Exchange, Inc.'s (``BZX'') fee schedule. BZX permits aggregation
of volume to qualify for tiered pricing. See the Chicago Board
Options Exchange Incorporated (``CBOE'') Fees Schedule. CBOE permits
aggregation of volume to qualify for credits available under an
Affiliated Volume Plan or ``AVP.''
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The Exchange's proposal to amend chapter XV, section 2 to add the
definitions of ``Appointed MM,'' ``Appointed OFP'' and ``Affiliated
Entity'' does not impose an undue burden on competition because these
definitions apply to all Participants uniformly.
Chapter XV, Section 2(1)--Penny Pilot and Non-Penny Pilot Options
Pricing
In terms of intra-market competition, the Exchange does not believe
that its proposal to permit counterparties of an Affiliated Entity to
aggregate volume for purposes of qualifying Appointed OFPs for higher
rebates, including SPY, and qualifying Appointed MMs for lower fees
within chapter XV, section 2(1) imposes an undue burden on intra-market
competition because all BX Participants, other than those under Common
Ownership, may become an Affiliated Entity as either an Appointed MM or
an Appointed OFP. Also, each BX Participant may participate in only one
Affiliated Entity relationship at a given time, which imposes a measure
of exclusivity among market participants, allowing each party to rely
on the other's executed BX volume on BX to receive a corresponding
benefit in terms of a higher rebate or lower fee. The Exchange will
apply all qualifications in a uniform manner to all market participants
that elect to become counterparties of an Affiliated Entity. Any market
participant that by definition is a Participant under Common Ownership
may not become a counterparty of an Affiliated Entity. Also, BX Options
Market Makers are valuable market participants that provide liquidity
in the marketplace and incur costs that other market participants do
not incur. BX Options Market Makers are subject to burdensome quoting
obligations \36\ to the market that do not apply to other market
participants. Incentivizing these market participants to execute volume
on BX may result in tighter spreads. 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. Appointed OFPs directing order flow to the
Exchange may be eligible to qualify for a higher rebate and Appointed
MMs may be eligible to qualify for lower fees, with this proposal, as a
result of aggregating volume. Permitting Participants to affiliate for
purposes of qualifying for chapter XV, section 2(1) higher rebates or
lower fees may also encourage the counterparties that comprise the
Affiliated Entities to incentivize each other to attract and seek to
execute more volume on BX.
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\36\ See note 33 above.
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The Exchange's proposal to exclude Participants that are under
Common Ownership from becoming an Affiliated Entity does not impose and
[sic] undue burden on intra-market competition because Participants
under Common Ownership may aggregate volume today for purposes of
qualifying for higher rebates or lower fees.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to section
19(b)(3)(A)(ii) of the Act.\37\
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\37\ 15 U.S.C. 78s(b)(3)(A)(ii).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-BX-2016-034 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-BX-2016-034. 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-2016-034 and
should be submitted on or before August 16, 2016.
[[Page 48869]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\38\
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\38\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-17586 Filed 7-25-16; 8:45 am]
BILLING CODE 8011-01-P
